10 cities where ordinary people can no longer afford homes
DUBLIN, CA - DECEMBER 04: A
sign advertising available homes is posted at a housing development on
December 4, 2013 in Dublin, California. According to a Commerce
Department report, sales of single family homes in the U.S. surged 25.4
percent in October, the larget gain in over 33 years. (Photo by Justin
Sullivan/Getty Images)
It now seems pretty clear that late 2012 or early 2013 was
the ideal time to purchase a home: Real-estate prices and interest rates
were both near record lows, creating an unprecedented buying
opportunity for those who could muster a down payment and qualify for a
mortgage.
Home affordability is still pretty good by
historical standards, but typical buyers are once again being priced out
in at least two dozen markets ranging from coastal hotspots to
lower-cost inland cities. Three factors are pushing the cost of owning a
home beyond the financial reach of ordinary families: Mortgage rates
are ticking upwward as the Federal Reserve backs away from the
super-easy monetary policy of the past five years. Home prices are
rising as the economy recovers. And incomes are barely budging, which
means typical families are once again falling behind as they try to bank
enough to buy a home.
We used data from research firm RealtyTrac to determine where housing affordability is deteriorating the most. At the top of the list is Salinas, Calif., where a median-priced home rose 40% from the end of 2012 to the end of 2013, to $388,000. When rising interest rates are factored in, the income required to purchase a typical home rose by a whopping 58%.
[Click here to check home loan rates in your area.]
The
problem with the most affordable cities is they tend to be less vibrant
than those where demand for housing is strong and prices are rising. So
while affordability may still be good in many cities, economic
opportunity may be lacking.
Meanwhile, the other big factor that determines whether families can buy a home — even if they may have the money for a down payment — is whether their credit rating is strong enough to qualify for a mortgage. Banks have been loosening up, and some have recently begun to lend to subprime borrowers for the first time since the housing bubble began to burst back in 2006. But for some borrowers, it’s a Catch-22: Lending standards are easing just as affordability is worsening. Some families that might have been able to afford a home a year ago can’t now, even if they’re more likely to qualify for a mortgage.
We used data from research firm RealtyTrac to determine where housing affordability is deteriorating the most. At the top of the list is Salinas, Calif., where a median-priced home rose 40% from the end of 2012 to the end of 2013, to $388,000. When rising interest rates are factored in, the income required to purchase a typical home rose by a whopping 58%.
[Click here to check home loan rates in your area.]
The
10 areas in the list below are ranked by the increase in income
required to buy a typical home from December 2012 to December 2013. We
also included RealtyTrac’s affordability-index rating for the county
each city is located in, to exclude cities in which required incomes
have risen but homes are still relatively cheap. (The affordability
index represents the median income per county as a percentage of the
required income for a typical home purchase, so cities with a rating
below 100 are less affordable while those above 100 are more
affordable). We also grouped cities in northern and southern California
into two entries, since there are so many of them. Here are the 10 areas
where home affordability is deteriorating the most:
Source: RealtyTrac
With
home prices rising nationwide by an average of about 11% in 2013, the
income required to buy a typical home rose in all but a handful of
cities. Still, affordability remains strong in the majority of markets,
says Daren Blomquist of RealtyTrac. Here are the 10 cities where
affordability has either improved during the past year, or barely
changed (affordability-index data isn’t available for every city):
Source: RealtyTrac
Meanwhile, the other big factor that determines whether families can buy a home — even if they may have the money for a down payment — is whether their credit rating is strong enough to qualify for a mortgage. Banks have been loosening up, and some have recently begun to lend to subprime borrowers for the first time since the housing bubble began to burst back in 2006. But for some borrowers, it’s a Catch-22: Lending standards are easing just as affordability is worsening. Some families that might have been able to afford a home a year ago can’t now, even if they’re more likely to qualify for a mortgage.
All of
these factors will determine whether the housing recovery continues or
peters out, which some economists are starting to worry about. While
2013 seemed to be a nice comeback year for housing after six years of
price declines, some analysts think it was illusory. “The housing price
gains in 2013 may have been a mirage,” writes Jeffrey Rosen, chief
economist at research firm Briefing.com. “First-time home buyers have
been effectively priced out of the market.”
Rosen believes a surge
of all-cash buyers — who are usually investors buying properties to
flip or rent — pushed up prices in 2013, a trend that could reverse
itself in 2014 as demand from investors wanes. If so, homes that have
drifted beyond the reach of first-time buyers could become more
affordable, not less. “Affordability conditions need to revert to where
they were in January 2013,” Rosen says.
If that happens, potential homeowners should make sure they don’t miss a historic buying opportunity twice.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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