Why You Can't Afford to Buy a Home Where You Want to Live

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New Study Names San Francisco As Most Expensive To Buy A Home
Justin Sullivan/Getty ImagesTourists stop to look at the famed "painted ladies" Victorian houses in San Francisco, the nation's "least-affordable" housing market.
By Robert McGarvey

NEW YORK -- The statistics keep rolling in. The housing market is on the mend, prices are definitely up from the bottom although, nationally, they remain maybe 15 percent off the 2006 peak, according to housing numbers crunchers at Case-Shiller. That means there remain good buys out there.

But then there now new questions about affordability. And the headline news is that nationally housing affordability is strong -- although dropping, according to the latest numbers from the National Association of Realtors. Danielle Hale, NAR director of housing statistics, elaborated that affordability is declining, slightly, as prices nudge up faster than incomes.

But housing affordability varies astronomically from town to town. That's according to the latest data from HSH.com, a mortgage research company. The real question is: can you afford to live where you want to?

The answer is if your heart is set on one of the nation's most desirable big cities, come with pockets stashed with cash, or at least come resigned to be a renter. Maybe forever.

Here's the bad news. In San Francisco, according to HSH.com, household income has to be $142,448 to be able to afford the median home. The National Association of Home Builders calls the broad San Francisco-San Mateo-Redwood City metropolitan area "the nation's least affordable." It claims that just 11.1 percent of households earn enough to afford the median home.

By contrast, in Pittsburgh HSH.com said a household income of $31,716 will qualify to buy a median home. Minimum wage in Pennsylvania is $7.25. Do the math on a hypothetical couple earning minimum wage and logging 40 hour work weeks. They earn $30,160. That tells you how affordable a really affordable town is.

But you don't want to live there? Second on the HSH.com list of cities where a household needs the most income to buy is San Diego at $95,433. In third place is Los Angeles, where it takes $89,665 to qualify for the median home.

"The biggest run up in prices has been predominantly in the West," said NAR's Hale. "Affordability in the West has been hampered, primarily in California." In addition, Seattle and Denver also had growing affordability issues.

For fourth place, HSH.com jumps cross-country to New York City, where a would be buyer needs $87,536. Note: that means a house in the metropolitan area and that includes the Bronx, Jersey City and Newark. Dream on about buying a home in Manhattan. (Realtor Douglas Elliman pegged the 2014 average selling price for a Manhattan apartment at $1.68 million and, using the NAR guideline that buyers can qualify for a home that is four times their income, that puts needed household income over $400,000.)

Fifth place: Boston, at $80,050.

Why are coastal cities so pricey? Case-Shiller spokesperson Craig Lazzara mused that land availability is minimal and building restrictions are often daunting in towns like San Francisco and Manhattan. To boot, well-heeled foreigners -- often from China and Russia -- are seeking safe harbors for their money, and they have shown a strong preference for a handful of coastal towns with good international flight connections.

Per HSH.com, the only cheap coastal town is Miami at $58,431.

Don't give into despair. Look inland instead, where HSH.com said $40,658 qualifies a household for the median Phoenix home. In Houston, $49,983 is enough. Even in Atlanta, a household making $35,580 has enough to afford the median-priced home. Most inland big cities are comfortably under $50,000.

Or look off-beat. The National Association of Home Builders has crowned its most affordable metro as Syracuse, New York, where it said 92.8 percent of all homes that sold in the fourth quarter of 2014 were affordable to families who earned the region's median income of $67,700.

The numbers often tantalizing possibilities. If you are a telecommuter for a West Coast technology firm, "you could live like a king in Pittsburgh," said HSH.com executive Keith Gumbiner. Real state website Zillow.com (Z) puts the Pittsburgh median price at $125,400. Bunk in Pittsburgh for a few years and, you know what, you just might save enough to buy that San Francisco home (median sale price: $951,000, according to real estate website Trulia).

Although, by the way, around one-third of San Francisco homes sell in all cash deals. Which is a blunt reminder of just how unaffordable the most desirable cities are becoming.

Does Your Home Live Up to the American Average?
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Why You Can't Afford to Buy a Home Where You Want to Live
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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