Housing Affordability Across the Country

by James SheaNovember 27, 2018

Home ownership is the American dream; everyone dreams of owning a home. A recent analysis by the U.S. Census Bureau found that roughly 74 million Americans own a home, or 53.5% of the population. But your ability to purchase a home often depends on where you live. There are places in the United States where the cost of homeownership is beyond the average person’s income. At the same time, there are other areas of the country where real estate prices have stagnated, and people are not building equity. In these cases, it often does not make sense to purchase a home.

Historically, the median price of a house in the United States has run between 2.5 and 5 times people’s median household income. At that price level, people will not put themselves in financial jeopardy and have a reasonable expectation that the mortgage payment can be made every month. In some areas of the country, however, there has started to be a disparity between medium incomes and housing prices. These high prices are particularly hard on first-time homebuyers who have no equity in a home and must bear the huge financial burden of high housing costs.

Downtown Miami

Midwest and South

For the most part, real estate prices in the Midwest and South are affordable and prices in the Northeast and West are less affordable. Within those regions, there can be huge differences between urban and rural areas. In particular, coastal communities are generally expensive places to buy a home, and rural areas with small populations are less expensive.

Miami, Florida, Charleston, South Carolina, Los Angeles, California, Honolulu, Hawaii, Seattle, Washington, and other places along the coastline have some of the most expensive real estate prices in the country. It’s extremely costly to buy a home in these locations. People pay a premium for nice weather, great scenery and access to the ocean. They are, however, not the only places in the country where real estate is expensive. Austin, Texas, Denver, Colorado, and Asheville, North Carolina are expensive places but are not located near the oceanfront.

“Although buying is still more affordable than renting in the majority of U.S. housing markets, that majority is shrinking as home price appreciation continues to outpace rental growth in most areas,” said Daren Blomquist, vice president at ATTOM Data Solutions.

San Jose, California is considered to be the most expensive place in the country to buy a home. Located in the heart of the technology revolution, San Jose had an average list price of $1.07 million.

“It’s incredible,” a Bay Area resident said, “the prices are just skyrocketing.”

The opposite is true of the Upper Midwest. Real estate in Cleveland, Ohio, Detroit, Michigan, and Milwaukee, Wisconsin is still relatively affordable. In Cleveland the average home was priced at $103,000, and the average wage is $55,367. With those averages, a person can afford to buy a home and not be financially stressed.

Downtown Detroit

Areas Still Not Gaining Value

Some places in the United States are considered too inexpensive. Homeowners have no ability to grow much equity in a home. Home equity is generally considered one of the best forms of wealth building in the United States, but real estate values are not increasing everywhere across the country. Places along the panhandle of Texas or the rural areas of the upper Midwest have seen very little real estate appreciation in recent years. In cities like Flint, Michigan and Danville, Illinois, the price to income ratio for housing is not conducive to growing home equity. In Flint, homes lost over 50% of their value when the housing crisis hit, and many homes have not recovered their value. The recent water crisis did not help matters, and a person could buy a home for under $25,000 in Flint.

“Anyone that bought their home in the early 2000s in Flint with a mortgage is still upside down on their house, and they aren’t able to move because they can’t sell it,” Rob Moen, an associate broker at Berkshire Hathaway HomeServices said.

Down Payment Requirements

Historically, homeowners were required to put 20% down for a mortgage, but the high cost of housing has brought alternative forms of financing. Around 70% of non-cash, first-time homebuyers made down payments of less than 20% over the past five years, according to the National Association of Realtors. The typical down payment for 60% of first-time homebuyers is 6% or less, according to NAR’s latest data. FHA loans require as little as 3.5%, and some conventional loans required as little as 3% down.

But in some areas where the market is competitive, the buyer has to bring more cash to the table, and that can create an affordability issue. San Francisco, Denver, and San Diego are extremely competitive and expensive places to buy a home. The average is an 18% down payment in San Francisco, and 63% were required to have premium credit.

Find a Balance

Some places are good locations to balance affordability and livability. SmartAsset gathered housing data for 64 US cities with a population over 300,000. Raleigh was rated the highest. Located in the Research Triangle in the Tar Heel state, it has a reasonable affordability and an average list price of $347,248Corpus Christi, Texas and Colorado Springs, Colorado were also on the list.

Land Use Regulation

Land use regulations can help control the affordability issues. In some areas with high housing costs, land use regulations have severely limited development. This has led to demand outstripping supply, and housing costs have increased drastically. States can encourage local governments to enact policies that encourage the construction of affordable housing, according to a recent report by the Brookings Institution.

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About The Author
James Shea
James Shea is an award-winning journalist and author. He owns Media Lab, a content marketing and search engine optimization company is Richmond, Virginia.