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Median Homes Require $85k Annual Salary

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A nonprofit, the Center for Housing Policy, recently did a research study into the 2007 median home price in 202 of the largest metropolitan areas and discovered that the median home price of $248,000 meant that the owner would need to earn $85,000 a year in order to afford it (based on 10% down and that the owner would pay 28% of his income to the loan). The bigger part of the story is that the increase in home prices has not been matched by an increase in salaries. The study said that to combat higher prices, families have been moving farther away from metropolitan centers or going with cheaper options like condos and townhouses.

Some eye-poppers for you:

  • The median home in the New York metropolitan area was $500,000 – you’ll need to take home over $171,000 per annum to afford that.
  • San Francisco’s median home price of $759,000 would require a salary of over $260,000.
  • Chicago’s median price? $254,000. That would require a salary of $87,000 per year.
  • Cheapest median price goes to Mansfield, Ohio (is that really one of the top 202 largest metropolitan areas?) and that actually is $85,000 (coincidence?), which means you can get by with only making $29,118 a year.

While I think it’s unfortunate that a home costs so much, there’s a reason why they cost that much… people are willing and able to pay for them. I don’t know if the 10% down and 28% per month is a reasonable benchmark anymore because so many people can get 0% down loans and are willing to stretch their budgets to get into a home. Homes will sell for what the market will bear and while the market has softened, it’s still able to support prices that make the median numbers look unreasonable.

Source: CNN Money

{ 11 comments, please add your thoughts now! }

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11 Responses to “Median Homes Require $85k Annual Salary”

  1. wanzman says:

    Good post, I am becoming increasingly interested in real estate. In the Tulsa, OK area where I am moving upon graduation in May, I believe the median price is around 122,000. Which leads me to a question for everyone…..

    Would you, if you could…. purchase a home right after graduating college? I graduate this May and have already been looking at some condos that are really nice in the 80 to 100K range. I will be making 40K per year when I start. I have quite a bit of cash saved up (enough for a 10-15% down payment at those prices) but I am considered getting 100% financing and just investing the cash, and establishing an emergency fund. From my calulatios, my housing expense ration, including taxes, insurance and HOA dues, would be between .21 to .26. Not bad at all, I think.

    My question is this: anyone ever regretted buying a home too soon, and if so why? It has been pretty much my #1 goal for several years to buy a house as soon as I could and now that I see the opportunity it is pretty hard to let it pass. I know it is a little risky, but I am not risk averse, and if I can take a small chance and accomplish a huge goal, why not? you only live once right? Someone talk some sense into me……or maybe agree!

    • Tom says:

      Go for it. Best investment you can make in life. You can use it (live in it) while it’s an investment. Put as much down as you can and pay it forward by adding as much as you can each month. You also can get a 401K if your employer sponsors it. Or a Roth IRA. You are on your way. You can retire early/rich.

  2. Nick says:

    Banks will continue to come up with ways to put people in houses they can’t really afford until the foreclosure rate makes a big enough jump. Then they’ll throttle back a bit on the mortgage free-for-all, but probably not enough to make much more of a difference in housing prices.

  3. I tried to use that San Francisco housing cost as leverage for additional salary, but it didn’t work so well. The interesting thing is that rents continue to stay relatively very low in comparison. It’s a perfect case for your Devil’s Advocate post of “Don’t buy a home”.

  4. samerwriter says:

    wanzman: My wife and I bought property and built our house pretty much immediately after graduating from college. We were able to use signing bonuses and move-out bonuses to keep the financing sane, but if we had it to do over again, I think we’d wait a few more years.

    When we built the house, we were always conscious of keeping costs down. In the years since, we’ve spent a lot of money redoing things the way we want them, because we couldn’t afford that up front. I also think that there’s something to be said for renting for a couple years until you figure out exactly what you want from a house.

    On the other hand, property prices around here have gone ballistic, so I think it is good that we bought our property when we did.

    We also decided to keep the size of our mortgage to below 150% of our income. As our income has ramped over the last ten years, the mortgage payment has grown increasingly trivial.

  5. samerwriter says:

    While people may be “willing” to pay those prices, that doesn’t mean they are “able” to pay them. Exotic financing (no down-payment, interest-only loans, less-than-interest payments, etc..) has attracted buyers who have no business buying a home, and this has been reflected in higher foreclosure rates.

  6. Edmund says:

    We planning to buy a house in for about 235K. Is that a good idea if you make around 65k/year? The house is brand new and will be built. The main reason we did this was to avoid the market jumping back up and not being able to afford to get into the side of town. We plan on staying there a while but the payment will be around 38-40% of my take home pay.

  7. moneymonk says:

    I agree with Nick and samerwriter – Regardless how much a house costs, there are mortgage companies that will do almost anything to get people into those houses.

    Those numbers are scary and most Americans do not want to hear about what salary they need to afford the home.

  8. Foobarista says:

    The other thing is there are significant numbers of people who actually _can_ afford these. If you live in SF and have two mid-level professional incomes, you could well have a household income above $300K. You are probably doing work that isn’t easily “portable” – otherwise, it would be being done in SF – so moving Somewhere Cheap isn’t an option.

    Part of this is the “income inequality” we’ve been hearing so much about lately; that top 1% has to live somewhere.

  9. Terry says:

    Anyone here take Econ 101? What’s supposed to hasppen when the price of something goes up? Since it’s not happening, it looks like market failure.

    The NIMBYites have got theirs, and have largely shut the door on new development.

  10. verna says:

    Am I the only one who thinks thats not so unafforadble? An income of 85k when split by two people, is very doable. thats about 42k per person.

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