For years, I’ve been arguing that a simple, broken economics formula has put millions of middle-class Americans in a state of perpetual economic anxiety: Families with average incomes can’t afford average homes. In fact, families with really good incomes can’t afford average homes.
Here’s new data to support that claim.
An analysis of median income and median home prices I developed jointly with RealtyTrac Inc. has found that roughly 38 million Americans, or 1 in 8 people, live in a county where household income must exceed $100,000 to support a mortgage payment for an median-priced home.
In other words, families must earn six-figure salaries to afford what would be considered an average house or condo that was for sale in August.
In my series The Restless Project, I am examining structural causes of American anxiety. Many Americans today don’t see a clear path toward their future. Young married couples wonder if they’ll ever be able to afford a home; growing families have trouble finding affordable neighborhoods with good schools. Here is why: According to the analysis, some 80 million Americans live in counties where median income can’t support a monthly mortgage payment on a median-priced home.
In many places, the income required to buy even an average home seems entirely out of reach to most people. Some are easy to predict: San Francisco County, Calif., where the minimum income to support an average home is $240,000; or Westchester County, N.Y., where it’s $139,000. A series of big-city suburbs are also there: Fairfax County, Va., ($126K) and Falls Church, Va., ($158K) near Washington, D.C., and Nassau County, N.Y., ($104K) and Bergen County, N.J., ($101K), near New York City. But also making the $100K list is Blaine County, Idaho, ($115K) and Eagle County, Colo., ($116K).
For example: A buyer in Fairfax County can expect a monthly mortgage/taxes/insurance payment of $2,958 to buy an median-priced home at $532,000 there, assuming that buyer is ready to cough up a $53,000 down payment. Buy a home in a place like Fairfax or any of these counties with less than $100,000 income, and you’ll be house-poor.
Drop the income cutoff to $70,000, and the group of unaffordable counties expands to 58 million Americans, or roughly 20 percent. One in 5 people live in a county where household income should be at least $75,000 to afford an average home.
These house-poor counties include rural Snohomish County, Wash., along with Chester County, Pa., and Williamson County, Tenn.
Drop it further, to the actual U.S. median income of about $53,000, and you get a group of 204 U.S. counties where 91 million Americans live. That means 1 in 3 Americans live in a place where nationwide median income doesn’t support the purchase of a median-priced home.
It’s a little unfair to compare national income with local real estate prices, so RealtyTrac also helped me compare median county income with median home prices. After all, it’s a lot easier to come by a $100,000 income in Fairfax than Chester, Pa. But even adjusting for local salaries, the picture is still bleak. In 200 of the nation’s largest counties, encompassing 80 million people, median income is less than the income required to buy a median-priced home.
In Washington County, R.I., where home payments would be $1,945 on an median-priced $349,000 home, the minimum income required to buy is $83,000. In reality, median income is $72,000. That $11,000 gap is the punishing stress and restlessness I’ve described.
A few more examples:
Colfax County, N.M.
Median home price — $299,000.
Payment — $1,662.
Minimum income required to buy a median-priced home — $71,000.
Median income — $39,000.
Bennington County, Vt.
Price — $279,000.
Payment — $1,551.
Minimum income — $66,476.
Median income — $52,289.
King County, Wash.
Price — $396,000.
Payment — $2,204.
Minimum income — $94,000.
Median income — $70,000.Any ranking like this requires a series of assumptions, and here they are: That buyers would be able to put together a 10 percent down payment, roughly $50,000 to $75,000, depending on location. Lower down payments would raise the monthly cost, and thus the required income. That size down payment is reasonable for buyers trading up, who use proceeds from the sale of one residence to pay the down payment on the other. It’s often unrealistic for first-time buyers, however, or for homeowners in areas where prices are still depressed by the recession.
The monthly payment includes mortgage costs and estimated property taxes and insurance costs.
The affordability level cutoff is 28 percent of household income. Using a higher cutoff changes the results dramatically. For example, calculating that buyers can afford up to 43 percent of their income on a house payment results in only 15 million Americans living in counties where $75,000 is the minimum household income needed to buy a house.
Such a high mortgage payment can be an even bigger source of stress, however. For example, it would cost $2,071 to buy an average home in Monroe County, Fla., eating up more than $24,000 of a median income that’s just $55,000.
But even those more rosy results only hold for households with no other debt.
“These assumptions are for a perfect borrower,” said Daren Blomquist, vice president at RealtyTrac. That’s someone with a great credit score, a lot of cash, “and no student loan debt,” he said.
In reality, debt-to-income ratios are fairly arbitrary. A family earning $250,000 annually can possibly afford to pay half their income on a house payment, given the amount left over. A family earning less than $50,000 would struggle with a 20 percent payment. But ratios provide a guideline, and are a useful tool for understanding why families feel like they are living unaffordable lives.
There are ways to lower monthly payments: larger down payments, or mortgages that begin with lower interest rates. The tax advantages of owning vs. renting can also make purchasing more affordable, too.
Moving is an option, too. There are plenty of places where median income far exceeds median costs. In Merrimack County, N.H., home prices are $219,000, or $1,218 monthly, while the median income is almost $60,000.
But millions of Americans live in places where incomes don’t support housing prices, creating a built-in stress in communities across the country.
“Wages have been stagnant for a long time,” explains Blomquist. “This has an impact on affordability.”
Other details about the data: Home prices come from RealtyTrac sales data. Roughly 1,000 U.S counties, only those counties where there were enough sales to create a median home value, were included. The mortgage interest rate used was 4.2 percent. Property tax and insurance was assumed to total 1.39 percent of mortgage costs. The county income data were derived from the U.S. Census Bureau.
More from Bob Sullivan:
- The Restless Project: This Is Why You Can’t Sleep at Night
- Do You Feel Stuck? New Book Offers 8 Ways to Break Free
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