-
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS
The most expensive housing markets in the US arent the only ones
at risk of an affordability crisis. As part of
our ongoing Affordability series, this document compares data on
housing prices and income to assess current
climate conditions in the least expensive metro areas, to better
understand how rapid renewal affects the ability of
average local families to enter the market. Touching on a
diverse range of trends and market conditions, this
introductory study sheds light on an often overlooked phenomena
that may have a larger effect on the housing
economy in years to come.
by Nicholas Brown
-
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS
INTRODUCTION
Affordability is a concern not only on the top end of the
housing market, but on the bottom as well . . . and not just for
the reasons youd imagine. Famously, in many of the largest and most
competitive cities, average house prices have outpaced the earnings
of median families considerably, forcing many people to continue
renting or move to less competitive markets. High priced markets
continue to appreciate value at a steady rate, mostly around 6.5 -
7 percent, leaving average buyers further behind as each year
passes. Meanwhile the least expensive markets are undervalued
considerably. Buying a home in many markets offers a considerable
advantage over renting price wise (upwards of 40% or more according
to Trulia). However, several of the least expensive metro areas in
the country are among those where properties are appreciating in
value most rapidly over the course of the past year. This is
especially true in several Rust Belt cities. The highest percentage
of appreciation in the nation over the course of 2013: Toledo,
Ohio, which grew a staggering 22.3 percent year over year.
While this growth in real dollar value may be miniscule compared
to a smaller percentage of growth in more expensive markets, if
this trend continues and wages remain slack, there is a
considerable risk that local median incomes will become priced out
of homeownership in the coming years, despite historically low
prices. At its current rate, Toledo is outpacing the amount its
median family has left over after living expenses by more than
double yearly. And while sustaining over-20 percent growth over the
long term in Toledo is unlikely, similar bursts in lower income,
lower price cities have a considerable impact on local aspiring
homeowners, exacerbating present concerns about poverty and
inequality.
The initial objective of this study was to shed some light on
how home appreciation affects the ability of median income houses
to keep up with growing markets. Finding an understanding of how
stagnant wages interact with real time changes in real estate is
key to expanding the conversation about how affordability affects
high and low value markets differently. Without adequate wage
growth to track home values, the potential for many longtime
residents to miss out on a keystone of an urban renaissance is
uncomfortably high.
FINDINGS Homeowners in the ten most expensive metros spend a
higher percentage of their income on housing than the ten least
expensive.
However, comparable housing appreciation growth affects median
buyers in the ten least expensive metro areas more than the ten
most expensive markets. Similar growth in housing prices cuts
further into the income percentage for less expensive markets.
This effect on median income buyers across the ten least
expensive makes their markets far more volatile. Changes in housing
prices have a deeper effect on the bottom line of lower-salary
prospective buyers, who pay more of their salary to get into a home
year-over-year (according to my calculations, a difference in ratio
of nearly double over prospectives in the high price markets).
Wide fluctuations in both gains and losses have substantial
effect on smaller, inexpensive market cities. While the most
expensive markets largely appreciate at a stable rate, the least
expensive experience wide gains and losses that threaten to price
buyers out or destroy the investment of homeowners accordingly.
JustRentToOwn.com is a Rent-To-Own Properties search engine and
the primary source for everything Rent-To-Own. We provide easily
searchable nationwide Lease-Option property listings to benefit
buyers and sellers alike.
888-250-7811 3435 Wilshire Blvd., Suite 2330Los Angeles, CA
90010
JustRentToOwn
-
ANALYSIS In the ten most expensive metro areas in the country,
buyers spend a higher percentage of their income on average than
people living in the ten least expensive. At current Q3 projections
for 2014, one years median household income in San Jose pays for
approximately 10.8 percent of a home, compared to 28.9 percent in
Youngstown, OH and nearly half of the total price of a home in
Rockford, Il. Considering that properties in San Jose average ten
times the market price of homes in Youngstown, this isnt entirely
unexpected.
Excluding metros like Denver, Atlanta, and Austin that are
exploding thanks in part to tech industry interest, downtown
renewal, and/or local resource extraction efforts, the highest
rates of appreciation year-to-year listed by the N.A.R. study are
largely coming from markets that are below the national
average--many far below. Much of this likely comes down to having
ample room to appreciate value in currently undervalued spaces,
along with concerted revitalization efforts in many parts of the
country hit hard by recession and de-industrialization. If current
housing price growth rates continue, the possibility that rapidly
rebounding Rust Belt cities will grow in price too quickly and
stress the average local income buyers capacity to purchase a home
comes into play.
