The housing market is now in the midst of a situation where buyers are unable to afford homes, regardless of cheaper prices. Falling home prices and low interest rates kept property cheap. However, due to the supposed recovery of the economy, housing prices and interest rates have begun to rise, while individuals still remain exceedingly poor.
A median-income household is unable to afford a mid-priced home in 16 of the countries largest cities, according to a report from Interest.com, which is a part of a finance site named Bankrate.
“The amount of money that people could afford to borrow or the size of the mortgage they could afford actually declined in all 25 cities,” said Mike Sante, managing editor of Interest.com.
Interest.com has defined the affordability by utilizing the 28% rule, which states homeowners should not spend more than 28% their gross income for housing costs. Such costs include mortgage payments, homeowners insurance and property taxes.
As of August of 2013, personal income rose by 3% in metro areas, which saw a 3.7 to 4.43% rise in fixed-mortgage rates. “People end up having to spend more of their income on housing costs,” Sante said. “When you start getting up where you are spending not 28%, but 38 to 40% of gross income, that’s when you start feeling house poor.”
While the usual suspects are the most expensive (New York, San Francisco, San Diego), the entire Bay Area has proved to be the most impossible to sustain in for the highest number of people. “It has, by far, the most expensive median home price in the country,” Sante said. “Someone in San Francisco can easily be spending twice as much of their income on housing than someone in Atlanta,” he added.
Atlanta is the most affordable large city to live in. The city holds low property taxes and lowered homeowners insurance, which both contribute to the affordability. The earning median within the city is $54,628 per year, which means they can afford a home costing $143,000, assuming 20% down payment.
Behind Atlanta areas are Minneapolis, St. Louis, Detroit, and Pittsburgh.
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