The Most (And Least) Affordable Cities In The United States, July-September 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 home prices have rendered U.S. homes more affordable than at any time in recent recorded history. Home affordability is high nationwide.
If you plan to buy a home in 2013, the best time to buy a home may be today.
Homeownership Costs Likely To Rise In 2014
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 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 the third quarter, HOI dropped to 64.5% -- its lowest reading since 2008.
Today's home buyers are likely not surprised.
Mortgage rates rose sharply last quarter after the Federal Reserve said it may begin a QE3 "taper". QE3 is the program by which the Federal Reserve buys mortgage bond in the open market which helps to suppress long-term mortgage rates.
Home prices rose, too, climbing 2% and capping a year in which values rose eight percent overall.
Rising mortgage rates and rising homes values -- which combined with stagnant employee wages -- rendered U.S homes less affordable to the typical U.S. household. Q3 2013 marked the third consecutive quarter during which home affordability fell.
As Q4 begins, mortgage rates have since retreated, shedding as much as a half-percent from this past summer's peak. Purchasing power is increasing and affordability may be climbing.
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 Q3 2013 is Kokomo, Indiana. An astounding 96.9 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 -- ranks second at 96.0%.
In the Big Market category, Indianapolis, Indiana took top honors with 93.3 percent of all homes affordable to families earning the area's median income of $65,100. Other ranking big cities included East Lansing, Michigan; Harrisburg, Pennsylvania; and Lakeland-Winter Haven, Florida.
Midwest cities tended to rank highly for home affordability, overall :
- Davenport, Iowa : 93.8 percent affordability
- Rockford, Illinois : 89.0 percent affordability
- Saginaw, Michigan : 88.6 percent affordability
- Cincinnati, Ohio : 84.2 percent affordability
- Duluth, Minnesota : 82.7 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 fourth straight quarter.
In San Francisco, where the median home sale price is $779,000 and the median household income tops $101,000, just 16.0 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 23.0 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. Historically, 4 percent mortgage rates are cheap and low rates are a big reason why home affordability -- although worsening -- 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 in 2014 and mortgage rates are, too. So, get a start on the process today. There's no cost to get a rate, and there's no obligation to proceed.