Why 19 Percent is the New 43 Percent for Housing Affordability

If you spend more than 19 percent of your monthly household income on  housing you might be spending too much.

Think 19 percent sounds impossible? Read on.

That 19 percent is the average percent of monthly median income needed  to make monthly house payments — taking into account current interest rate on a  30-year fixed rate loan along with taxes and insurance — on a median-priced  home over the last 14 years in more than 2,000 U.S. counties analyzed by  RealtyTrac in its Q2  2014 Housing Affordability Report.

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Inherently Unaffordable

But if you’re one of the many living in a highly populated coastal  metro area like New York, Los Angeles, San Francisco or Boston you can expect  to fork out at least twice that 19 percent — and in some cases much more.

In Los Angeles County, 50 percent of median income is the historical  average needed to buy a median-priced home, while San Diego County’s percentage  of 45 percent might be almost considered a bargain compared to that. Both  Southern California counties are well below their Northern California  counterpart, San Francisco County, where historically 75 percent of median  income is needed to buy a median-priced home.

San Francisco County is the third least affordable market in the  country, slightly more affordable than Brooklyn and Manhattan in New York City,  which historically have required 78 percent and 79 percent of median income  respectively to buy a median-priced home.

Further north on the east coast, Suffolk County in the Boston metro  area has historically required 47 percent of median income to purchase a  median-priced home — well below the affordability percentages in New York City,  but still above the maximum 43  percent debt-to-income ratio set by the Consumer Financial Protection  Bureau earlier this year for qualified mortgages.

Highly Affordable

Despite these inherently unaffordable counties on the coasts, the overall  national affordability average is pulled lower by many rural counties in the  middle of the country where buying a home requires less than 10 percent of  income. The average population is less than 25,000 in the 123 counties where  buying a median-priced home on average over the last 14 years required less  than 10 percent of income.

These highly affordable markets are places like Alfalfa County and  Pushmataha counties in Oklahoma and Wahkiakum County in Washington state; you’ve  probably have never heard of them, and chances are if you don’t already live in  one of these markets you won’t be moving to any of them anytime soon.

But they are highly affordable.

Even many mid-sized or larger markets are quite affordable. Among  counties with a population of 100,000 or more, the average percent of income  required to purchase a median-priced home historically averages 22 percent.  Buyers historically spend less than 15 percent of median income to buy a  median-priced home in places like Wayne County, Mich. (Detroit), Marion County,  Ind. (Indianapolis), Erie County, N.Y. (Buffalo), Baltimore City, Md., and  Montgomery County, Ohio (Dayton).

Of course to take advantage of the great affordability you’ll actually  have to live in those places and find a job in those markets.

That might be tougher in markets with unemployment rates well above the  national average: places like Wayne County (7.7 percent unemployment rate) or  Baltimore City (9.0 percent unemployment rate). But it might be surprisingly  easy in markets with a rebounding economy where unemployment rates are below  the national average: places like Marion County (6.0 percent unemployment  rate), Erie County (5.9 percent unemployment rate) or Montgomery County (6.1  percent unemployment rate.

Affordable with Jobs

The absolute best markets for buyers or investors are those that are  highly affordable and also have rock-bottom unemployment rates. RealtyTrac  identified 66 counties with a population of 100,000 or more where the  historical affordability percentage was 20 percent or below and where the May  2014 unemployment rate was 5 percent or below.

Some of the counties in this “affordable with jobs” category were  Franklin County in the Columbus, Ohio, metro; Oklahoma County in the Oklahoma  City metro; Douglas County in the Omaha, Neb., metro area; Greenville County in  the Greenville, S.C., metro area; and Polk County in the Des Moines, Ia., metro  area.

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