The real estate boom of the past two years has put homeownership outside the financial capacity of many Americans, and in particular those areas with very expensive houses. Among the many factors that have triggered the rise in prices are low mortgage rates, which are quickly disappearing. These increasing rates will make homeownership even more expensive.
Another reason home prices have risen in some parts of the country is that people want to leave the extremely expensive coastal cities. Home prices in New York and San Francisco can be three times the national average. People who moved inland to places such as Boise and Nashville did indeed find lower home prices. Ironically, the rush to the cities has caused home values there to skyrocket.
People across much of the country have become more mobile. The COVID-19 pandemic, which began two years ago, forced most companies to close their offices. Tens of millions of people worked from home, and some companies have made that opportunity permanent.
One longtime debate about where people live is whether they should rent or own. The advantages of rentals are that people are not tied to one residence for a long period. They often do not have to pay for utilities. They also do not have to make high down payments. Homeownership allows people to have a place that they can tailor to their tastes and something they can own that might well increase in value over time.
In some cities, the option to buy a house has been closed off to many people because home prices are so high. According to the Priced Out: 61% of American Renters Can’t Afford to Buy Homes in Their Cities report from real estate services provider Porch, “The average home in the United States cost seven times the amount an average family makes in a year. That’s the highest ratio since the housing bubble preceding the Great Recession of 2007-2009, and one of the highest ratios in 70 years.”
Data for the study was sourced from the 2021 release of Annual Social Economic Supplement to the Current Population Survey. The 6% down payment numbers came from RocketMortgage, 30-year mortgage rates from Investopedia and 4% interest rate numbers from NerdWallet. The analysis covered 260 cities.
Several cities had home prices so high that over 90% of renters cannot afford a home based on the criteria. This list was topped by Santa Cruz, California. According to the Bureau of Economic Analysis, Santa Cruz is part of the U.S. metro with the second-highest per capita income in the country.
These are the 10 cities where the fewest renters can afford to buy a home:
| City | Average Home Price | Renters Priced Out |
|---|---|---|
| Santa Cruz, Calif. | $1,154,443 | 97% |
| Los Angeles, Calif. | $868,350 | 96% |
| Santa Barbara, Calif. | $880,491 | 94% |
| San Jose, Calif. | $1,536,201 | 94% |
| Salinas, Calif. | $801,161 | 94% |
| Barnstable Town, Mass. | $632,587 | 94% |
| San Luis Obispo, Calif. | $808,201 | 93% |
| Kahului, Hawaii | $906,081 | 93% |
| San Francisco, Calif. | $1,374,739 | 93% |
| Santa Rosa, Calif. | $764,999 | 92% |
Click here to see the cities where buying a home is most expensive.
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Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
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