With home prices elevated and mortgage rates soaring, homes have become unaffordable for many prospective buyers, especially starter homes.
Point2, a real estate search web site, compiled a study of the affordability of starter homes in the 50 largest cities.
The study defines affordable homes as ones where the monthly mortgage payment represents no more than 30% of a renter’s median household income in the city.
Starter homes are ones that stand in the bottom third of the city’s price range of homes for sale.
The only cities where the median starter home price is affordable for renters are Detroit; Tulsa, Okla.; Memphis, Tenn.; and Oklahoma City, Okla.
The most unaffordable cities for starter homes are:
1. Los Angeles: Median renter income equals only 30% of the total needed to make a starter home affordable. Median starter home price (September): $682,000
2. New York City: 34%. Median starting home price: $544,000
3. Long Beach Cal.: 36%. Median starting home price: $562,000
4. Oakland: 37%. Median starting home price: $623,000
5. San Jose: 37%. Median starting home price: $933,000
6. Miami: 40%. Median starting home price: $357,000
7. San Diego: 40%. Median starting home price: $650,000
8. San Francisco: 40%. Median starting home price: $1,048,000
The only affordable cities for starter homes are:
1. Detroit: Median renter income equals 131% of the total needed to make a starter home affordable. Median starting home price: $48,000.
2. Tulsa: 119%. Median starting home price: $95,000
3. Memphis: 111%. Median starting home price: $87,000
4. Oklahoma City: 100.4%. Median starting home price: $126,000
Mortgage Rates
The surge in mortgage rates is playing a major role in making homes unaffordable. The 30-year fixed-rate mortgage averaged 6.94% in the week ended Oct. 20, more than double the year-earlier level of 3.09%, according to Freddie Mac.
“The 30-year fixed-rate mortgage … is adversely impacting the housing market in the form of declining demand,” said Sam Khater, Freddie Mac’s chief economist.
“Additionally, homebuilder confidence has dropped to half what it was just six months ago, and construction, particularly single-family residential construction, continues to slow down.”
Existing home sales fell 1.5% in September from August and 23.8% from the previous year, according to the National Realtors Association.
If you’re a prospective home buyer, you too might want to stay on the sidelines until mortgage rates retreat and home prices fall to reasonable levels. Of course, that may take a year or more. So you either have to be patient or pay up.
If you decide to rent, you may benefit from a recent decline in prices. The median asking rent in the top 50 cities dipped 0.7%, or $12, to $1,759 in September from August, according to Realtor.com.
