22Mar2014
Dan Green
Author
Dan Green
Filed Under
Real Estate Sales

What Are The Most (And Least) Affordable Cities In The United States

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Cities Where Homes Are Most/Least Affordable, Q4 2013

Are you hearing that it's "a great time to buy a home" from your REALTOR®? Based on the evidence, the old maxim may be right.

Lifetime-low mortgage rates and still-cheap homes have put homeownership within reach of more Americans than during any period in recent recorded history. Purchasing power is strong and home affordability high.

With home values rising and mortgage rates expected to do the same, though, if you plan to buy a home sometime soon, the best time to do it may be right now. Home affordability is expected to fall into 2015 and beyond.

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Homeownership Costs Expected To Rise Into 2015

Each quarter, the National Association of Homebuilders (NAHB) attempts to measure whether U.S. homes are "affordable" for the typical U.S. household.

The group measures median household incomes within 225 metropolitan areas nationwide and -- using average 30-year fixed rate mortgage rates -- determines whether these incomes can support the typical monthly housing cost.

The index is known as the Home Opportunity Index (HOI) and, in last year's fourth quarter, the home affordability index increased slightly to reach 64.7%. This is the second-worst reading since 2008. Historically, though, affordability remains high.

Buyers should not be surprised that their home-buying dollars go less far today. As compared to 12 months ago, mortgage rates were higher by one percentage point to close 2013 and home prices were higher by nearly 9 percent.

Rising mortgage rates and rising homes values -- combined with stagnating labor market wages -- affected the typical U.S home buyer's ability to buy a median-priced home.

One year ago, homes were affordable to nearly 75% of active U.S. buyers. Today, that figure is down to 64.7 percent.

As Q1 2014 begins, mortgage rates have since retreated, shedding as much as a quarter-percent from last December's peak. Purchasing power has increased and home affordability may be on the rise once more.

See today's live rates and get pre-approved.

Cities Where Homes Are Most (And Least) Affordable

For buyers in search of affordable homes, differentiation must be made for "big markets" and "small markets". 

Small markets are often more affordable than big markets; and housing along the East Coast and West Coast is often least affordable. It's no surprise, then, that five of the Top 10 Most Affordable U.S. Housing Markets are in the Midwest, spread throughout Ohio, Michigan, Iowa and Indiana.

The most affordable small-ranked city for Q4 2013 is Kokomo, Indiana. An astounding 96.3 percent of homes in the north-central Indiana city are affordable to families earning the area's median income of $60,100.

The Vineland-Millville-Bridgeton, New Jersey area -- located 40 miles inland from Atlantic City -- is the top non-Midwest city to make the list. It ranks fourth at 93.2%.

Meanwhile, in the Big Market category,  Youngstown, Ohio took top honors with 89.4 percent of all homes affordable to families earning the area's median income of $53,900, followed closely by other larger cities including Harrisburg, Pennsylvania; Syracuse, New York; and East Lansing, Michigan.

Midwest cities tended to rank highly for home affordability, overall. Select cities include:

  • Davenport, Iowa : 92.5 percent affordability
  • Battle Creek, Michigan : 89.2 percent affordability
  • Dayton, Ohio : 85.4 percent affordability
  • Wichita, Kansas : 85.2 percent affordability
  • Duluth, Minnesota : 84.4 percent affordability

On the opposite end of the affordability scale sits San Francisco, southern California and New York City.

Prior to last year, the New York metro region ranked last in home affordability for 18 straight quarters until losing its title of Least Affordable Market to San Francisco - San Mateo - Redwood City, California, which has now repeated as the Least Affordable City in America for the fifth straight quarter.

In San Francisco, where the median home sale price is $800,000 and the median household income tops $101,200, just 14.1 percent of homes were "affordable" to local home buyers.

By comparison, in the New York metro area -- a region which also includes White Plains, New York and Wayne, New Jersey -- homes were affordable for 23.4 percent of buyers.

A Home Buyer's Last Chance For Cheap Housing?

In 2007, the economy took a beat-down. Home prices sunk and, by 2013, mortgage rates had moved from the 7s to the 3s. Today, the 30-year fixed is in the low 4s. This is an historically cheap rates and low rates are a big reason why home affordability remains pretty excellent. 

If you plan to buy a home in 2014, then, consider moving up your time line. Beyond the cliché, it really is a good time to buy. Home prices are expected to rise this year and mortgage rates likely will, too.

Get a start on the process today. There's no cost to get a rate, there's no obligation to proceed, and no social security number is required to get started.

Click to get today's live rates.

About the Author

Dan Green is a mortgage market expert, providing over 10 years of direct-to-consumer advice. NMLS #1019791. You can also connect with Dan on Twitter and on Google+.

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