Home Affordability Limited to Half of All Major U.S. Cities: Study

With home prices down so far down from their peak and mortgage rates hovering around record lows, many analysts are saying home affordability could hardly be any higher. However, a study released by ""Interest.com"":http://www.interest.com/ shows homes are only truly affordable in about half of the nation's major cities.

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""Despite all of the talk about how homes are more affordable than they have been in decades, buying a home is still a big challenge for many American households,"" said Mike Sante, managing editor for Interest.com.

Rising expenses and stagnant wages are preventing median-income households from being able to afford median-income homes, Sante explained. Significant differences in median incomes, as well as costs like property taxes and homeowners insurance, have put homeownership out of reach for many households.

For its first ever Home Affordability Study, the site used data from the ""Census Bureau"":http://www.census.gov/, the ""National Association of Realtors"":http://www.realtor.org/, the ""National Association of Insurance Commissioners"":http://www.naic.org/, and ""Experian"":http://www.experian.com/ to calculate city-specific costs for median incomes, prices, consumer debt, and more. Each city was then graded based on its results, with a ""C"" indicating that someone making the median income would be able to afford a median-priced home.

The results showed a median income household would be able to afford a median-priced home in 14 of the nation's 25 largest metro areas. For some areas, the measurement of home affordability went well beyond the normal metrics used to gauge the housing market.

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For example, Atlanta, Georgia-which earned an ""A""-benefits from its relatively low home prices, with its median sales price sitting at less than half the average for all 25 cities. However, the city's lower than average property taxes and insurance costs, as well as its slightly above average median income, also play a big role in affordability.

According to the study's ""Paycheck Power Rating""-a measurement of how much a city's median income exceeds or falls short of its median home price-Atlanta's median income beats the income needed to buy a median-priced home by a margin of 40 percent.

The study also revealed interesting differences in markets. Milwaukee, Wisconsin, for example, has a similar median income and home price as the Twin Cities area in Minnesota. However, Milwaukee's property taxes are nearly 47 percent higher, earning the city a ""D+"" rating compared to Minneapolis-St. Paul's ""A-.""

Investor activity is creating another problem for some cities. San Diego, a popular retirement destination, has attracted a lot of interest from investors, many of whom are international. These wealthy investors cause a disconnect between the local housing market and local incomes.

""We're seeing a lot of cash deals-27 percent of multiple listing service deals in our recent figures,"" said Donna Sanfilippo, president of the ""San Diego Association of Realtors"":http://www.sdar.com/. ""Investors are coming back into the market. We're seeing foreign investment.""

These specific issues highlight problems the ""Center for Housing Policy"":http://www.nhc.org/about/Center-Mission-Goals.html (CHP) has been trying to warn the industry about, Interest.com said.

""In many communities there is a fundamental disconnect between the income families have and the costs of buying a home,"" said Jeffrey Lubell, executive director for the CHP. ""Falling house prices haven't solved the problem. They've helped, but they haven't solved it.

""If you can't afford a home now, it's not going to get better. This is as good as it gets,"" he continued.