Comparing a ratio of home price to median income from year to
year gives us an idea of the impact changes in appreciation have on
the potential buyers ability to purchase a home based on their
financial means. In San Francisco, where the average home price
jumped 7 percent to $744,400 this year, buyers who waited can
anticipate paying an additional $251 on their mortgage each month
(note: I am using 15 percent down payment, 30 years, and 3.55
percent APR as calculated by Zillows Mortgage Calculator as
standard terms for all examples). This amounts to approximately
three-thousand additional dollars yearly for the life of the loan.
An average home in South Bend, Indiana--a metro with comparable 6.8
percent appreciation--results in a $37 change monthly, or $444
yearly. And while this jump may seem paltry in comparison, when
household salary is compared to localized MITs Living Wage
Calculator, median San Franciscans average nearly $25K more in
earnings than basic cost of living, whereas individuals in South
Bend average less than a third of that (the Living Wage Calculator
accounts for base local housing prices in its estimates, acting as
a control. Additional costs borne from appreciation can be taken
directly from this windfall without scaling as a result for our
purposes). For a family whose earnings above basic survival needs
amount to about $7,000, a jump of four-hundred dollars carries
considerable magnitude. If the housing market in South Bend remains
strong, that is an estimated $400+ in additional mortgage payments
per year for each additional year a prospective home buyer waits to
enter the market. Small jumps on smaller earnings, over time,
create the type of downward force that prevents people from
entering the market. This keeps them in rental properties--where
they dont develop an investment or appreciate value--or prices them
out of the metro.
Median wage families looking to purchase a home in San
Francisco, its worth noting, are already priced out of both the
city and the greater Bay.
Another metric needs to be taken into consideration when
discussing lower cost markets covered in the N.A.R. study:
instability. The ten least expensive metros are marked by big
gains, big losses, and stagnancy in between. Toledo--appreciating
nearly a quarter in value over the course of the past year--is
growing at a rate that outshoots its median household income. Using
the MIT Living Wage calculator, the median income does not cover
costs for a family of two adults and two children and offers only
$538 above basic expenses for a family of two adults and one child.
The year over year growth in mortgage payments calculated from our
data set is more than double this tiny income window, adding $101
to monthly payments. On the other end of the spectrum, properties
in the
JustRentToOwn.com is a Rent-To-Own Properties search engine and
the primary source for everything Rent-To-Own. We provide easily
searchable nationwide Lease-Option property listings to benefit
buyers and sellers alike.
888-250-7811 3435 Wilshire Blvd., Suite 2330Los Angeles, CA
90010
JustRentToOwn
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS
-
Cumberland, Maryland metro--among the poorest metros in the
nation--lost 15.2 percent of their value. For current homeowners,
this is a substantial hit to their investment and one that may put
recent homebuyers underwater on their mortgages.
Wide fluctuations of this variety introduce a degree of
instability to cheaper markets, where substantial gains create a
gulf between current homeowners and renters entering the housing
market and substantial losses hurt local equity, demand, and the
hopes for stable development. Furthermore, because of lower overall
median incomes in less expensive markets, the comparison of home
price growth/loss to wages could cause gaps to widen faster. The
percentage of a total home price one years salary buys in South
Bend versus San Francisco shows more than double the impact on a
South Bend prospective buyers bottom line with comparable
appreciation year over year.
CONCLUSION
Currently, many of the most affordable of metros are technically
well within the range of the median local buyer, with home prices
well below rent rates and many major inexpensive cities like
Cleveland still seriously undervalued. But if this pace continues,
that time could be limited.
For buyers with higher incomes in more expensive markets, the
yearly difference in income-to-appreciation rate hovers at or below
1 percent for all steadily appreciating markets (aside from a
couple outliers, most markets growing at 7 percent). Higher
salaries cushion the blow to the bottom line of wealthier buyers,
even as many cities make outsized gains in appreciation. In a
market like San Francisco where middle class wages in the tech
industry, for example, greatly eclipse those of nearly all other
local industries allows for widespread cushioning against
staggering housing prices--even increasing demand. For the
traditional middle and even upper-middle class, theres little
opportunity to purchase a home within the metro. The likelihood
that a comparable event in actively redeveloping Rust Belt cities
that are attracting new residents could occur is not only strong,
it seems inevitable in
JustRentToOwn.com is a Rent-To-Own Properties search engine and
the primary source for everything Rent-To-Own. We provide easily
searchable nationwide Lease-Option property listings to benefit
buyers and sellers alike.
888-250-7811 3435 Wilshire Blvd., Suite 2330Los Angeles, CA
90010
JustRentToOwn
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS
-
some places. This feeds back into the cycles of poverty and
inequality that have plagued upper midwest industrial cities since
the rise of suburbanization.
