Housing isn’t affordable for low-income earners in a third of major markets
If there’s a silver lining to the economic situation in Detroit, it’s that wealthier people aren’t getting a better deal on homes than anybody else.
Regardless of where you stand on the financial ladder, a mortgage payment in Detroit will run about 10 percent of your income, well below the national and historic average. So says a new study from the real estate experts at Zillow, which looked at mortgage affordability for low, middle, and high-income earners in 34 metro areas.
The low-income folks in Los Angeles have it far worse: More than three-quarters of their paycheck goes straight to the mortgage.
“The cost of housing exceeds 30 percent of the median income, the traditional rule for housing affordability, in about one-third of major markets for lower wage earners, and is above 50 percent in Los Angeles, San Jose, San Francisco, and San Diego,” the study concluded.
With mortgage rates still historically low, monthly payments are more affordable for the average American. But low-income earners are in a tight spot: Less expensive homes are available, but you have to have the money for a down payment ready to go so you can lock down a mortgage.
“We know that the least expensive homes are gaining value the fastest and are the most scarce, making it hard to find a home to buy even if you can afford one,” Zillow chief economist Svenja Gudell says. “From a high-level view, mortgage affordability looks pretty good across most of the country, but it’s not good for everyone.”
Among the other findings:
- Detroit, Pittsburgh, and St. Louis are the only metro areas where low-income earners pay less than the national median percentage of income (about 15 percent) on their mortgage
- Low-income earners are essentially priced out of buying a home in most large California markets, while Texas and Ohio are more attractive options
- Across the United States, low-income earners are spending almost 23 percent of their income on mortgage payments, while high-income earners are spending near 12 percent on mortgage payments.
Time to rent?
While home-buying is still relatively inexpensive, the lack of affordable homes for low-income families could explain why renting has gone up so dramatically in recent years. Last year, more than half of homeowners-turned-renters said they prefer renting, and one of the reasons is that renting was more affordable than home ownership.
Not everyone prefers to keep renting, but many have no choice. Owning a home doesn’t stop at mortgage payments. Between taxes, insurance, and miscellaneous home maintenance, renting could be much cheaper than owning while also giving you the flexibility to move to a better market.
Rents are still going up year over year and in some cities, you’ll need to earn six figures to afford the monthly payments. Last year, San Francisco renters needed more than a $216,000 annual salary to afford living in the city. In New York, you need to earn $158,229 a year. But on the flip side, you can live in Phoenix and Detroit for less than $50,000 a year — and start saving for a home.