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Since the turn of the century, home prices in the U.S. have almost doubled, while median household income has barely budged. This, combined with a limited supply of entry-level homes, contributed to declining homeownership rates over the past 10 years. However, data from the latest U.S. Census Current Population Survey suggest that trend could be turning around.
With homeownership rates ticking upward, researchers at Branch Publishing wanted to see how many hours the typical person would need to work to afford a home in various cities across the country. According to Zillow, the median home listing price in the U.S. for December 2017 was $256,000, but there’s a huge amount of geographic variability. In San Francisco, for example, the median listing price exceeded $1,100,000 for 2017; whereas, in Philadelphia the figure hovered around $180,000. Likewise, median household income varies by location, but doesn’t always correlate well with home prices. This results in big differences in affordability across major metros.
To calculate how many hours someone would need to work to afford a home in each city, the Branch Publishing research team combined median household incomes from the U.S. Census, median home listing prices from Zillow, and state-specific mortgage rates from Zillow. Using this data, Branch Publishing approximated the typical monthly mortgage payment (assuming a 30-year fixed term loan with a 20% downpayment), hourly wage (assuming a standard 40-hour work week), and number of work hours needed to make the loan payment (assuming the 28% rule ) for each city. The 28% rule, which states that a household should spend a maximum of 28% of its gross monthly income on housing expenses, is a general guideline used by mortgage lenders to assess an individual’s borrowing capacity. The number of hours reported is the minimum needed to ensure that the monthly mortgage payment doesn’t exceed 28% of gross monthly income.
Looking at the results, it’s not surprising that the least affordable cities are predominantly concentrated on the coasts, with 12 of the 15 most expensive places to live located in California. A typical earner purchasing a typical home in any one of these areas would need to work over 2-3X the standard 40-hour work week to get approved for a mortgage.
On the flipside, the most affordable cities are concentrated in the Midwest, a third of which can be found in Ohio.
Looking at the most populous cities, the results vary widely—ranging from 104 hours of work needed per week in New York, NY to just 16 hours per week needed in Memphis, TN. Here’s how much you’d need to work to buy a home in the 25 largest U.S. cities: