Today, Interest.com released its annual look at whether average Americans can actually afford the American dream of home ownership. The answer? Not really.
Home affordability is down in all 25 of the largest metropolitan areas in the United States. “We define home affordability as the ability of a median income household in each city, to afford the median priced home in that city,” explains Interest.com Managing Editor Mike Sante.
Each city is given a grade on an A to F scale. The highest grade awarded this year was a B+ with 13 cities receiving a D+ or lower. While every city saw a modest increase in median income – roughly 2% on average – the gains were overwhelmed by soaring home prices and an average 7% increase in the interest rate on a new mortgage. In other words, home prices are up, but the average income covers a smaller mortgage than it did a year ago.
At the bottom of the affordability pack is San Francisco, where a median-income household falls 47.9% short of being able to afford the median priced home. Sante says the west coast tech haven is “almost in a league of it’s own” when it comes to average folks being priced out of the market At $74,922 the median household income in San Francisco is among the highest in the country, and is even up 4% from a year ago. But median home prices rose 27.8% to $706,300 making it impossible for a median income family to buy a median priced home in this city.
The most affordable big city is Atlanta, but even there the trend isn’t encouraging, with its rating slipping to a B+ from an A last year. The median household income is $54,628, up 2.8% from last year, while the median home price of $143,300 rose a stunning 38.9%. When you factor in mortgage rates, property taxes and insurance, a median-income family in Atlanta can afford 24.9% more than the median home price in that city. That’s a nice cushion, but one that could easily be erased by another year of rising mortgage rates and home prices.
Sante notes that Atlanta fell particularly hard during the financial crisis and “what we are really seeing is a pretty strong rebound.” He added that in Atlanta, as elsewhere, the best time to buy may have passed six to 18 months ago when the economy was at a sweet spot of low mortgage rates and steady income growth.