Just what qualifies as an affordable home in America these days? Here is a breakdown on what that means and where they are from realtor.com.
What’s affordable for an investment banker might not be for a plumber (although have you seen what plumbers charge?), but of course what each could afford depends on whether he lives in New York City or Akron, OH. And let’s not talk about website editors in Silicon Valley. The point is, affordability is an endlessly complex subject that’s impossible to tackle without access to reams of data and a team of specialists to break it all down.
Oddly enough, we happen to have reams of data at our disposal—specifically, 1.6 million listings for new and existing homes for sale across the country in February—not to mention a team led by our chief economist, Jonathan Smoke. To understand what’s affordable, we imagined an American Everyfamily earning the national median income of $51,801; that’s the middle of the road, with 50% of households earning more and 50% earning less. Then we counted how many of those 1.6 million homes the Everyfamily could purchase, with a 20% down payment and a 30-year, fixed-rate mortgage (at an average rate for the market and no points). To qualify as affordable, a home couldn’t leave the Everyfamily with a monthly payment that exceeded 28% of their income.
What did we learn? It turns out that 54% of our listings in February for existing homes were within the reach of that median-income household.
“So far this year we are hearing from home shoppers that finding a home that meets their needs or budget is the biggest impediment to buying,” said Smoke. “The good news from this data is that more than half of the listings nationwide are by definition affordable. If affordability is a challenge, this tight market favors activity in the heartland, where markets have a high number of affordable homes.”
For the most part, those affordable homes were clustered in inland areas of the eastern half of the United States—in particular Illinois, Michigan, Indiana, and other Midwestern states—as well as pockets of Nevada, Utah, and Wyoming. (We based local market calculations on local market incomes.) In three localities—Guymon, OK; Fort Dodge, IA; and Brookings, SD—every home for sale in February met our standards for affordability. On the flip side, those without deep pockets shouldn’t even bother house hunting in the San Luis Obispo–Paso Robles area, in California’s Central Coast wine territory, where less than 4% of February’s listings were affordable.
Looking at the map above, you may see some light-blue patches surrounded by orange. Could these be oases of possibility where you could buy a home and still commute to your job in a higher-priced area? Well, not unless you enjoy epic commutes. The geographical units that we use (the government calls them Core Based Statistical Areas, or CBSAs) are defined by clusters where people live and work. People don’t tend to live in one cluster and work in another. Even on the East Coast, with its smaller CBSAs, the commute would be prohibitively long.
If your budget is limited, don’t set your heart on a newly built home. In February, our site had more than 7,700 actively selling new-home communities across the U.S., with almost 57,000 inventory homes available for sale. But by the same standards as above, only 21% of those new homes were affordable.
The bright spots for new-home markets were Fairmont, WV; Kennewick–Richland, WA; Saint Marys, GA; Santa Fe, NM; Spartanburg and Sumter, SC; Walla Walla, WA; and Whitewater–Elkhorn, WI. While we’re not really sure why all these markets stand out—we’ll follow up on that later—in Santa Fe, not typically a highly affordable community, builders are focused on creating affordable housing as well as targeting millennial buyers.
Affordability was measured at both the national and local market level where sufficient inventory data existed. For existing homes, the analysis extends to 915 metropolitan areas.
So if you want the best range of choices in affordable homes, head for the hills—or the plains.
Published by Cicely Wedgeworth on realtor.com.