Homebuying Prospects Are Worsening for the Middle Class

New research shows that in many markets, homeownership is increasingly out of reach for the middle class.

The American dream of owning a house is out of reach for a growing number of middle-class Americans.

A new report from real estate research firm Trulia shows that in the past year, mortgage rates have gone up and home prices have increased faster than incomes across much of the U.S., effectively pricing more people out of the housing market.

In the past year, the number of for-sale homes that are affordable to the middle class has dropped in 98 of the 100 largest metropolitan areas. Jed Kolko, Trulia’s chief economist, said:

More than 4 out of 5 homes for sale in Detroit and Cleveland are within reach of the middle class, compared with 1 out of 4 in New York and Los Angeles and 1 out of 7 in San Francisco. Middle-class affordability is worsening in expensive markets and won’t improve long-term without more construction.

A home is considered affordable by Trulia if its monthly costs (after a 20 percent down payment) – including mortgage, insurance and property taxes – are less than 31 percent of a region’s median household income.

The top five most and least affordable housing markets for the middle class, including the percentage of for-sale homes that middle-class Americans can afford to purchase, are as follows:

Most affordable

  1. Akron, Ohio – 86 percent.
  2. Toledo, Ohio – 84 percent.
  3. Dayton, Ohio – 83 percent.
  4. Gary, Ind. – 83 percent.
  5. Columbia, S.C. – 82 percent.

Least affordable

  1. San Francisco – 14 percent.
  2. Los Angeles – 23 percent.
  3. Orange County, Calif. – 24 percent.
  4. New York City – 25 percent.
  5. San Diego – 28 percent.

Homeownership is a pipe dream for less educated Americans, according to Trulia. The study found that owning a home is out of reach for the less educated in the majority of the top 100 metros. Kolko said:

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. In fact, your education level can matter as much as where you live when it comes to whether you can afford to buy a home.

So if you’re a middle-class American, your prospects for homeownership look pretty good in the Midwest, but you’ve been priced out of the market in much of California and the East Coast.

While this is bad news for many middle-class Americans, it could be worse. According to USA Today:

By historical standards, homes are still relatively affordable as the nation continues to recover from the 2007 housing crash. Nationally, home prices late last year were 20 percent above their 2011 nadir but 21 percent below their 2006 peak, according to CoreLogic Case-Shiller Indexes. … Interest rates remain low. And buying is cheaper than renting in all of the 100 metro areas, Trulia’s study found.

Does it surprise you that the middle class is being priced out of buying a home in many markets? Share your thoughts below or on our Facebook page.

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