How much is housing cost?

I recently came across this article:

http://www.interest.com/mortgage/news/homes-are-truly-affordable-in-only-about-half-of-major-cities/

(text follows):

Homes are truly affordable in only about half of major cities

by Reed Karaim on October 17, 2012

A median-income household can only afford a median-priced home in 14 of the nation’s 25 largest metropolitan areas

Atlanta, Detroit and Minneapolis-St. Paul are the most affordable cities, according to Interest.com’s first Home Affordability Study.

San Diego, New York and San Francisco are the least affordable.

With home prices down an average of 30% from their peak in 2006, and mortgage rates at record lows, there’s a lot of talk about how homes are more affordable now than they’ve been in decades.

In some places, that's true. But in many cities, it’s not.

Significant differences in median incomes, as well as critical costs such as property taxes and homeowners insurance, play a big role in determining whether the American dream of home ownership is truly within reach.

“Despite all of the talk about how homes are more affordable than they have been in decades, buying a home is still a big challenge for many American households,” says Mike Sante, managing editor of Interest.com.

“Dealing with rising expenses and stagnant wages is a struggle. Even after years of declining home prices and record-low mortgage rates, median-income households are unable to afford a median-priced home in nearly half of the metropolitan areas that we looked at.”

To get a clearer picture of how affordable housing really is, we created Interest.com’s Home Affordability Study. (Click here to see theresults for all 25 cities.)

We wanted to know whether it was possible for a family making the median household income for each city to buy the median-priced home.

We gathered city-specific data on everything from median home prices and incomes, average property taxes and homeowners insurance premiums, as well as consumer debt and mortgage rates, from the most reliable sources we could find.

Data from the U.S. Census Bureau, National Association of Realtors, National Association of Insurance Commissioners and Experian, one of the three major credit reporting agencies, all contributed to the analysis.

We then used two of Interest.com’s online calculators to determine how much a family earning the median income in each city could afford to spend on a house and how much a family would have to earn to afford that city’s median priced home.

To make the results easy to understand, each city received an:

Affordability Grade, with a "C" indicating that someone making the median income can afford the median-priced home.

Paycheck Power Rating, which is the percent the median income exceeds or falls short of the income required for a median-priced home.

Cities With the Most Affordable Housing

City                                        Affordability Grade         Paycheck Power Rating

Detroit                                  A                                             45.32%

Atlanta                                  A                                             40.00%

Minneapolis-St. Paul             A-                                            32.20%

Phoenix                                 B+                                           23.67%

St. Louis                               B+                                           23.49%

With all those factors taken into account, the Interest.com study reveals a far more complicated picture than the simple “housing is a bargain” view you’ll find in much of the media.

Atlanta, for example, sits atop our rankings largely by virtue of its relatively low home prices. Its median sales price of $103,200 is well below the average of $229,516 for the 25 largest cities.

“Atlanta has always been a deal as far as home prices go,” says Mitch Kaminer, who’s sold real estate there for 18 years and is currently president of the Atlanta Board of Realtors. “Labor is cheaper. Builders can build houses a lot cheaper than they can in other parts of the country.”

Highest Income Cities

City                                        Median Income

Washington, D.C.                   $86,680

San Francisco                        $71,975

Boston                                  $69,455

Baltimore                              $65,463

Seattle                                  $64,085

But Atlanta also benefits from having lower than average property taxes and insurance costs, along with a slightly above average median income.

All this means Atlanta earns an affordability grade of “A” and the best Paycheck Power Rating in the study. Its median income exceeds the income needed to buy a median-priced home by a whopping 40%.

Detroit is the other city to earn an “A,” but it represents a special, and especially sad, case.

The city’s score comes from its rock-bottom average home price of $60,200 — a number that reflects a vast supply of abandoned homes, as many as 90,000 by some estimates.

Minneapolis-St. Paul, which earns a grade of "A-" and a Paycheck Power Rating of 32%, illustrates how criteria other than the home price can make a big difference in how accessible housing is in different markets.

The Twin Cities' median home price is $70,000 more than Atlanta’s, but the region’s median household income of $63,352 is roughly 20% higher, too, which helps to compensate for the price disparity.

