The New Economics of Homeownership
One of the biggest shifts happening in today’s real estate market is how buyers are thinking about affordability. A few years ago, low interest rates allowed buyers to focus primarily on purchase price. Today, however, the conversation has become much more centered around monthly carrying costs, cash flow, taxes, insurance, and how to structure ownership in a way that actually feels sustainable long term.
To put this into perspective, let’s look at a $1.5 million purchase in today’s Los Angeles market. With property taxes around 1.25%, taxes alone are approximately $1,563 per month, and homeowners insurance can easily add another $500 per month depending on the property. That means before even accounting for a mortgage payment, the baseline carrying cost is already around $2,063 per month. If someone’s goal is to keep their total all-in housing payment around $3,000 per month, there is only about $937 remaining available for principal and interest. At today’s rates, around 6.5% fixed on a 30-year mortgage, that supports a loan amount of only approximately $148,000. In practical terms, a buyer would need to put down roughly $1.35 million in cash just to achieve that payment target. The reality is there are no homes in Los Angeles selling for $148,000, which really puts into perspective how disconnected monthly affordability has become from actual home values in these major markets. Even at the $1.5 million price point — which in many Los Angeles neighborhoods now represents a fairly standard entry point for a good home — buyers are still having to think creatively about how to make the numbers work.
This really highlights how dramatically higher rates, taxes, and insurance costs have changed the affordability equation. Even buyers with substantial assets are beginning to rethink whether tying up that much capital into a single property makes the most financial sense.
Because of this, many buyers are now approaching homeownership very differently. Instead of purchasing a traditional single-family home and relying solely on a massive down payment to create affordability, they are increasingly gravitating toward duplexes, triplexes, homes with ADUs, guest houses, or other income-producing properties that can help offset the monthly carrying costs through rental income.
For example, on that same $1.5 million purchase, a buyer putting 10% down would have a loan amount of approximately $1.35 million. At today’s rates, the principal and interest payment would be roughly $8,500 per month, and once taxes and insurance are included, the total monthly payment would land somewhere around $10,600 per month. On paper, that number feels extremely high. However, if the property is capable of generating approximately $7,000 per month in rental income through additional units, guest houses, or ADUs, the effective net housing cost drops dramatically to somewhere closer to the mid-$3,000 range.
That shift in thinking is becoming increasingly common. Buyers are no longer just evaluating properties based on square footage or finishes — they are evaluating income potential, flexibility, and overall cash flow. In many cases, preserving liquidity and investment capital while allowing the property itself to help carry the payment is becoming a far more attractive strategy than deploying over a million dollars into a down payment simply to reduce the mortgage balance.
It’s a very different market than the one we experienced during the ultra-low-rate years, and buyers who adapt creatively are often finding opportunities that others overlook. Whether it’s an ADU, a duplex, a guest house setup, or simply structuring financing more strategically, the conversation around affordability today is evolving quickly.
As always, if you have questions about financing scenarios, investment properties, or creative ways to structure a purchase in today’s market, feel free to reach out.
