Homes are truly affordable in only about half of major cities

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A median-income household can only afford a median-priced home in 14 of the nation’s 25 largest metropolitan areas

Atlanta, Detroit and Minneapolis-St. Paul are the most affordable cities, according to Interest.com’s first Home Affordability Study.

San Diego, New York and San Francisco are the least affordable.

With home prices down an average of 30% from their peak in 2006, and mortgage rates at record lows, there’s a lot of talk about how homes are more affordable now than they’ve been in decades.

In some places, that's true. But in many cities, it’s not.

Significant differences in median incomes, as well as critical costs such as property taxes and homeowners insurance, play a big role in determining whether the American dream of home ownership is truly within reach.

“Despite all of the talk about how homes are more affordable than they have been in decades, buying a home is still a big challenge for many American households,” says Mike Sante, managing editor of Interest.com.

“Dealing with rising expenses and stagnant wages is a struggle. Even after years of declining home prices and record-low mortgage rates, median-income households are unable to afford a median-priced home in nearly half of the metropolitan areas that we looked at.”

To get a clearer picture of how affordable housing really is, we created Interest.com’s Home Affordability Study. (Click here to see the results for all 25 cities.)

We wanted to know whether it was possible for a family making the median household income for each city to buy the median-priced home.

We gathered city-specific data on everything from median home prices and incomes, average property taxes and homeowners insurance premiums, as well as consumer debt and mortgage rates, from the most reliable sources we could find.

Data from the U.S. Census Bureau, National Association of Realtors, National Association of Insurance Commissioners and Experian, one of the three major credit reporting agencies, all contributed to the analysis.

We then used two of Interest.com’s online calculators to determine how much a family earning the median income in each city could afford to spend on a house and how much a family would have to earn to afford that city’s median priced home.

(You can use the same calculators to determine how much you can afford to borrow and how much you must make to afford any home.)

To make the results easy to understand, each city received an:

Affordability Grade, with a "C" indicating that someone making the median income can afford the median-priced home.

Paycheck Power Rating, which is the percent the median income exceeds or falls short of the income required for a median-priced home.

Cities With the Most Affordable Housing

City Affordability Grade Paycheck Power Rating
Detroit A 45.32%
Atlanta A 40.00%
Minneapolis-St. Paul A- 32.20%
Phoenix B+ 23.67%
St. Louis B+ 23.49%

With all those factors taken into account, the Interest.com study reveals a far more complicated picture than the simple “housing is a bargain” view you’ll find in much of the media.

Atlanta, for example, sits atop our rankings largely by virtue of its relatively low home prices. Its median sales price of $103,200 is well below the average of $229,516 for the 25 largest cities.

“Atlanta has always been a deal as far as home prices go,” says Mitch Kaminer, who’s sold real estate there for 18 years and is currently president of the Atlanta Board of Realtors. “Labor is cheaper. Builders can build houses a lot cheaper than they can in other parts of the country.”

Highest Income Cities

City Median Income
Washington, D.C. $86,680
San Francisco $71,975
Boston $69,455
Baltimore $65,463
Seattle $64,085

But Atlanta also benefits from having lower than average property taxes and insurance costs, along with a slightly above average median income.

All this means Atlanta earns an affordability grade of “A” and the best Paycheck Power Rating in the study. Its median income exceeds the income needed to buy a median-priced home by a whopping 40%.

Detroit is the other city to earn an “A,” but it represents a special, and especially sad, case.

The city’s score comes from its rock-bottom average home price of $60,200 — a number that reflects a vast supply of abandoned homes, as many as 90,000 by some estimates.

Minneapolis-St. Paul, which earns a grade of "A-" and a Paycheck Power Rating of 32%, illustrates how criteria other than the home price can make a big difference in how accessible housing is in different markets.

The Twin Cities' median home price is $70,000 more than Atlanta’s, but the region’s median household income of $63,352 is roughly 20% higher, too, which helps to compensate for the price disparity.

