California ranks low in housing affordability
It should come as no surprise that California – generally speaking – is number one for its sights but not for its affordability. As reported recently in The Huffington Post, residents of San Francisco are not the only ones getting priced out of California’s housing market.
Among the nation’s 15 most-expensive metro areas, the Golden State is home to nearly half of them, according to a recent study by NerdWallet.
The analysis — which accounts median family annual income and housing price per square foot — determined the amount of living space a typical family could afford in the nation’s top 100 metro areas.
The recommended total home value was estimated as the sum of the down payment and the maximum conventional loan with mortgage insurance. They then divided the home price by Zillow’s 2014 average of price per square foot to calculate estimated size.
In order to calculate down payments, they used 2013 median income for young families in each metro area from the U.S. Census Bureau and adjusted the numbers using the 2015 BLS employment cost index.
Incomes were then adjusted to include federal income tax, and the post-tax figure was multiplied by the 10-year U.S. personal savings rate of 4.8% to calculate yearly savings. Closing costs, estimated to be about 3% of the median home value, were deducted from the savings to calculate the final down payment.
The result? California’s metro areas that rank as least affordable include San Jose, Oxnard, Riverside and Stockton.
In Los Angeles, which was the nation’s second-most expensive metro area, a typical family can afford only 757 square feet of housing compared with Houston where a family could afford a 2,693-square-foot home on a median annual income of $88,000.
Dallas, historically one of the more expensive areas in Texas, fared even better, averaging 2,748 square feet.
Californian families on average could afford 1,258 square feet on an annual income of $89,762. Nationally, a median family annual income of $83,935 would buy a 2,327-square-foot home.
The big winners in the study are in the Midwest, which has eight of the top 10 most-affordable metro areas. The most notable is Indianapolis, Indiana, where $294,000 — the suggested affordable amount for a typical family to spend there — buys almost 5,302 square feet. By comparison, the same amount in Chicago gets only 2,250 square feet.
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