The housing crash that began in late 2006 resulted in trillions of dollars in lost wealth and millions of families owing more on their mortgage than their houses are worth. But while the economic downturn has made it nearly impossible for many people to sell their homes, prospective buyers in key metropolitan areas can get quite the bargain.
Fiserv recently released its first-quarter 2012 report on home prices. The report includes home prices for 198 metropolitan areas, as well as median annual household income. The Fiserv report also measures the affordability of homes by ranking median home price as a percentage of median annual income. Based on Fiserv’s report, 24/7 Wall St. identified the 10 most affordable housing markets in America.
Five of the metropolitan areas on this list are in Michigan, with another metro area based in Indiana but consisting of some Michigan households. Fiserv Chief Economist David Stiff told 24/7 Wall St. that much of this has to do with the decline of automobile industry jobs in the state. Stiff notes that homes in many parts of Michigan were already relatively cheap before the recent economic downturn. However, the loss of auto manufacturing jobs and the unemployment that ensued pushed housing prices down even further.
More broadly, nine of the 10 metropolitan areas on this list are in the Midwest. With some exception, Stiff notes, the Midwest was not hit as hard by the housing bust as compared to other regions. The data backs that up. The price declines in all but two metro areas were less than the U.S. average decline of 33.3% between the first quarter of 2007 and 2012. In addition, Stiff adds, there are fewer limitations to home building in the Midwest, compared to places such as the West Coast. With higher supply, home prices still remain low in the Midwest, despite an increased demand for homes.
Pushing prices further down in some areas are high foreclosure rates. Foreclosures have led banks to sell homes at very cheap prices in many areas such as Detroit. Now, median home prices in Motown are just $41,000 — less than a family’s median annual income in the region. To further emphasize how affordable a home is in the area, a family making the median income who bought a median-priced home — putting a 20% down payment and taking a 30-year fixed-rate mortgage at an average rate — would pay only 3.6% of its monthly income on a mortgage. However, low prices in many metro areas have allowed some people to purchase homes with cash or at least put down even larger down payments, Stiff notes.
In addition to reviewing the median home price as a percentage of median family income provided by Fiserv, 24/7 Wall St. examined the percentage of monthly income that would go to mortgage payments for these homes, assuming a 30-year-fixed rate mortgage and a 20% down payment on the house. We also considered median home price changes from both a housing market peak time and the first quarter of 2007 until the first quarter of 2012, also provided by Fiserv. Looking into the future, we looked at predictions for home price growth in 2012, 2013 and the time between 2012 and 2017. Finally, we considered a metro area’s population and number of households as of the 2010 census and the May 2012 unemployment rate to provide further context.
These are America’s most affordable housing markets.