Two American urban areas identified as economically viable for local homeownership, according to research findings.
A new study by Clever Real Estate has revealed that only two major U.S. cities, Detroit and Pittsburgh, are affordable for potential homeowners in the country's 50 largest metropolitan areas. This worrying trend points to deeper issues within the nation's housing system.
The study, which used a 20% down payment in its calculations, found that the median income in these two cities is high enough to support a median-priced home. Detroit's median home sales price is $195,000, and the median household income is $72,574, more than $12,000 above the threshold needed for a 20% down payment. Pittsburgh, on the other hand, has a median home sales price of $250,000 and a median household income of $72,532, about $1,300 more than the income needed to put down 20%.
The affordability findings are based on the standard of spending no more than 28% of one's gross monthly income on housing costs. However, a survey found that 53% of Gen Zers and millennials spend more than half of their monthly salary on their homes. Renting becomes the expectation in expanding job markets due to housing unaffordability, and the emotional attachment to owning a home tends to diminish.
Detroit and Pittsburgh are outliers compared to other major metro areas due to factors like lower cost of living, lower demand, and lower vacancy rates. These cities also benefit from high housing availability and vacancy rates, which provide more options and leverage for buyers. Pittsburgh, for example, ranks 14th nationally in housing availability.
Iowa is another example of an affordable city for homebuyers. The median household income in Iowa is $71,433, and the median home price is $239,000. This makes it relatively easy for workers to afford a home with a 20% down payment. Annual tax and insurance costs are low in Iowa, averaging $2,940 annually, and the state boasts below-average construction costs of $100-$160 per square foot, as well as more available land.
While home prices in these cities are low, buyers often need to weigh these savings against potential challenges like aging infrastructure or slower economic growth. However, their affordability rankings are driven by a combination of low prices, available housing stock, and market conditions conducive to buyers.
The unaffordability of housing impacts school quality, neighborhood safety, and upward mobility, changing the fabric of communities. Experts say that homeownership is one of the primary ways to build equity and generational wealth, but the inability to afford a home deepens the country's wealth gap.
In summary, a combination of low home prices relative to incomes, high housing availability, economic factors, and favorable buy vs. rent economics contribute to Detroit, Pittsburgh, and Iowa's status as some of the most affordable U.S. cities for homebuyers. This is a welcome development for those seeking affordable housing, but the trend is concerning for the long-term health of the housing market and the nation's economy.
References:
- Clever Real Estate Study
- Brookings Institution Report
- Zillow Home Price Index
- Bureau of Labor Statistics
- The affordability of homes in cities like Detroit and Pittsburgh, as revealed by the Clever Real Estate Study, is a result of factors such as lower cost of living, lower demand, and higher housing availability.
- Although Iowa's median home price is lower compared to many other cities, its lower annual tax and insurance costs, below-average construction costs, and abundant land make it relatively easy for workers to afford a home with a 20% down payment.
- Despite the affordability of housing in these cities, potential buyers may need to consider potential challenges such as aging infrastructure or slower economic growth before investing in property.
- The unaffordability of housing in many major U.S. cities is a pressing issue, impacting school quality, neighborhood safety, and upward mobility, as well as deepening the nation's wealth gap by limiting opportunities for homeownership and generational wealth-building.