Lowest Home Prices

City                        Median Home Price

Detroit                    $60,200

Atlanta                    $103,200

St. Louis                 $131,700

Pittsburgh               $132,000

Tampa                    $144,300

“We have a pretty good local economy,” says David Arbit, research manager for the Minneapolis Area Association of Realtors, explaining the city’s affluence. “We’ve got relatively low unemployment and a lot of high-tech and finance jobs.”

Minneapolis also enjoys lower than average property taxes, which can make a surprising difference when it comes to home affordability.

Home prices are just a little higher and income just a little lower in Milwaukee than in Minneapolis. But the Wisconsin city’s property taxes are nearly 47% higher.

Todd Berry, president of the Wisconsin Taxpayer Alliance, says the higher tax rate reflects how local government has long been funded in the state. “Ninety to 95% of all revenues comes from the property tax,” Berry explains. “We have no local income tax and only a small local option sales tax.”

As a result, Milwaukee earns a surprisingly low affordability grade of D+.

Cities With the Least Affordable Housing

City                        Affordability Grade         Paycheck Power Rating

San Francisco        F                                              32.76%

New York             F                                              29.71%

San Diego              F                                              25.90%

Miami                    D-                                           12.59%

Los Angeles           D-                                           12.52%

San Diego, San Francisco and New York, which all earn grades of "F," illustrate the forces that have kept housing in some urban centers out of the reach of most Americans, despite one of the biggest real estate crashes in modern history.

All are on the coasts, naturally constrained by physical and political boundaries, and all are largely “built out,” meaning there is little room for expansion.

“We’re obviously a coastal city, and we’re a border city and, in addition, to the north of us is (Marine) Camp Pendleton,” explains Donna Sanfilippo, president of the San Diego Association of Realtors. “East is the only way we can expand. Because of the constraints of our geography, we’ve pretty much built on all of our land.”

Lowest Income Cities

City                        Median Income

Tampa                    $43,832

Miami                     $45,407

San Antonio            $48,699

Pittsburgh                $48,854

Detroit                    $48,968

The international nature of these cities also means they attract wealthy real estate investors from outside the country. San Diego is a popular retirement destination. These factors disconnect the local housing market from the local incomes.

“We’re seeing a lot of cash deals — 27% of all multiple listing service deals in our recent figures. Investors are coming back into the market. We’re seeing foreign investment,” says Sanfilippo. “Right now, we have the lowest amount of inventory on the market we’ve seen since 2009.”

San Francisco and New York both have household incomes above the national average, but the bigger paychecks aren’t enough to compensate for home prices that are among the highest in the country. San Francisco tops the list with an average price of $552,600.

Homeowners are also burdened with significantly steeper property taxes. New York’s taxes are more than three times the national average.

In contrast, Washington, D.C., has home prices comparable to New York’s, but the region’s greater prosperity — median household income is the highest in the nation — and reasonable property taxes allow the D.C. metro area to skate by with a gentleman’s "C+."

Highest Home Prices

City                                        Median Home Price

San Francisco                         $552,600

San Diego                               $379,100

New York                              $377,600

Washington, D.C.                   $367,000

Boston                                    $362,100

In all cases with these failing students, the Paycheck Power Rating is deeply in the red. In San Francisco, for example, the median income leaves you nearly 33% percent short of the paycheck you would need to be able to afford a median-priced home.

In San Diego, where average wages are lower, the Paycheck Power Rating is nearly as bad at 26%.

“A lot of San Diego jobs are service jobs, related to tourism, and those salaries are about $24,000 a year, and that obviously does not support home ownership,” acknowledges Sanfilippo.

That's exactly what the Center for Housing Policy has found in its studies.

"In many communities there is a fundamental disconnect between the income families have and the costs of buying a home," says Jeffrey Lubell, executive director of the Washington-based think tank.

"Falling house prices haven't solved the problem," Lubell says. "They've helped, but they haven't solved it."

Indeed, Lubell warns that with property values starting to rise around much of the country, "if you can't afford a home now, it's not going to get better. This is as good as it gets."

(Back to me)

This is interesting because we earn a C for housing (in the Houston area). We are relatively low on housing cost - as far as the actual housing price. But we are high on taxes and insurance (due to windstorm and flood insurance costs). 

