Rising home prices and stagnant incomes are pushing homeownership beyond the reach of middle-class Americans in more cities, a new study found.
In 20 of the 100 largest metro areas, a majority of homes on the market are not affordable for middle-income buyers, according to a study by real estate research firm Trulia.
A home is considered affordable, by Trulia’s definition, if total monthly costs after a 20 percent down payment – including mortgage, insurance and property taxes – are less than 31 percent of a region’s median household income.
Rising home prices and interest rates, combined with modest wage increases, have chipped away at affordability over the past year, said Trulia Chief Economist Jed Kolko. Monthly payments for an average home cost 20 percent more than a year ago, he says.
“Affordability is worsening,” Kolko said. “Prices are still rising faster than wages and income.”
By historical standards, homes are still relatively affordable as the nation continues to recover from the 2007 housing crash. Nationally, home prices late last year were 20 percent above their 2011 nadir but 21 percent below their 2006 peak, according to CoreLogic Case-Shiller Indexes. Interest rates remain low. And buying is cheaper than renting in all of the 100 metro areas, Trulia’s study found.
But since May 2013, the share of affordable homes has declined in 98 of those markets. Only Rochester, New York, and Hartford, Connecticut, had slight increases.
Affordability varies widely across the United States. In the San Francisco area, just 14 percent of homes for sale are affordable for middle-class buyers, down from 20 percent a year ago. Even more telling: Just 44 percent of the technology hotbed’s sales inventory is within reach of average residents with graduate degrees, who typically have higher incomes.
Seven of the 10 least affordable markets are in California. Rounding out the bottom 10 are the New York City area, where 25 percent of for-sale homes affordable; Fairfield County, Connecticut, 37 percent; and Honolulu, 39 percent.
Several metro areas had particularly steep drops in affordability the past year. In Denver, the share of affordable homes tumbled to 50 percent from 67 percent. The portion dropped to 29 percent from 43 percent in Ventura County, California, and to 48 percent from 62 percent in San Antonio.
At the other end of the spectrum, five of the 10 most affordable areas are in Ohio. In Akron, 86 percent of homes for sale are affordable. In Gary, Indiana, 83 percent meet the criteria; in Columbia, South Carolina, 82 percent.
A big reason housing is expensive in many areas is a dearth of new home construction.
Land for development is limited and building regulations are onerous in parts of coastal California, South Florida and the Northeast, while property is more widely available in the Midwest and South, Kolko says.
Existing home inventories are also low in part because the foreclosure crisis has eased, thinning the stock of low-priced homes on the market.
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