A new study from financial portal HSH.com took an interesting look at the cost of owning a home in some of America’s most popular metropolitan areas. The findings turned out to be hardly surprising, considering the cities that were found to be the cheapest, and the fact that Californian metros took up the top three places in terms of most expensive metros.
HSH.com used several sources for its “given” information in the study, including the National Association of Realtor’s quarter four 2014 data for median home prices, and HSH’s own average interest rates for 30-year fixed-rate mortgages in the 27 metropolitan areas included. Crunching the numbers, HSH used this data to figure out how much of a consumer’s salary would go toward the base cost of homeownership, meaning the principal, interest, taxes, and insurance.
Going further into HSH’s comparatively simple calculation, the site used standard 28 percent front end debt ratios and the assumption of a 20 percent down payment, subtracted from the NAR statistics to get the final figures.
Overall, affordability was better across the board in most major markets. In fact, home prices had gone down from quarter three to quarter four in all but one of the metropolitan markets covered by the HSH study. Still, it was revealed that home prices were still higher than they were in the fourth calendar quarter of 2013.
However, mortgage rates were considerably lower than they were a year ago, once again in all but one of the metros; this pushed the required salary figures down a bit.
On a broad-based national level, buyers would have to earn $48,603.82 in order to afford a median-priced home with a 20 percent down payment. Still, HSH pointed out that consumers can definitely buy homes with a down payment of less than 20 percent, and that there are other factors that could drive up the required income, such as Private Mortgage Insurance. With PMI figured into the equation, buyers would need to have an income of $56,140.44 per year, using the above national example.
Talking about the cheapest housing markets in the HSH report, Pittsburgh was the most affordable, with consumers in the city needing a salary of $31,716.32 a year to afford a median-priced home at $135,000 with a down payment of 20 percent; 30-year FRMs averaged 3.98 percent in Pittsburgh for the final quarter of 2014.
Cleveland was at second place, with a required annual income of $32,010.41, median home prices at $121,200, and the average 30-year FRM at 4.05 percent in Q4 2014. Third place was taken by St. Louis, where consumers need an annual income of $33,323.09 to afford the median home ($138,400) at an interest rate averaging 4.03 percent for 30-year FRMs.
On the opposite end of the spectrum, the HSH report also proved why California is still one of the most premium, if not the most premium state to live in. Los Angeles had the third-highest cost of homeownership on the report, with the minimum salary at $89,664.86 per year, the median home price at $450,900, and 30-year FRMs averaging 4.07 percent. San Diego was next, with the minimum salary at $95,432.68, median home price at $493,100, and the average 30-year interest rate also at 4.07 percent.
Lastly, San Francisco, which is a stone’s throw away from Silicon Valley and all the tech heavyweights headquartered there, was the most expensive metro, with consumers needing to earn $142,448.33 a year to afford the median home priced at $742,900. The average 30-year jumbo mortga ge rate in San Francisco in Q4 2014 was 4.02 percent.