Middle-income families are unable to afford the median-priced home in just over half of the country’s 25 largest cities, and in the least affordable metropolitan areas, they aren’t even in the game.
Those are the results of Interest.com’s 2014 Home Affordability Study, an annual look at how the cost of buying a home stacks up against income and expenses in the nation’s metropolitan areas.
“The bottom line is that buying a decent home remains a difficult or unobtainable dream for Americans in too many of the nation’s largest cities,” says Mike Sante, Interest.com’s managing editor. “In those cities with the least affordable housing, the failure of paychecks to keep up with rapidly rising housing costs is reaching crisis proportions.
“In the least affordable cities, it’s not uncommon for families to spend 50% or 60% of their income on housing costs. I’ve even had San Franciscans tell me that they must devote 70% of what they make to keep a roof over their head — and they were renting. Owning is out of the question.”
Last year’s study found a dramatic shift in the housing market as prices, recovering from the depths of the real estate crash that accompanied the Great Recession, soared in many cities.
Nationally, they jumped by 12%, and the increase was even larger in the top 25 markets, with home prices rising 15%.
This year’s study found something resembling sanity returning to the market. Across the country, home prices were up just 4%, while in the 25 biggest cities they climbed 6%.
Yet incomes couldn’t come close to keeping up, rising just under 2% nationwide and just over 2% in the big cities.
“Affordability would improve at a faster pace if wage growth would pick up,” says Adam DeSanctis, economic issues media manager for the National Association of Realtors. “We’ve seen an improvement in job growth, but wages have remained somewhat static.”
To conduct our annual study, Interest.com gathers city-specific data on median home prices and incomes, average property taxes and insurance costs, as well as consumer debt and mortgage rates, from the most reliable sources we can find.
The U.S. Census Bureau, National Association of Realtors, National Association of Insurance Commissioners and Experian, one of the three major credit reporting agencies, all provide information.
We then use two of Interest.com’s online calculators to determine how much a family earning the median income in each city can afford to spend on a house and how much a family would have to earn to afford that city’s median-priced home.
(The median household income is one where half the households earn more and half earn less; the median home price is where half the homes sell for more and half sell for less.)