U.S. home prices have finally surpassed pre-2008 bubble levels, effectively pricing out many middle-income young Americans and making it nearly impossible for them to buy a home in many metro areas. This is particularly alarming, as homeownership allows Americans to build equity and enhance ties to their communities. Evidence also shows that it generates well-documented social and economic benefits beyond individuals who participate in the housing market.
“Bolstering homeownership in a safe and sound way is not just about helping households secure financial stability, but may be the single most important factor in returning the United States to a path of robust economic growth,” said Ken Rosen, UC Berkeley’s Fisher Center for Real Estate & Urban Economics, who cautions against the current homeownership rate, the lowest in more than 50 years.
While homeownership has long been a fundamental part of the American Dream and remains so, optimism about the general economic climate has waned in recent years. Interestingly, Americans who reside in the Midwest and South are the most optimistic about delving into homeownership, while those in the West are the least positive, according to the most recently available Gallup figures. This leads to an interesting question: where are the most affordable metro areas to purchase homes? Opportunity Lives examined the numbers for buying and renting, and talked to the experts about the bottom line and what the ownership landscape looks like for middle-income millennials who have steady jobs and good careers (but find themselves priced out in many desirable places).
Here’s what the numbers show for 15 of the largest and most desirable metro areas across the United States:
Information gathered from the U.S. Census Bureau and put in a SmartAsset mortgage calculator provides a comprehensive look at where a median-priced home is the most affordable relative to metro areas with strong job markets. Bureau of Labor Statistics numbers also shows the relative economic health of metro areas. For comparison, the cost of renting is included for each city, based on figures from Apartment List.
Keep in mind that these home cost figures assume a 20 percent down payment and a 30-year mortgage, with a 4 percent interest rates based on current rates. The numbers also assume an annual home value increase of 2 percent and that buyers would have annual homeowners’ insurance of 0.5 percent, explained AJ Smith, the vice president of content for SmartAsset. They also take property taxes into account. “In terms of affordability, couples and families need to take a look and see if what’s being offered jives with what the family wants,” said Smith. “There are some metro areas that are still affordable areas to buy in.”
Metro areas in Texas are particular bright spots, boasting modern amenities that many millennials are looking for. Consider a recent Austin American Statesman report which covered the “Californication” of Austin. “A lot of people come out to California to try it and don’t stick, and then they go back out so there’s always been a lot of rotation through California,” explained Dowell Myers, a demographer with the University of Southern California and Population Dynamics Research Group. “The housing costs are a principle push factor for them to leave because they just can’t buy a house here. They are always being seduced by opportunities elsewhere. Then, their friends will show them pictures of the house they got [elsewhere] that has twice the space, so there is an allure of cheaper housing that draws a lot of people.”
The very word mortgage comes from a “Law French” phrase that was used by English lawyers in the Middle Ages. Its literal meaning is “death pledge.” Though, it’s more sinister than it sounds, as it refers to a pledge ending, or dying, when what is owed on a property is paid off or a property is taken through a foreclosure. What is clear from raw numbers is that metro cities in the South and Midwest are often more affordable in terms of buying and renting, boasting more square footage, lower mortgage payments, and lower unemployment numbers than many coastal states. It makes that mortgage far less of a death pledge and more of an affordable investment when no more than 30 percent of an income is being spent on housing costs.
Reut R. Cohen (@ReutRCohen) is a journalist, adjunct professor, and a communications specialist for the largest housing trade group in California. She can be reached at firstname.lastname@example.org.