Lowest Home Prices

City Median Home Price
Detroit $60,200
Atlanta $103,200
St. Louis $131,700
Pittsburgh $132,000
Tampa $144,300

“We have a pretty good local economy,” says David Arbit, research manager for the Minneapolis Area Association of Realtors, explaining the city’s affluence. “We’ve got relatively low unemployment and a lot of high-tech and finance jobs.”

Minneapolis also enjoys lower than average property taxes, which can make a surprising difference when it comes to home affordability.

Home prices are just a little higher and income just a little lower in Milwaukee than in Minneapolis. But the Wisconsin city’s property taxes are nearly 47% higher.

Todd Berry, president of the Wisconsin Taxpayer Alliance, says the higher tax rate reflects how local government has long been funded in the state. “Ninety to 95% of all revenues comes from the property tax,” Berry explains. “We have no local income tax and only a small local option sales tax.”

As a result, Milwaukee earns a surprisingly low affordability grade of D+.

Cities With the Least Affordable Housing

City Affordability Grade Paycheck Power Rating
San Francisco F 32.76%
New York F 29.71%
San Diego F 25.90%
Miami D- 12.59%
Los Angeles D- 12.52%

San Diego, San Francisco and New York, which all earn grades of "F," illustrate the forces that have kept housing in some urban centers out of the reach of most Americans, despite one of the biggest real estate crashes in modern history.

All are on the coasts, naturally constrained by physical and political boundaries, and all are largely “built out,” meaning there is little room for expansion.

“We’re obviously a coastal city, and we’re a border city and, in addition, to the north of us is (Marine) Camp Pendleton,” explains Donna Sanfilippo, president of the San Diego Association of Realtors. “East is the only way we can expand. Because of the constraints of our geography, we’ve pretty much built on all of our land.”

Lowest Income Cities

City Median Income
Tampa $43,832
Miami $45,407
San Antonio $48,699
Pittsburgh $48,854
Detroit $48,968

The international nature of these cities also means they attract wealthy real estate investors from outside the country. San Diego is a popular retirement destination. These factors disconnect the local housing market from the local incomes.

“We’re seeing a lot of cash deals — 27% of all multiple listing service deals in our recent figures. Investors are coming back into the market. We’re seeing foreign investment,” says Sanfilippo. “Right now, we have the lowest amount of inventory on the market we’ve seen since 2009.”

San Francisco and New York both have household incomes above the national average, but the bigger paychecks aren’t enough to compensate for home prices that are among the highest in the country. San Francisco tops the list with an average price of $552,600.

Homeowners are also burdened with significantly steeper property taxes. New York’s taxes are more than three times the national average.

In contrast, Washington, D.C., has home prices comparable to New York’s, but the region’s greater prosperity — median household income is the highest in the nation — and reasonable property taxes allow the D.C. metro area to skate by with a gentleman’s "C+."

Highest Home Prices

City Median Home Price
San Francisco $552,600
San Diego $379,100
New York $377,600
Washington, D.C. $367,000
Boston $362,100

In all cases with these failing students, the Paycheck Power Rating is deeply in the red. In San Francisco, for example, the median income leaves you nearly 33% percent short of the paycheck you would need to be able to afford a median-priced home.

In San Diego, where average wages are lower, the Paycheck Power Rating is nearly as bad at 26%.

“A lot of San Diego jobs are service jobs, related to tourism, and those salaries are about $24,000 a year, and that obviously does not support home ownership,” acknowledges Sanfilippo.

That's exactly what the Center for Housing Policy has found in its studies.

"In many communities there is a fundamental disconnect between the income families have and the costs of buying a home," says Jeffrey Lubell, executive director of the Washington-based think tank.

"Falling house prices haven't solved the problem," Lubell says. "They've helped, but they haven't solved it."

Indeed, Lubell warns that with property values starting to rise around much of the country, "if you can't afford a home now, it's not going to get better. This is as good as it gets."