First impressions: Analyzing our Home Affordability Study

House sitting on top of money

How affordable are the homes in your neighborhood?

If you live in San Diego, New York or San Francisco, perhaps you had to scrimp, save and cinch that belt ever tighter just to purchase your little corner of the American dream.

On the other hand, shoppers in Atlanta, Detroit and Minneapolis-St. Paul may have found the housing-boom-gone-bust allowed them to snag a gem of a home at a rock-bottom price.

Find the best mortgage rates in your area.'s first-ever Home Affordability Study recently rated the ability of a median-income household to buy a median-priced home in the top 25 markets of the country.

Now, we have Lei Ding, assistant professor of urban studies and planning at Wayne State University in Detroit; Andrea Heuson, professor in the finance department at the University of Miami; and Michael Lea, director of The Corky McMillin Center for Real Estate at San Diego State University, giving their thoughts on what the study found and how their local markets are faring today.

Find all home affordability grades here.

Home Affordability Analysis

1. What are your initial impressions of your city’s grade and rating?

Ding: It generally makes sense to me. But housing in the Detroit metro may not be as affordable as the measures suggest, due to the relatively higher nonhousing expenses not included in your methodology. [Detroit grade: A]

Heuson: I thought the quotes in the story from folks who live in San Diego could have been applied to Miami verbatim. I actually thought Miami would be less affordable, so I am kind of glad that we received a D- instead of an F.

Lea: It is the grade/rating I would expect. San Diego is one of the least-affordable cities, due to its high average house prices. [San Diego grade: F]

2. What do you believe is the greatest contributing factor to the grade/rating?

Ding: The very affordable housing price (due to the prevalence of distressed sales) and low interest rates contribute to the high affordability in Detroit.

Heuson: As demand to live full time or part time in Miami increases, older multifamily buildings close to the urban core or the tourist areas on Miami Beach are being torn down for land for luxury condos. Many of these (condos) are purchased by foreign investors. I would expect that an influx of investment by a specific cultural group (in our case, Brazilians and other Latin Americans) is another characteristic of cities with the poorest grades.

Lea: High land prices and regulatory costs are the major contributing factors to high house prices. There is little developable land left in San Diego, due to zoning and environmental regulations. In addition, developers must pay for infrastructure, which adds to the price of the house.

3. What important contributing factor(s) is not represented in the study?

Ding: It seems some expenses are not fully captured in the calculation of monthly debt payment: auto insurance (which is significantly higher in Michigan, especially in the city of Detroit); maintenance costs and utilities (which is generally higher in Detroit due to the relatively older housing stock and the long winter); and transportation costs (likely higher due to longer commuting time in the Detroit metro).

Heuson: As with San Diego, we have an economy dominated by tourism and other service industry employment, and a large immigrant population that may or may not be here legally. Their willingness to work for low wages keeps a lid on incomes at the lower end of the pay scale.

We also face a constrained supply of land for new housing, and even though homes on the suburban fringe are selling very cheaply, it is difficult to imagine low-income families moving out there because we are woefully short of good public transportation that moves people from where housing is more affordable to where the jobs in the tourist sector are. That is one thing I think you should try to incorporate into the study.

Lea: One must be careful not to infer too much from a city aggregate. There is great disparity in house prices across ZIP codes, with the highest prices on the coast and lower prices inland. Housing is more affordable inland than on the coast.

4. What impact do you think the Federal Reserve's decision to buy up billions in mortgage debt will have on the grades/ratings?

Ding: (The) Fed's policy should be able to help boost the demand for residential mortgage and housing. As a result, it should help stabilize or drive up housing prices. But (the) Fed also (is keeping) the interest rate at an extremely low level, which should help improve the affordability. So it's not easy to predict the overall effect of the Fed's policy on the grades/ratings.

Heuson: I don't think the Fed's decision will have much of an impact. Mortgage rates won't get any lower, so affordability is maxed out from a "cost of financing" standpoint now. Buyers want to return to the glory days of weak or no-credit screening and — hopefully — lenders won't go back there. I expect mortgage markets to loosen up a bit once the prices of existing homes show a sustained upward trend. Same with new housing starts. No matter how wealthy a borrower, no lender wants to make a loan on an asset where market value is falling. I guess the election will remove a big source of uncertainty, too, but I can't imagine it will make as big a difference as a recovery in the housing market will.

Lea: Very little. Low mortgage rates improve affordability, but underwriting constraints make it difficult to qualify.

Special thanks to Lei Ding, Andrea Heuson, Michael Lea and Wayne State University, University of Miami and San Diego State University, respectively, for contributing to this analysis.

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