As we look at questions like this, one may be led to question traditionally held assumptions about owning a home. Is it more advantageous to own a home? What are the specific short and long term benefits from owning a home? Is it better to invest one's money in a place where the return is higher? After all, what if the rates of housing value increases are not what they've been in the past?

But this is interesting also because they factored in not just housing values/costs, but the median incomes of the various cities. It's an interesting connection. How much house could you buy if you lived someplace like San Francisco or San Diego? It's EXPENSIVE to own a home in San Francisco (half a MILLION dollars for the median home!). I would not be able to live there. I am not sure I would be able to find an apartment I could afford...

Good questions. Interesting discussion.

Something to Think About

I've talked before on this blog about issues regarding poverty and race. I recently heard this story on NPR and I found it interesting:

http://www.npr.org/2012/09/27/161885219/aurora-colo-tries-to-capitalize-on-its-ethnic-riches

I don't know why some cities are more racially diverse than others. Before I moved to the South, I lived in an environment that was not very racially diverse. There were only a few black kids at my high school, some Asians, some Polynesians, and some Hispanics. But mostly, we were white, middle class folks. I was in the lower end of the middle class spectrum - we had food stamps and received assistance from our Church, we had secret Santa gifts given to our family, and we were happy and grateful. I still am. I am frequently overcome at the generosity of people. If my mother has had a frustration in her life, it is that she's never been blessed with access to the funds that she would like so that she could bless others.

But all of this homogeneity really serves to weaken our community. The first real experience I had with a racially diverse group was when I went to boot camp. Thrust into a world that was so very different from my own, I realized how ill-prepared and naive I was. Not only was I insensitive and arrogant, I was also ignorant. The learning curve was steep, though, and fortunately I was able to gain some friends quickly that helped me with their patience and their example. Their kindness and friendliness towards an incredibly naive seventeen-year-old kid from Utah was miraculous, really. And I'm grateful for that, too.

The military is a great mixing pot. Attracting folks from all over the country, putting them in places where they have to rely on each other - sometimes for their very lives - and where they have to live, eat, sleep, and work together, the military quickly makes everybody the same. Race has no bearing on a persons ability to perform, nor on the swift retribution that comes from making a mistake. Because later on, outside of training, mistakes can prove deadly. And everybody bleeds the same.

Military folks returning from WWII saw a world that was as unprepared as I was for racial diversity. Gone were the days of being at close, even combat, quarters with another of a different race. People returned to segregated communities, as separated as though there were a wall surrounding their respective neighborhoods. Some of the nefarious real estate and lending practices helped continue this trend, and people who had once looked at each other as brothers, comrades in arms, now no longer looked at each other at all.

But some came back changed by their experiences. And they taught their children that it was not right. Having served a country that seemed to ignore their problems, these men and women and their children fought the injustices that they faced. Schools became integrated. Buses carried people of all stripes, and all over the country, barriers to race were removed. Great, progressives strides were made because people stood up to claim what is theirs - a fair, just chance to succeed in a world that for so long had denied it to them because of the color of their skin.

What a ridiculous thing to judge someone for.

We are now looking at a world where race is less important. This is at once a good thing, and a bad thing. That race is considered at all carries both positives and negatives. The best thing is that people are learning to accept people of all backgrounds, of all races, of all cultures, languages, etc. We are learning from our past mistakes, and we are learning to reach out to all people regardless of the color of their skin. There continues to be racism, it is true. There are issues that still must be addressed and resolved. But progress is being made, and it is important.

On the other hand, race is important. It speaks to heritage, legacy, and past. It speaks of a feeling of community that held together in the darkest of times. Now that those times are over, and the world is getting lighter, it is important to learn from and celebrate the strength that can come from this heritage and legacy. Communities are strongest when they take from the vast sample of cultures, races, backgrounds, and even languages, and makes them it's own. As we learn to celebrate our differences and commonalities - the very things that make us so wonderfully powerful as a society - then we will know we have truly arrived.

It is a blessing to me to be able to serve the community of Mont Belvieu - a place I have come to love and consider my home. I only hope I am worthy of the task, and can bring honor to the community and the legacy that is here.