Despite a surplus of available homes for sale in many markets,
the possibility that current homeowners and out-of-town
buyers/investors drive up the prices in these cities to the degree
that renters cant enter the market or even afford their rents
exists. (This is already beginning to occur in some Rust Belt
cities, namely Detroit where the transition from rubble porn to
gentrification is already occurring at an alarming rate). This
familiar cycle of rising prices--started first in major
metropolitan areas and now trickling into smaller 18 hour
cities--has been putting immense pressure on lower income
individuals across various markets already. With slow wage growth
plaguing the economic recovery in many areas, the possibility for
average middle class renters being priced out of property ownership
in inexpensive cities as well is all too real.
ADDITIONAL CONSIDERATIONS
Income distribution across all metro areas is uneven. This fact
is especially true in the most expensive markets, where the
percentage of top earners is considerably higher than in the lesser
markets (and top level earners make considerably more). Like any
income metric designed to give an overview of a population, the
median household income is also tied to the income of both
super-high and low earners, making a thorough overview of
individual market conditions difficult without individual scrutiny
of each metro. Taking ratios of high to low earners into
consideration with their earning power street by street and block
by block is an undertaking for another project.
JustRentToOwn.com is a Rent-To-Own Properties search engine and
the primary source for everything Rent-To-Own. We provide easily
searchable nationwide Lease-Option property listings to benefit
buyers and sellers alike.
888-250-7811 3435 Wilshire Blvd., Suite 2330Los Angeles, CA
90010
JustRentToOwn
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS
-
JustRentToOwn.com is a Rent-To-Own Properties search engine and
the primary source for everything Rent-To-Own. We provide easily
searchable nationwide Lease-Option property listings to benefit
buyers and sellers alike.
888-250-7811 3435 Wilshire Blvd., Suite 2330Los Angeles, CA
90010
JustRentToOwn
APPENDIX
Understanding the Appendix: %chya = % changed over a year (also
called value appreciation) Median Hous. Inc. = median household
income by Metro/County census 2009-2013$ Ratio = percentage of
total home price one years gross median household income covers~
Ratio % total income = change in home price-to-income ratio
METRO AREA 2013 III 2014 III %CHYA MEDIAN HOUS. INC.2013
$ RATIO2014
$ RATIO DIFF~ RATIO % TOTAL INCOME
San Jose, CA 805 860 6.8% 93500 11.6 10.8 0.8 748
San Francisco, CA 659.9 744.4 7.0% 75900 10.9 19.1 9.8 607.2
Anaheim-Santa Ana, CA 670.6 697 3.9% 75422 11.24 10.8 0.4
301.68
Honolulu, HI 679.8 677.6 -0.3% 72764 10.7 10.7 - -
San Diego, CA 485 517.8 6.8% 62962 12.9 12.1 0.8 503.7
White Plains, NY 483.3 489.9 1.4% 81946 16.9 16.7 0.2 163.89
Los Angeles, CA 448.9 481.9 7.3% 55909 12.4 11.6 0.8 447.27
Boulder, CO 410.9 439.9 7.1% 67956 16.5 15.4 1 679.56
Bridgeport-Stamford, Norwalk, CT 439 421.3 -4.0% 82283 18.7 19.5
0.8 -658.26
Nassua, NY 401.1 409.7 2.1% 97690 24.3 23.8 0.5 488.45
Youngstown, OH 84.6 84.5 -0.1% 24454 28.9 28.9 - -
Cumberland MD/WV 109.9 93.2 -15.2% 43188 39.2 46.3 -7.1
-1736.23
Rockford, IL 89.2 98.1 10% 47072 52 47.9 4.1 1929.95
Decatur, IL 91 101.9 12% 46559 51 45.6 5.4 2514.18
Toledo, OH 87.5 107 22.3% 3317 38 31.1 6.9 2298.87
Ocala, FL 103.6 108 4.2% 39453 38 36.5 1.5 591.79
Elmira, NY 116.1 110.4 -4.9% 48804 42 44.2 -2.2 -1073.68
South Bend-Mishawaka, IN 105.7 112.9 6.8% 44582 42.1 39.4 2.7
1203.71
Kankakee-Bradley, IN 115.2 115.9 0.6% 50102 43.4 43.2 0.2
100.2
Ft. Wayne, IN 116.7 116.6 -1.0% 49370 42.3 42.3 - -
10 L
EAST
EXP
ENSI
VE (I
N O
RDER
)
VALUE APPRECIATION MED. HOUS. INC = % HOME PRICE
10 M
OST
EXP
ENSV
E (IN
ORD
ER)
AFFORDABILITY: HOW EVEN THE CHEAPEST METROS COULD SOON OUTPACE
BUYERS