Getty Images
The old adage that families shouldn’t spend more than one-third of their income on housing is looking very old indeed.
A family earning the national median income of $97,800 needed at least 38% of that to cover mortgage payments on a median-priced new home in the third quarter of this year, according to the latest National Association of Home Builders/Wells Fargo Cost of Housing Index (CHI).
It was much worse for low-income families, defined as those earning only 50% of the median income. They would have to spend 75% of their earnings to pay for the same new home.
Although the figures are slightly lower than they were in the second quarter, that’s hardly a relief for many Americans.
In 10 out of 176 markets, the typical family is severely cost-burdened, defined as having to spend more than 50% of their income on a median-priced existing home. In 85 other markets, such families are cost-burdened—defined as needing to pay between 31% and 50%.
“A combination of stubbornly high mortgage rates and stubbornly high prices has put homeownership out of reach for a large majority of households along the costly coasts,” says Realtor.com® senior economist Ralph McLaughlin.
“California and the Northeast, in particular, are places where just a small share of households can afford to buy the median-priced home,” he adds.
Sunny is stormy when it comes to home affordability
The most cost-burdened markets are all in areas known for year-round sunny skies. And California takes up three spots.
“You either have to make a lot of money to live in California, or you have to have gotten into the market long ago to afford it,” says Los Angeles-based real estate investor Jameson Tyler Drew.
“To even start to consider a home [here], you have to have an income of almost $250,000 per year,” he says. “And that’s just to get yourself in the front door, so to speak.”
San Jose-Sunnyvale-Santa Clara, CA, takes the dubious crown of being the most severely cost-burdened market on the CHI, where 85% of a typical family’s income is needed to make a mortgage payment on an existing home.
This high Cost Housing Index reflected in the areas’ median home listing prices.
Sunnyvale‘s median is $1.79 million. San Jose and Santa Clara are $1.3 million. Honolulu, HI‘s urban center takes second place, with a CHI of 75% (median list price: $618,500.), and San Diego-Chula Vista-Carlsbad, CA, comes in third at 70% (median list price: $946,500).
San Francisco-Oakland-Berkeley, CA, is fourth at 68% (median list price: $1.2 million.), while Miami-Fort Lauderdale-Pompano Beach, FL, is fifth at 63% (median list price: $650,000).
These markets are even more unaffordable for low-income families, who would have to pay between 127% and 170% of their income to live in the top five cost-burdened markets.
The Midwest is best
Luckily, there are 81 markets where the Cost Housing Index is 30% of earnings or lower.
Here are the top five counties where the typical family can live most affordably. Three out of five are in the same state and have much lower home prices.
With a low median listing price of $134,170, Decatur, IL, comes out on top as the least cost-burdened market in the CHI, where a typical family need only spend 16% of its income to pay for a mortgage on an existing home.
Cumberland, MD-WV, follows closely behind at 18% (median list price: $144,900), and Springfield, IL, is also at 18% (median list price: $169,000).
Elmira, NY, is hot on their heels at 19% (median list price: $115,000), and Peoria, IL, ties at 19% (median list price: $129,630).
Even low-income families wouldn’t be too cost burdened in these markets. They would have to pay between 33% and 39% of their income to cover the mortgage payment for a median-priced existing home.
So it seems the old saying, “Go West, young man” might now be better expressed as, “Go Midwest, young family.”