It’s really hard for a middle class family to buy a house along the California coast.
Real estate research and marketplace site Zillow routinely calculates an index of housing affordability. First, they use a proprietary statistical model to estimate housing values in a metropolitan area. Then, they calculate the monthly mortgage payment for a median price house in each metro area. Finally, they calculate the percentage of the median monthly income for each metro area needed to pay that mortgage payment.
For example, Zillow’s estimate for the median home price in Abilene, TX during the first quarter of 2014 was $US98,600. After a 20% down payment, a homebuyer would need to take out a $US78,880 mortgage. Assuming a 30 year fixed rate mortgage at a 4.3% annual interest rate, this would lead to a monthly payment of about $US390, which we calculated using Bankrate’s mortgage calculator. Zillow’s estimate for the median annual income in Abilene is $US43,058, or a monthly income of about $US3,588. Finally, by dividing, we see that the $US390 mortgage payment is about 11% of that monthly income.
Here’s a map showing Zillow’s Q1 2014 housing affordability estimates in 285 of the nation’s largest metropolitan areas. Darker regions indicate larger proportions of a median income needed to pay a mortgage on a median value house. The four California cities in which a median mortgage payment is at least 40% of a median income are also indicated by name:
The ten least affordable metro areas are all in California. This table shows the per cent of median income needed to pay a mortgage on a median house for the ten least affordable areas:
Meanwhile, houses in some Midwestern and Southern cities are very affordable. Here are the cities where a median mortgage payment costs less than ten per cent of a median income:
Zillow’s research blog includes an interactive infographic, breaking down housing and rental affordability across the country.