The average New York resident needs more than two decades to save 10% for a home purchase, according to a consumer study.
That’s the staggering takeaway from a recent study published in the Journal of Consumer Research. The study found that home prices have climbed so much nationally that the median length of time it takes to save for a down payment across all 50 states is 13 years and seven months, the study concluded. "But in some states — including the entire Midwest — savers can achieve this milestone much faster."
Indeed, nine of the top 10 states where it takes the least time to save for a home are in the Midwest and the South.
New Yorkers would need 23 years, the researchers said, and only two states had longer waits: Montana (24 years) and California (25).
For their analysis, they looked at median household incomes, median home prices, the cost of living and tax burden figures from the U.S. Census Bureau, the U.S. Bureau of Economic Analysis and the Tax Foundation, a Washington, D.C., nonprofit. Researchers then calculated how much discretionary income a household would have after paying for necessities like food, clothing, insurance, transportation and more. They then compared that to 10% of the median home price from each state.
In New York, the median household income is $85,820, which leaves families with only $22,042 of discretionary income in a state where the median home price is $573,000, according to the study.
Iowa residents have the shortest wait because the Hawkeye State has the best combination of a more palatable cost of living and low home prices, according to the study. The median Iowa household income is $75,500, while the median home price is $247,400, according to the study.
"After taxes and essential expenses, a typical Iowan household is left with more than $28,000 of annual discretionary income," researchers said in the study. "If a family saves just a tenth of that each year, they’ll have enough for a 10% down payment on that median-price home in about eight years and nine months."
Ohio at nine years and 11 months, Texas at 10 years and three months, Maryland at 10 years and four months and North Dakota at 10 years and seven months — combined with Iowa — were the top five states where generating a down payment takes the shortest time, according to the study.
Homebuyers are often encouraged to spend 20% of a home purchase price for the mortgage down payment, in part because it then allows the buyer to avoid also paying private mortgage insurance. Researchers from the study however said they decided to run their calculations using 10% because an increasing number of homebuyers are not putting down 20%. The 10% "offers a more realistic target" and it reflects "what many buyers are already doing in today's market."