20 Cities That Are Quickly Becoming Unaffordable

These metros experienced the quickest drop in housing affordability over 2016, when you take into consideration that locale's home prices and wages.

America’s housing market continued its staggering post-recession rise in 2016, as many regions surpassed their pre-recession-bubble highs. With interest rates finally rising, might some of those places be primed for a fall…or at least a pause?

The list of U.S. areas that could be hurt most by rising mortgage costs is not your typical list of overheated housing markets, as some fast-growing, but still modestly-priced Midwestern towns could feel the pain first.

Rising home values are always a good news/bad news story — good news for homeowners and sellers, bad news for would-be buyers. In almost every region of the country, 2016 turned out to be a very good year for owners and sellers. According to the S&P CoreLogic Case-Shiller national index, home values gained 5.6% nationwide annually as of October 2016. In some places, values soared even quicker: Seattle grew 10.7%, Portland 10.3%, and Denver 8.3%, according to the Case-Shiller report.

The good times for sellers seem set to end, however. After a seemingly endless set of warnings, the Federal Reserve finally raised interest rates in December, triggering increases in mortgage rates. More critically, Fed governors signaled that there could be three more increases in 2017, meaning mortgage interest rates will probably be about a full percentage point higher next year than they were in most of 2016. That, in turn, means higher monthly payments for borrowers, making it harder for some would-be buyers to take the plunge. In other words, higher rates could cool the housing market, says Daren Blomquist, senior vice president at Attom Data Solutions, a housing market data firm.

“I see rising interest rates as a cold shower for many overheated housing markets in 2017,” he said via email. “This is probably a good thing overall, but it could come as a bit of a shock for folks who are expecting those markets to continue performing at the same level they have over the past few years.”

Changes in demand dictated by borrowing costs is just one side of the equation that might hurt sellers next year. After all, there always seems to be someone willing to overpay for a New York City apartment or a home anywhere near Silicon Valley. (You can use this tool to determine how much house you can afford.) That’s due in part to plentiful high-paying jobs in those regions. But many smaller markets have enjoyed a fast run-up in prices, too, and those are probably at greater risk of an interest-rate induced slowdown because of another variable in that equation: slower wage growth.

To calculate this risk, Attom produced a spreadsheet for Credit.com ranking counties by the Attom Home Affordability Index – computed via a formula that takes local wages, home values, property taxes, and historical affordability into account. The list was then ranked by the counties that became less affordable at the quickest rate over the past year. These are metros that could potentially be the most sensitive to changes in mortgage rates that would send some would-be home shoppers back to their rentals. They include:     

  1. St. Louis, Missouri-Ilinois (St. Louis County)
  2. Rockford, Illinois (Winnebago County)
  3. Crestview-Fort Walton Beach-Destin, Florida (Okaloosa County)
  4. Dallas-Fort Worth-Arlington, Texas (Ellis County)
  5. Richmond, Virginia (Richmond City County)
  6. Palm Bay-Melbourne-Titusville, Florida (Brevard County)
  7. Tampa-St. Petersburg-Clearwater, Florida (Pasco County)
  8. Chicago-Naperville-Elgin, Illinois-Indiana-Wisconsin (Cook County)
  9. Greenley, Colorado (Weld County)
  10. Warner Robins, Georgia (Houston County)
  11. Nashville-Davidson-Murfreesboro-Franklin, Tennessee (Davidson County)
  12. Denver-Aurora-Lakewood, Colorado (Denver County)
  13. Toledo, Ohio (Lucas County)
  14. Austin-Round Rock, Texas (Hays County)
  15. Amarillo, Texas (Potter County)
  16. Columbus, Georgia-Alabama (Muscogee County)
  17. Jacksonville, Florida (Duval County)
  18. Deltona-Daytona Beach-Ormond Beach, Florida (Volusia County)
  19. Charlotte-Concord-Gastoni, North Carolina-South Carolina (Iredell County)
  20. Denver-Aurora-Lakewood, Colorado (Arapahoe County)

It’s probably no surprise that five of the top 20 locales are in Florida. However, if you expect New York, Seattle, and San Francisco on the list of rapidly-growing-unaffordable locales, think again; in their place are Midwestern areas like St. Louis, Missouri; Rockford, Illinois, and Toledo, Ohio.

