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October 26, 2014

Middle-Class Buyers Getting Edged Out?

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Middle-Class Buyers Getting Edged Out?

Middle-class home buyers are struggling to find enough affordable homes on the market as rising prices, higher interest rates, and flat incomes limit their choices.

More than half of homes for sale this month in 14 of the 100 largest metros were out of reach for middle-class home buyers, according to a new study by Trulia. The real estate company based affordability rates on a monthly payment — after a 20 percent down payment as well as taxes and insurance costs — that was less than 31 percent of the metro area’s median household income. 

The number of affordable homes for middle-class buyers has decreased or stayed flat in 99 metros since October 2012, Trulia found. Rochester, N.Y., was the only metro to see a gain. 

Places like Orange County, Calif., have seen the worst tightening of affordable inventory for middle-class buyers. In 2012, 44 percent of homes there were affordable to the middle class; that has fallen to 23 percent this year. 

A big drop in foreclosures and lower-priced homes is a major catalyst of the shift. The percentage of existing home sales nationwide that were distressed properties selling at discounts has fallen from 23 percent last year to 12 percent as of August, according to the National Association of REALTORS®. 

Though housing affordability for the middle class appears to be the most problematic in California, other metros are also seeing affordability lessen by big margins. In Boston, middle-class buyers now can afford 41 percent of homes on the market, down from 53 percent last year. In Denver, the percentage has fallen from 70 percent to 55 percent. Seattle has gone from 66 percent to 55 percent

The following are the markets with the least number of affordable homes for the middle class, according to Trulia’s study: 

  1. San Francisco
    Percentage of homes affordable to middle class: 14.2%
    Maximum affordable home price: $409,000
  2. Orange County, Calif.
    Percentage of homes affordable to middle class: 23.1%
    Maximum affordable home price: $373,000
  3. Los Angeles
    Percentage of homes affordable to middle class: 24%
    Maximum affordable home price: $271,000
  4. New York
    Percentage of homes affordable to middle class: 25.3%
    Maximum affordable home price: $274,000
  5. San Diego
    Percentage of homes affordable to middle class: 28.4%
    Maximum affordable home price: $309,000

Despite the drops, overall housing affordability nationwide still remains high historically. In 40 of the 100 metro areas, 70 percent or more of the homes remained within reach to middle-class buyers. Also, home prices remain 5 percent undervalued based on long-term price, income, and rent levels, Jed Kolko, Trulia’s chief economist, told USA Today.

Source: “Middle-class buyers see fewer affordable homes,” USA Today (Oct. 10, 2013)

Read more:

Showcasing Real Affordability
Grassroots Solution to the Affordability Gap
A First-Ever Flip in Mortgage Affordability