More than four out of five homes for sale in Detroit and Cleveland are within reach of the middle class, compared with one out of four in New York and Los Angeles and one out of seven in San Francisco. Middle-class affordability is worsening in expensive markets and won’t improve long-term without more construction.
Where can the middle class afford to buy a home today? Affordability has worsened in the past year, as home prices have climbed faster than incomes and mortgage rates have risen. But compared with the longer-term past, homeownership still looks relatively affordable: home prices are still undervalued and mortgage rates remain near historic lows. In most U.S. markets, the majority of homes for sale are within reach of the middle class, and buying is cheaper than renting in all of the 100 largest metros.
However, in many markets, especially along the coasts, homeownership is out of reach for the middle class. Even having a college degree is no guarantee that homeownership is within reach in the priciest markets. There’s no easy way to make housing more affordable, though new construction can help.
As in our inaugural middle-class affordability report, we calculated the share of for-sale homes on Trulia that are affordable to a middle-class household, based on whether the total monthly payment – mortgage, insurance, and property taxes – was less than 31% of the metro area’s median household income. (See note below.) Because we define “middle class” separately for each metro based on the local median household income, our affordability measure takes into account that a middle-class income is higher in some markets than in others.
For instance, for a middle-class family in the Denver metro area, where median household income is just under $62,500, homes priced under $325,000 are within reach based on the 31% guideline. Of the homes listed for sale in Denver on May 6, 2014, 50% cost less than that – which means that half of Denver homes are within reach of the middle class.0 comments
The typical middle-class household can afford more than 80% of the homes on the market across much of the Midwest but fewer than 30% in San Francisco, Orange County, Los Angeles, New York, and San Diego.
For the middle class today, homeownership is well within reach in some parts of the country, but in others, it’s more of a pipe dream than the American Dream. Even after taking income differences into account, homeownership affordability varies hugely across the country. Nationally, home prices still look a bit below their long-term average, and mortgage rates are far below their historical norms – which means that buying a home is still cheaper today than during the housing bubble. But this national average hides enormous differences in what the middle class can afford in each local market.
To assess middle-class affordability, we looked at all of the homes for sale across the U.S. through the eyes of the typical household in each metro area. For every for-sale home, we determined affordability based on whether the total monthly payment for that home was less than 31% of the metro’s median household income. (See note below.)
For instance, for a middle-class family in the Chicago metro area, where median household income is $58,911, homes under $254,000 are within reach based on the 31% guideline. Of homes listed for sale in Chicago, 73% are priced below that – which means that nearly three quarters of Chicago homes are “within reach” of the middle class. Remember: we’re defining the “middle class” separately for each metro based on the local median household income.1 comment