Study: Home Ownership Is a Shrinking American Dream for the Middle Class

Thursday, 15 May 2014 08:37 AM

By John Morgan

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The number of middle-class Americans who can afford home ownership is falling in more cities, according to a new industry study.

The report from real estate research firm Trulia concludes that in 20 of the top 100 largest metro area, the middle class are now frozen out of the home buying market.

Trulia considers a home affordable for a median income buyer in a given market if total monthly costs — including mortgage, insurance and property taxes — after a 20 percent down payment are less than 31 percent of a region's median household income.

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Trulia Chief Economist Jed Kolko noted monthly payments for an average home now cost 20 percent more than a year ago, according to USA Today.

"Even having a college degree is no guarantee that homeownership is within reach in the priciest markets. There's no easy way to make housing more affordable, though new construction can help," Kolko said.

The trouble with that last point, though, is that new construction is more rare in the most expensive markets because fewer people can afford to buy there — a simple case of supply and demand, according to Kolko.

"For America's most expensive housing markets to become significantly more affordable, they would need either a spectacular drop in demand — a local economic collapse, for example — or a dramatic increase in housing supply."

The least affordable U.S. markets, and the percentage of homes for sale in each where median-income Americans can afford to buy, are:
  1. San Francisco, 14 percent
  2. Los Angeles, 23 percent
  3. Orange County, Calif., 24 percent
  4. New York/New Jersey Metro, 25 percent
  5. San Diego, 28 percent
  6. Ventura County, Calif., 29 percent
  7. San Jose, Calif., 34 percent
  8. Fairfield County, Conn., 37 percent
  9. Honolulu, 39 percent
  10. Oakland, Calif., 40 percent.
In addition, some popular metro areas had particularly steep drops in affordability in the past year. In Denver, the share of affordable homes slid to 50 percent from 67 percent. The figure fell to 29 percent from 43 percent in Ventura County, and to 48 percent from 62 percent in San Antonio.

The prospects for home ownership are even bleaker for Americans who are less educated, according to Trulia. The study found home ownership is out of reach for the less educated in most of the top 100 metro markets in the U.S.

"Even within a local market, affordability depends on where you land in the income distribution; and how much education you have often shapes your income today and in the future," Kolko said.

The more optimistic flip side of the Trulia study is that since the middle class has been priced out of home ownership in 20 of the 100 largest markets, they can still afford to buy a home in the other 80. "In most U.S. markets, the majority of homes for sale are within reach of the middle class, and buying is cheaper than renting in all of the 100 largest metros," Kolko said.

Home prices in most American cities continued to grow in the first quarter of 2014, according to National Association of Realtors (NAR) data cited by U.S. News & World Report

Lawrence Yun, chief economist at the NAR, said, "The price increases over the past two years have been a double-edged sword. It's been very good for the owners or recent buyers because they're immediately getting equity."

"But it has not been good news in terms of affordability because affordability is inversely related. That means that for potential buyers, it's more difficult because it's pricier," he told U.S. News.

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