Where Homeowners Are ‘Overstretched’

While in most cases a the price of a home should not exceed three times a buyer’s annual income, in some cities, many potential buyers may find it difficult to find a home within those parameters. LendingTree examined the nation’s 50 largest cities to determine where buyers will have to take out the largest loans, and found that many are situated on or near the West Coast.

Five of the top 10 cities where buyers are stretching themselves the most are in California, and Los Angeles and San Diego have remained the 2 cities where borrowers have to stretch their budgets the most.

In especially overpriced areas of California, tech companies including Facebook, Google, and Microsoft are investing in affordable housing. Facebook recently announced that it will be committing $1 billion toward affordable housing in Silicon Valley. The aim is to produce up to 20,000 new housing units for workers over the next decade. Much of the new units are aimed at teachers, police, and other middle-class workers in the Menlo Park area, Wall Street Journal reports.

“Though there is some speculation that the housing boom in California may be nearing its end, home prices in the state are still high,” said LendingTree Chief Economist Tendayi Kapfidze. “As a result, many buyers, especially those who don’t work in lucrative industries like tech, will take out large loans to cover the cost of their homes.”

Outside of California, Salt Lake City is the place with the highest leverage ratio. Salt Lake City is currently undergoing a housing shortage, forcing buyers to overspend.

On the other end of the scale, Pittsburgh, Cleveland and Detroit are where buyers are taking the smallest loans relative to their incomes. An average leverage ratio of 2.08 could make these cities attractive to potential homebuyers.