Who Can Afford That?

Housing affordability in America is right around all-time lows.  The percent of median income needed to buy a median-priced home now far exceeding traditional affordability benchmarks.  According to this article from realtor.com, a typical U.S. household must devote nearly 45% of its pre-tax income to afford the mortgage payments, taxes, and insurance on a median-priced home. 

The median is the middle value in a data set, meaning, for home prices, it is the price at which half of homes sold for more and half sold for less.  The median is considered more robust than the average because it is less affected by extreme outliers, such as ultra-luxury or distressed sales, and therefore offers a clearer picture of the “typical” transaction in a housing market, better representing the central tendency in skewed markets.  That is not to say that this central tendency is perfect as it does not account for things like household size or evolving buyer preferences.  Nevertheless, it is a reasonable point estimate with which to start.

The article goes on to show some regional differences.  For instance, it lists Pittsburg, Detroit, and St. Louis as the only three metro areas in the nation where a home can be afforded within the often-recommended 30% threshold.  On the other side of the spectrum, Southern California is one of the least affordable places to live.  Take Los Angeles for instance; the median mortgage payment with taxes and insurance is 104.5% of the median income for the Los Angeles-Long Beach-Anaheim metro area.  Said differently, even if a median income household spent absolutely no other money each month, they could not afford the monthly mortgage. 

In today’s market, buying a home in some cities may require not just a mortgage, but a minor miracle.  While a few metro areas still offer a glimmer of affordability, for many, homeownership feels like a distant lighthouse: visible, but hard to reach.  It’s a reminder that the “American Dream” increasingly comes with fine print and fluctuating interest rates. Still, whether you’re renting, saving, or just browsing listings for fun, you’re not alone in wondering: W”ho can afford that?