Buying a home is likely the largest purchase most Americans will ever make. But while in some areas homeowners are more easily able to afford a house, in others they need to spend much more of their income on their house. A home’s affordability varies considerably depending largely on where the buyer lives, but also on a variety of other factors.
Real estate tracking firm RealtyTrac calculated income-to-price affordability ratios for 2,270 counties in the country. The affordability rate is the percentage of an estimated median household income that is needed to make monthly payments on a median-priced residential property in that area. Based on RealtyTrac’s data, San Francisco County, California, is home to the least affordable houses in the nation.
Most of the least affordable markets have been out of reach for most Americans for some time. Current affordability levels in all of the 10 least affordable counties are in line with, if not slightly lower than, historical figures. For instance, in New York County — more-commonly known as Manhattan — households have had to earn at least 75% of the median income for the last 15 years to cover the costs of homeownership, which includes mortgage payments, homeowner’s insurance and property taxes.
In some cases, residents of these areas are exceptionally wealthy. Notably, the median household income in Marin County, California was more than $90,000. Five more of the nation’s least affordable housing markets had median incomes in excess of $60,000, well above the U.S. median of $51,371 during that time.
Yet high median incomes were not present in all counties. Bronx and Kings Counties, also known as New York City’s Bronx and Brooklyn boroughs, are two examples. Both had median incomes below the nationwide median.
According to Daren Blomquist, vice president at RealtyTrac, in areas around Manhattan and San Francisco, so many people “want to live in a very small area that even the markets around that area will feel the ripple effect.” In all, six of the 10 least affordable counties are located in just two major metro areas: New York and San Francisco.
Additionally, these metro areas are among the nation’s wealthiest by economic output. As of 2012, the New York and Los Angeles metro areas, which together account for four of the least affordable counties, are the nation’s two largest metro areas by gross metropolitan product (GMP). All three areas with counties among the least affordable housing markets — New York, Los Angeles and San Francisco — are among the nation’s top metro areas by per capita GMP as well.
Of course, one of the major reasons that these markets are so unaffordable is simply the price of homes. In 2013, the City and County of San Francisco and Manhattan were the two most expensive housing markets in the nation by average home price. Marin and San Mateo counties, both neighboring San Francisco and among the least affordable housing markets, had the third- and fourth-highest average home prices.
Demand is a factor driving up prices in these areas. People move to to find jobs and access to certain amenities. “Buyers know that if you are going to move to a place like San Francisco, California. or Jackson Hole, Wyoming, you are going to pay more for the quality of life there,” he explained.
Limited supply will also have an impact on affordability. Blomquist said that both geographical and policy limitations can make a region less affordable. In Manhattan, for example, “there is a limited amount of space to build and a limited supply of homes,” as well as “some constraints in terms of zoning and growth policy.” In other areas, physical barriers like oceans or mountains can have a dramatic impact on housing prices.
One way to measure the relationship between high demand and limited supply — primarily for metropolitan counties — is to use population density metrics. A densely populated area will likely have a high demand for residential space. Six of the countries reviewed were among the 100 most densely populated in the U.S.. Bronx County, New York County, Kings County, and San Francisco County were all among the top five.
To identify the least affordable homes in America, 24/7 Wall St. reviewed affordability rates by county calculated by RealtyTrac for May 2014. The affordability rate is the percentage of the county’s estimated median household income needed to make monthly payments — on mortgages, property taxes, and homeowner’s insurance — on a median-priced residential property. RealtyTrac figures also assume that home buyers take a fixed 30-year mortgage at prevailing rates with a 20% down payment. In addition, the payments include insurance and property taxes at 1.4% of home price. These calculations use a 2014 estimate for median income.
RealtyTrac calculated the affordability rate each month from January 2000 to May 2014. We excluded counties where the recorded affordability ratio for May significantly diverged from proceeding months. RealtyTrac also provided historical averages, as well as annual peak and trough values for its affordability ratio at the county level. Figures on median household income are five-year estimates from the Census Bureau’s 2012 American Community Survey. GMP figures are from the Bureau of Economic Analysis and are 2012 estimates.
These are the 10 least affordable housing markets in America.