2016 Top 5 Most Unaffordable Cities In The United States

Dan Green
The Mortgage Reports contributor

Waiting For Home Prices To Drop?

It’s a great time to buy a home.

Despite home prices up close to 6% annually (for the second straight year), today's mortgage rates have stayed low, which has helped to keep homes otherwise affordable for buyers.

But what will happen through 2016 and into 2017? This year is expected to bring higher home prices around the country, and mortgage rates are unlikely to remain in the 3s.

Every 50 basis point (0.50%) increase in mortgage rates lowers your maximum home purchase price by 5 percent. So, first-time home buyers — and everyone else — you have a choice.

Should you wait out the market for another 12 months, and hope you’re in a better position to buy next year? Or, do you buy a home now, even though you may not be completely ready to do so?

It’s a question with no “right answer”, of course, but one things’s nearly certain — the best deals you find in housing may be the ones you find today. By this time next year, buying a home could be an expensive proposition.

Verify your new rate (Dec 4th, 2021)

Homeownership Costs To Rise Into 2017

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).

In last year’s fourth quarter, the Home Opportunity Index hit 63.3%, a 1-point rise from the quarter prior. However, this is only because mortgage rates remained low — and buyers are glad that they did.

Since the start of 2014, 30-year mortgage rates are down more than 80 basis points (0.80%), which has lowers a homeowner’s monthly mortgage payment $212 on a loan at the national mortgage loan limit of $417,000.

Falling rates and payments helps a borrower’s debt ratio requirements; and, can mean the difference being mortgage-qualified to purchase a home, and not.

When mortgage rates climb, though, affordability will be threatened. Analysts expect rates to end the year significantly higher than where they are today.

Home prices are expected to rise, too.

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Low-Downpayment Loans Help Today’s Buyers

Home prices are up close to six percent from last year. This affects a buyer’s potential monthly payment; and raises the down payment required to purchase a home.

It can be tough enough to scrape together a down payment — especially for buyers putting 20% down on a home. But, not everyone want to so that.

Thankfully, low- and no-downpayment loans remain readily available.

Home buyers can choose from among the Conventional 97 and the HomeReady™ home loan, each of which requires three percent down; the FHA loan, which requires 3.5% down; and the VA and USDA loans, which require zero money down.

The Conventional 97 mortgage is mostly used by buyers with better-than-average credit who are purchasing single-family homes to “live in”; and the 3% down HomeReady™ home loan is geared at buyers in lower-income census tracts.

Both programs, however, are limited to $417,000, so buyers in “high-cost cities” should consider either putting five percent down, or a different low-downpayment option.

One such option is the FHA loan, which allows for a downpayment of just 3.5% and allows buyers to finance any home which will be their primary residence, so long as the home is a single-unit (e.g.; a house, a town home, a condo) or a home of up to 4 units.

FHA loan limits are higher than what’s allowed by the Conventional 97 and HomeReady™, ranging up to $625,000.

Another option for buyers making a small downpayment is no-money-down VA loan. Available to buyers with military experience, the VA Home Loan Guaranty program never charges mortgage insurance and mortgage rates are typically the lowest of all loans available.

Lastly, note that there’s another no-money-down loan — the USDA loan —  available to buyers, but the program cannot be used in a “big city” markets. It’s use is relegated to buyers in the exurbs and in less densely-populated suburban neighborhoods.

Ask for these loans with any U.S. lender.

Verify your new rate (Dec 4th, 2021)

Live Somewhere Affordable/Unaffordable

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 homes along East Coast and West Coast are often least affordable.

It should be no surprise, then, that many of the Most Affordable U.S. Housing Markets are in the Midwest, spread throughout Ohio, Michigan, Iowa and Indiana.

Last quarter, the country’s most affordable small-ranked city was Binghamton, New York.

94.6 percent of homes in the upstate New York city were affordable to families earning the area’s median income of $66,400.

The Cumberland, Maryland area ranked second with an affordability index of 93.5.

Meanwhile, in the Big Market category, Syracuse, Ohio took top honors with 89.0 percent of all homes affordable to families earning the area’s median income of $68,500.

Syracuse was followed closely by other larger cities including Springfield, Illinois; Indianapolis, Indiana; and Wheeling, West Virginia.

Overall, the Midwest ranked highly for home affordability.

  • Kokomo, Indiana : 91.7 percent affordability
  • Battle Creek, Michigan : 90.7 percent affordability
  • Springfield, Ohio : 91.4 percent affordability
  • Lima, Ohio : 89.1 percent affordability
  • Duluth, Minnesota : 86.4 percent affordability

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

Prior to 2013, 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 11 of the last 12 quarters.

In San Francisco, where the median home sale price is $1,035,000 and the median household income tops $103,400, just 10.4 percent of homes were “affordable” to local home buyers.

Los Angeles – Long Beach – Glendale, California ranked second-worst for affordability at 14.9 percent.

Affordability in the New York metro area, which includes White Plains, New York and Wayne, New Jersey, was 22.0 — good for ninth worst nationwide.

The 8 least affordable cities were all in California.

What Are Today’s Mortgage Rates?

Home prices are rising and so are national rents. You may not be ready to buy a home today but, by next year, the the affordability of homes is expected to be worse.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Dec 4th, 2021)