By Meghan Hall
With employment continuing to stay strong across most of the country, and certainly so in the economically active regions like the Bay Area and Puget Sound, one wonders if the salaries are rising fast enough to support what is often every working person’s highest monthly expense—housing. HSH.com, a publisher of mortgage and consumer loan information, has released a report analyzing the salary needed to buy a home in the United States’ 50 largest metropolitan areas. The report, published November 2017, indicates that the housing affordability crisis will continue to be a present issue across the U.S. as limited inventory will keep prices rising at a much faster clip than income.
HSH.com used third quarter data from the National Association of Realtors to determine how much prospective homeowners would need to make in order to afford the base cost of owning a home. The base cost of owning a home includes the principal monthly payment, interest, property taxes and homeowner’s insurance. HSH.com also analyzed debt ratios, median-home-price data, property taxes and homeowners’ insurance costs across individual markets to calculate their numbers.
HSH.com also determined that because housing prices outstrip income, sales growth will begin to decelerate. The report noted that the annualized pace of unit sales was 5.26 million in the first quarter of 2017, which was “relatively upbeat.” The annualized pace for sales in the third quarter of 2017 was 5.39 million, improving slightly, and a shade higher than last year’s 5.38 million but that rate is easing up.
According to HSH.com Senior Vice President Keith Gumbinger, the U.S. housing affordability crisis is unlikely to improve in the near future. “Strong job and population growth in certain markets and low mortgage rates are driving demand,” says Gumbinger. “In many markets, it’s not a simple or speedy task for builders to be able to add new inventory.”
San Jose is the most expensive metro in the United States to buy a home, according to the report. In San Jose, the median home price is $1.165 million, an increase of 16.5 percent since 2016 alone, while median salaries have increased by only 0.2 percent in the same period. In order to afford a median home in San Jose, the average homebuyer would need to make $216,181.25 per year. If the homebuyer could only afford a 10 percent down payment, the minimum salary requirement would jump to $255,689.08.
In San Francisco, both salaries and home prices rose at slower rates over the past year compared to San Jose, however the pace of recovery was faster in San Francisco following the recession. Salaries in the city only increased by 0.12 percent, and the average home price in San Francisco in 2017 was $900,000, up by 8.28 percent from last year. Home buyers would need to make $171,330.88 annually in order to buy a home with a 20 percent down payment. If the potential buyers only put down 10 percent, the required salary to purchase the home would be $203,581.18.
Gumbinger says that coastal cities will continue to have the most competitive markets. “Major California markets are quickly being joined by places like Seattle, Portland and Denver in terms of tight conditions and quickly rising prices crimping affordability,” says Gumbinger.
Seattle, which ranked seventh on HSH.com’s list, saw housing prices jump up 13.36 percent since 2016, while salaries only increased by 0.14 percent. Homebuyers in Seattle would need to make $93,418.01 to purchase a home in the area, and the number jumps up to $109,458.35 if the homebuyers only put down ten percent.
Nearby Portland ranked only a few spots behind Seattle as the tenth most expensive metro to buy a home. Portland saw similar increases in home prices and salaries to San Francisco. Home prices in the Portland area increased by 8.62 percent year-over-year, while salaries have increased by 0.11 percent. The salary needed to purchase a home in Portland with a 20 percent down payment is $76,883.89, with a 10 percent down payment the required salary is $89,971.21.
Of the 50 U.S. metros that HSH.com evaluated, Pittsburgh and Cleveland had the lowest salary requirements to purchase a home. Pittsburgh had the lowest salary requirement; home prices have increased by 4.29 percent year-over-year, and with a 20 percent down payment, home buyers in Pittsburgh would need to earn $35,205.49 annually to make that transaction possible. A 10 percent down payment would require homebuyers to earn $40,013.28 per year.
The salary requirement to purchase a home in Cleveland is only slightly higher than in Pittsburgh, where home prices have increased by 5.11 percent year-over-year. The salary needed to buy a home in Cleveland is $36,462.63 with a 20 percent down payment, just about $1,000 more than in Pittsburgh. The difference between the two cities is roughly the same when the home buyer puts down 10 percent; in Cleveland, a 10 percent down payment would require homebuyers to earn $41,256.14 per year.
HSH.com predicts that housing markets in the largest 50 U.S. metros will continue to be plagued by limited inventory, rising prices and slow wage growth. Median home price increases still exceed income increases in many parts of the country and will not improve unless the market experiences a significant increase in inventory.