In fact, St. Louis County (which includes the city of St. Louis) topped the list. There, Attom says, the median home sale price rose 19% last year, to $186,000, but wages were actually down a little more than 2%. That means the region’s affordability had sunk 12% on the Attom index. Just three years ago, median home sales prices were just $99,900 in St. Louis – meaning median home prices are up 86% during the three-year span. That’s a recipe for a pullback.

The story is similar in Winnebago County, Illinois, about halfway between Chicago and Madison, Wisconsin. Home prices are up 18% there, but wages are down 1.9%. That means the region’s affordability is also down 12% on the Attom scale.

Also of note on the list of 20 cities with the fastest rate of declining affordability: Greeley and Lakewood, Colorado; Austin, Amarillo, and Dallas, Texas; Richmond, Virginia; and two of the south’s hottest cities, Nashville, Tennessee and Charlotte, North Carolina.

Of course, the phenomenon of housing prices outpacing wage growth is not limited to these areas. Attom says home price growth outpaced wage growth in 81% of counties nationwide last year – in 363 of 447 counties studies. That’s up from 57% of counties a year ago.

“Rapid home price appreciation and tepid wage growth have combined to erode home affordability during this housing recovery, and the recent uptick in mortgage rates only accelerated that trend in the fourth quarter,” Blomquist said in the report. “The prospect of further interest rate hikes in 2017 will likely cause further deterioration of home affordability next year. Absent a strong resurgence in wage growth, that will put downward pressure on home price appreciation in many local markets.”

Remember, a good credit score can help make housing more affordable, even in pricey neighborhoods, since it can help you qualify for the best mortgage rates. You can see where your credit currently stands by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores, updated every 14 days, for free at Credit.com.

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Housing Costs Are Rising Faster Than Incomes, Study Finds

housing-prices

Homes are unaffordable in more American cities than any time since the recession began, and housing costs are rising far faster than incomes, according to a study released Thursday by ATTOM Data Solutions.

During the third quarter of 2016, 24% of U.S. counties were less affordable than historic averages, up from 19% one year ago, the firm said; that’s the highest rate since the third quarter of 2009.

Ironically, affordability increased in the nations’s most-expensive areas, such as Northern Virginia and Brooklyn, N.Y. — probably because years of high price growth have finally started to level off, the report found.

The study uses an affordability index to measure whether homes for sale are more or less affordable relative to incomes. The index is based on the percentage of average wages needed to make monthly mortgage payments on a median-priced house with a 30-year fixed rate and a 3% down payment, including property taxes and insurance.

The report found that 101 of the 414 counties analyzed had an affordability index below 100. That means a median-priced home in that county was less affordable than the historic average for that county, as determined by ATTOM, the report said.

“The improving affordability trend we noted in our second quarter report reversed course in the third quarter as home price appreciation accelerated in the majority of markets and wage growth slowed in the majority of markets as well as nationwide, where average weekly wages declined in the first quarter of this year following 13 consecutive quarters with year-over-year increases,” Daren Blomquist, senior vice president at ATTOM Data Solutions, said in a press release. “This unhealthy combination resulted in worsening affordability in 63% of markets despite mortgage rates that are down 45 basis points from a year ago.”

The counties whose prices are less affordable than their historic averages include:

  • Harris County (Houston), Texas
  • Kings County (Brooklyn), New York
  • Dallas County, Texas
  • Bexar County (San Antonio), Texas
  • Alameda County, California, near San Francisco

Meanwhile, affordability improved in 153 counties (37%), including pricey spots like Marin County, California, in the San Francisco Bay Area and Arlington, Virginia (5%).

“Some silver lining in this report is that affordability actually improved in some of the highest-priced markets that have been bastions of bad affordability, mostly the result of annual home price appreciation slowing to low single-digit percentages in those markets” Blomquist continued. “This is an indication that home prices are finally responding to affordability constraints — a modicum of good news for prospective buyers who have been priced out of those high-priced markets.”

But that good news ends there. Any relief provided by improvement in household wages, as suggested by the recent Census report, was overwhelmed by housing price increases. “Annual growth in median home prices outpaced wage growth in 368 of the 414 counties (89%) included in the analysis,” the report said.

This is on trend: Since the beginning of 2012, median home prices nationwide have increased 60% while average weekly wages have risen just 6%, ATTOM said.

Buying a Home

Prospective homeowners may have little control over housing prices in their area, but a substantial down payment can help you save over the life of your mortgage. So can a good credit score, since it generally entitles borrowers to the lowest interest rates. (You can see where your credit stands by viewing your free credit report summary, updated every 14 days, on Credit.com.) If your credit needs to be polished, you can improve your scores by paying down high credit card balances, disputing any errors on your credit report and limiting new credit inquiries until your standing rises. You can also potentially cut back on the costs of a home by negotiating a good price. You can go here to learn more about how to do so.

