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AEI: Home affordability is uneven

First-time homebuyers can still find plenty of cities with affordable home prices. They just need to avoid the West Coast, according to a new study from the American Enterprise Institute’s Center on Housing Markets and Finance.

AEI evaluated loan data on 2.7 million first-time homebuyer home purchase transactions in 2017. The study ranked the 50 cities for home affordability in terms of the median price in relation to the median income.

homeaffordableOne takeaway from the study is that it is a myth that millennials have no options as homebuyers.

“There are areas of the country that have tremendous affordability,” said Ed Pinto, co-director of the Center on Housing Markets and Finance, during an interview Tuesday. “Some are older areas, some are growing areas. They are all over the place, and those areas have opportunity.”

Pittsburgh, Pennsylvania, ranked the most affordable market for first-time borrowers last year, where the median price was $143,000 and the gross annual median household income was $60,000. The cost of a mid-priced homes was just 2.3 times the average gross income. Other cities ranking at the top of the list were Cleveland, Cincinnati and Columbus, all in Ohio, and St. Louis.

In terms of median cost per square foot of a home, Cleveland and Indianapolis were the most affordable at $91 per square foot.

Several of the affordable cities have strong local economies. Pittsburgh, for example, has a burgeoning tech industry that draws young talent from Carnegie Mellon University, one of the nation’s top engineering and technology schools.

“Detroit has car manufacturing and Quicken,” Pinto said. “Houston [ranked No. 9 in AEI’s list of affordable cities] has got a tremendous amount of oil and other things; and Columbus is a well-rounded, mid-tier regional headquarter city. If you are a millennial, maybe you should be taking into account the affordability of housing as part of your decision on where you want to go.”

The story is not the same in the West region, however. Several West Coast cities made AEI’s list as the least affordable for first-time buyers.

San Jose, California, ranked at the bottom last year where the median price of $650,000, five times greater than the gross income of $126,000. Rounding out the bottom five in terms of affordability were Los Angeles, San Francisco, San Diego and Denver.  

“What you are getting in these places that are unaffordable, you are paying huge amounts for land,” Pinto said. Several of these cities, he noted, have restrictive zoning and land-use policies that makes building expensive. “That is what has happened all over the West Coast.” 


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