REAL ESTATE TOPICS
May 14, 2014
Tim Manni HSH.com
How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area?
The salary you must earn to buy a home in 27 metros
How much salary do you need to earn in order to afford the principal and interest payments on a median-priced home in your metro area?
To find out, HSH.com took the National Association of Realtors’ first-quarter data for median home prices and HSH.com’s first-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home--the principal, interest, taxes and insurance--in 27 metro areas.
We used standard 28 percent "front-end" debt ratios, and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. The results are ranked from the lowest to highest salaries.
New for spring 2014: We've incorporated information on property taxes and homeowners insurance costs to more accurately reflect the income needed in a given market. We also included data on Detroit and Pittsburgh for the first time. Read more about the methodology and inputs on the final slide of this slideshow.
While overall, the NAR reported continued year-over-year price growth in the nation’s metro areas, the increases were smaller and a bit more sporadic. On a quarterly basis, more metros on our list experienced home price declines than increases. The price declines, as well as those metros that experienced minimum-price gains, were partially balanced out by a quarter that saw higher mortgage rates. Only three metro areas on our list had mortgage rates fall during the first quarter of 2014 compared to the previous quarter.
Overall, buying a home remained very favorable during the first quarter of 2014. It was nearly a 50-50 split between the areas which saw the required salary increase or decrease from the fourth quarter of 2013 to the first quarter of 2014.
Here’s a current look at how much salary you would need to earn in order to afford the principal and interest payments on a median-priced home in your metro.
Mortgage rate: 4.39 percent (jumbo rate)
- Quarterly change: no change
Home price: $679,800
- Quarterly change: -0.38 percent
- YOY change: +14.5 percent
Monthly payment: $3,199.69
Salary: $137,129.55
- Quarterly change: -$447.58
If it seems odd that the San Francisco metro area, the king of unaffordable housing, has the lowest mortgage rates on our list two quarters in a row, it’s for good reason. The mortgage rate you see here is a jumbo mortgage rate. The jumbo market is so competitive in California that jumbo mortgage rates have actually helped to offset some of those higher costs.
San Diego: $98,534.22
Mortgage rate: 4.56 percent
- Quarterly change: +0.03 percent
Home price: $483,000
- Quarterly change: +1.30 percent
- YOY change: +17.1 percent
Monthly payment: $2,299.13
Salary: $98,534.22
- Quarterly change: +$1,378.56
San Diego, the middle child of the expensive California metros, was even less affordable than usual during the first part of the year. With a median home price of $483,000 and positive home-price growth over the previous quarter and past year, the required salary to afford a home in this southern California metro area is inching toward $100,000.
Los Angeles: $85,964.88
Mortgage rate: 4.52 percent
- Quarterly change: +0.06 percent
Home price: $406,200
- Quarterly change: -3.99 percent
- YOY change: +17.6 percent
Monthly payment: $2,005.85
Salary: $85,964.88
- Quarterly change: -$2,424.18
The state of California is one of the most interesting real estate markets in the country currently, mainly because demand is as hot as ever. Despite home prices that would be out of reach for most in this country, Los Angeles had the second-best improvement in required salary (behind Sacramento, of course).
Sacramento: $58,113.87
Mortgage rate: 4.55 percent
- Quarterly change: +0.02 percent
Home price: $255,800
- Quarterly change: +2.17 percent
- YOY change: +22.2 percent
Monthly payment: $1,355.99
Salary: $58,113.87
- Quarterly change: +$1,052.83
Sacramento marks the first of four metro areas in a row where affordability moved in the wrong direction. The story with the River City for the past few quarters has been its home prices. Sure, the quarterly gain doesn’t seem like much, but each quarter Sacramento’s YOY home-price gains are through the roof.
How did we come up with these salaries?
For the results presented on these pages, and incorporating the information discussed below, HSH.com calculated the income required to cover the mortgage's principal, interest, tax and insurance payment. We used standard 28 percent "front-end" debt ratios and a 20 percent down payment subtracted from the median-home-price data to arrive at our figures. Loans with less than a 20 percent down payment will incur mortgage insurance which would in turn increase the required salary figure.
We utilized the NAR’s 2014 first-quarter data for median home prices as well as our 2014 first-quarter average interest rate for a 30-year, fixed-rate mortgages to determine how much money homebuyers in 27 major metro areas would need to earn in order to purchase the median-priced home in their market.
The average mortgage rate information we utilized was for purchase-money mortgages made to borrowers with good to excellent credit.
We created metropolitan-area average property tax information from data made available from the Tax Foundation (http://www.taxfoundation.org), a non-partisan research think tank, based in Washington, D.C.
We utilized statewide average homeowner insurance premium costs made available by the Insurance Information Institute (http://www.iii.org), whose mission is to improve public understanding of insurance - what it does and how it works.
Note: Property taxes and insurance costs are specific to an individual property itself and will be different for any single property in which you may have an interest. Also, if other personal debts exceed 8 percent of a given monthly gross income, this will increase the salary needed to qualify.
Data for the Pittsburgh metro area was provided by RealSTATs (http://www.realstats.net/index.php), a locally owned and operated real estate information company. Home-price data for Detroit was provided by Realcomp II Ltd. (http://realcomp.moveinmichigan.com/), Michigan’s largest Multiple Listing Service.
No comments:
Post a Comment
If you have questions or a comment about this Blog or our Company please use this section. We will do our best to review and answer within 24 hours.