Median Income Americans Can’t Afford Median Homes in Most Metros

A median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, which is actually an improvement over last year despite the fact that home values are rising faster than income levels in most markets.  In 2013, the median-income household fell short in all but eight of the 25 metros.

Baltimore was the biggest gainer over the past year, jumping from 17th-most affordable in 2013 to sixth-most affordable in 2014. Minneapolis and Atlanta swapped the top two spots, with Minneapolis taking the crown this year, according to Interest.com.

Sacramento experienced the biggest drop in home affordability over the past 12 months, sinking from 12th to 18th in the ranking. But it’s still more affordable than the other three California metro areas on the list. Los Angeles (22nd), San Diego (24th) and San Francisco (25th) join New York City among the four least affordable markets.

Overall, median home prices rose six percent over the past year in the 25 metro areas, while incomes rose by about two percent. Contrary to most expectations, mortgage rates eased a bit, which provided homeowners with some relief.

“Low mortgage rates are helping home affordability to some extent, but the key ingredient – which has been missing to this point – is substantial income growth,” according to Mike Sante, managing editor of Interest.com. “Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment.”

The full rankings are available at:

Most Affordable Metropolitan Areas*

1. Minneapolis (+23%)

2. Atlanta (+22%)

3. St. Louis (+20%)

4. Detroit (+14%)

5. Pittsburgh (+13%)

 

Least Affordable Metropolitan Areas*

21. Miami (-26%)

22. Los Angeles (-32%)

23. New York (-32%)

24. San Diego (-38%)

25. San Francisco (-46%)

 

*Percentages reflect how much the median household income in a metropolitan area exceeds or falls short of the income required to purchase a median-priced home in that area

To determine each rating, Interest.com gathered the median home prices in the 25 largest U.S. metropolitan areas and calculated how much financing would be required for a buyer with a 20% down payment. Interest.com entered that amount and city-specific data on 30-year fixed-rate mortgage rates, median household income, median property taxes, average homeowners insurance costs and average household debt into the “Mortgage Qualification Calculator” on Interest.com. Finally, Interest.com divided the median household income for each city by the income required to finance the median-priced home.

Since it was created in 1994, Interest.com has been helping consumers make smart financial decisions. Interest.com’s stories, calculators and interest rate tables also appear on the websites of more than 100 newspapers in 31 states, including the Los Angeles Times, the Chicago Tribune and the Dallas Morning News.