According to the latest National Association of Home Builders/Wells Fargo Cost of Housing Index (CHI), a family earning the national median income of $97,800 now needs to allocate at least 38% of that income for mortgage payments on a median-priced new home in the third quarter of this year.
The situation is even more dire for low-income families, those earning just 50% of the median income, who would need to spend a staggering 75% of their earnings to afford the same home.
Although these figures are slightly better than in the second quarter, the relief is minimal for many American households. In 10 out of 176 housing markets, families are severely cost-burdened, meaning they spend more than 50% of their income on a median-priced existing home. In 85 other markets, families are still cost-burdened, spending between 31% and 50% of their income on housing.
Realtor.com® senior economist Ralph McLaughlin attributes this to a combination of persistently high mortgage rates and home prices, making homeownership increasingly out of reach for many households, especially along the coasts. “California and the Northeast, in particular, are places where only a small portion of households can afford to buy a median-priced home,” McLaughlin explains.
Sun-soaked Markets Hit Hardest
Unsurprisingly, the most cost-burdened markets are all in areas known for their year-round sunny weather—and California dominates the list. “You either have to make a lot of money to live in California, or you need to have entered the housing market long ago,” says Los Angeles-based real estate investor Jameson Tyler Drew. “To even start considering buying a home, you need to have an income close to $250,000 per year. And that’s just to get your foot in the door.”
San Jose-Sunnyvale-Santa Clara, CA, tops the list as the most severely cost-burdened market, where a typical family must allocate 85% of their income to pay the mortgage on an existing home. This is reflected in the region’s sky-high median home listing prices—Sunnyvale’s median is $1.79 million, while San Jose and Santa Clara are priced at $1.3 million.
Honolulu, HI, comes in second place with a 75% CHI and a median list price of $618,500, while San Diego-Chula Vista-Carlsbad, CA, ranks third at 70%, with a median price of $946,500. San Francisco-Oakland-Berkeley, CA, follows at 68% (median price: $1.2 million), and Miami-Fort Lauderdale-Pompano Beach, FL, rounds out the top five at 63%, with a median list price of $650,000.
For low-income families, these markets are even less affordable, requiring them to spend between 127% and 170% of their income just to make mortgage payments on a median-priced home.
A More Affordable Midwest
On a more positive note, 81 markets across the country boast a Cost Housing Index of 30% or lower, making housing much more affordable. In fact, there are several areas in the Midwest where families can find significantly lower home prices and less financial strain.
Decatur, IL, ranks as the least cost-burdened market, where a typical family only needs to spend 16% of their income on a mortgage for an existing home. With a median listing price of just $134,170, Decatur is the most affordable market on the CHI. Cumberland, MD-WV, follows closely behind with an 18% CHI (median price: $144,900), while Springfield, IL, also comes in at 18% (median price: $169,000).
Elmira, NY, is right behind these markets at 19% (median price: $115,000), and Peoria, IL, ties at 19% (median price: $129,630). In these areas, even low-income families would not be overly burdened, needing to spend between 33% and 39% of their income on mortgage payments for a median-priced home.
So, while the old adage “Go West, young man” may have once been sound advice, today it may be better expressed as “Go Midwest, young family.
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