Homebuyers scouting popular metropolitan areas on the West and East coasts could be in for sticker shock, according to a report by HSH.com, a mortgage tracking service.
Buyers would have to earn a bigger salary to afford a median-priced home in those areas than they would have at the beginning of the year, and this may just be the beginning of an upward trend, the report said.
Nine cities in the Northeast and along the Pacific coast, as well as Denver, are the least affordable areas in the country for homebuyers. The most affordable areas are in the U.S. heartland, mainly in “rust belt” cities.
The report showed that median home prices went up in the second quarter in 25 of the 27 metro areas studied, whereas only six metro areas had experienced home price rises of more than 1% in the first quarter. Mortgage rates dropped in every metro area.
The study found that salary demands for a median-priced home declined in only three of the metro areas studied.
Improving local job markets and record-low mortgage rates brought homebuyers out in force in many cities, Lawrence Yun, chief economist at the National Association of Realtors (NAR), said in a statement.
“However, with homebuilding activity still failing to keep up with demand and not enough current homeowners putting their homes up for sale, prices continued their strong ascent — and in my markets at a rate well above income growth,” Yun said.
HSH.com used second-quarter data for median home prices from the National Association of Realtors and its own second-quarter average interest rate for 30-year fixed-rate mortgages to calculate how much salary would be required to afford principal, interest, taxes and insurance in the 27 metro areas.
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It used standard 28% front-end debt ratios and a 20% down payment subtracted from the NAR’s median home price data to arrive at its figures. It factored in available information on property taxes and homeowner’s insurance costs to better reflect the income needed in a given market.
Following are the 10 least affordable metro areas for homebuyers in the second quarter, with changes from the previous quarter noted in parentheses:
10. Sacramento, California
Salary needed: $65,362.63 ($3,289.67)
Median home price: $323,700 (8.77%)
30-year fixed mortgage rate: 3.79% (-0.15%)
Monthly payment: $1,525.13
9. Portland, Oregon
Salary needed: $70,613.37 ($3,976.32)
Median home price: $356,700 (9.18%)
30-year fixed mortgage rate: 3.83% (-0.13%)
Monthly payment: $1,647.65
Salary needed: $72,847.39 ($2,660.76)
Median home price: $394,400 (6.88%)
30-year fixed mortgage rate: 3.75% (-0.19)
Monthly payment: $1,699.77
7. Washington, D.C.
Salary needed: $81,940.22 ($4,782.32)
Median home price: $406,900 (10.45%)