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The Best Cities in America for Buying a Starter Home

buying-a-starter-home

We’ve written a lot recently about the disappearing starter home. A combination of rising prices, aggressive investors, and flat incomes are turning America into a nation of renters … and making things very hard on young people just starting out.

But there are still communities where plenty of starter homes are for sale — hundreds of them, around the country. Working with data provided by RealtyTrac, Credit.com has crunched the numbers and developed a robust list of ZIP codes where nearly all homes cost less than $200,000, well below the national median list price of $250,000. In fact, there are 515 ZIP codes in the U.S. where at least 95% of homes sold between January and May this year were under $200,000, according to the data. (And more than 1,000 where at least 90% were sold for $200,000 or less).

Price alone doesn’t indicate affordability, however. In some places, $200,000 sounds ridiculously cheap; in others, it’s out of reach even for folks earning more than the local average. So we fine-tuned the list by requiring that the local median income was 125% of the national median income ($53,657). In other words, we found places with cheaper-than-average homes and higher-than-average incomes.

And even by those high-income standards, there are still more than 60 places in the U.S. — most east of the Mississippi — where the vast majority of homes sold cost under $200,000.

Places like Magnolia, Delaware, near Dover, make the cut. There, the median sale price this year has been around $162,000, while the median income is around $74,000. And Manchester, Pennsylvania, near York, with homes selling for close to $129,000, and incomes are at around $73,000. Racine, Wisconsin, made the list, too (homes about $97,000, incomes about $67,000). Smaller towns near Chicago, St. Louis, Detroit, and Philadelphia are also on the list.

“Certainly the list is a demonstration that there are plenty of affordable housing markets in the country, just most of them east of the Mississippi. Maybe the message from this is ‘Go east, young homebuyer,'” said Daren Bloomquist, vice president of RealtyTrac.

As you look at the list, here’s a general rule to keep in mind. Places were the ratio of home price to income is greater than 4 begin to become unaffordable, while a ratio of 3 would be considered very affordable. So if median prices are $225,000, but income in $53,000, the average earner is going to struggle to buy a home. On the other hand, if homes cost $150,000, but incomes are $50,000, that’s pretty attainable for the average-paid worker.

All hope is not lost for sub-$200,000 home seekers out West, however. If you dial down the criteria, more sub-$200,000 places appear all across the U.S. — even in California. For example, if you expand the list to include ZIP codes where only 75% of home sales were sub-$200,000, but maintain the 125% income standard, 648 ZIP codes fit the bill. Most are still in the East or the South. But Pueblo, Colorado, makes the cut ($129,000/$73,000). So does Bakersfield, California ($160,000/$73,000) So, by the way, does Pittsburgh ($142,000/$72,000), a place we’ve written about before in our Real Cost of Living series as does Hebron, Ohio, near Columbus, which we’ve also spotlighted ($143,000/$68,000).

All income data, was taken from the 2014 U.S. Census.

Here’s 25 of the 61 ZIP codes that make the list.

starter-homes

Remember, having a good credit score can make buying a home more affordable — it’ll help you qualify for the best interest rates, so it’s a good idea to see where you stand if you’re looking for a mortgage. (You can view two of your credit scores, updated each month, for free on Credit.com.)

More on Mortgages & Homebuying:

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The Money Issue Americans Wish Trump & Clinton Would Talk About

affordable_housing

If there’s anything the American public knows about politicians, it’s that they like to talk. We have some particularly chatty people running for president right now, but despite the many topics Donald Trump and Hillary Clinton spend their time discussing, voters think they’re leaving out some important issues.

Housing affordability is one of them.

More than 3-in-5 adults (63%) believe the presidential candidates have not given enough attention to housing affordability, according to a new survey from the MacArthur Foundation, a liberal public-policy nonprofit. The vast majority (81%) of those surveyed said they believe housing affordability is a problem in the United States.

These figures come from interviews with 1,200 adults, conducted by phone (mobile and landline) between April 28 and May 10. The report did not state a margin of error. It was the fourth year the foundation conducted its How Housing Matters survey, and compared to last year’s survey, it seems Americans are less optimistic about the state of housing affordability. Only 29% of those surveyed this year said they believe “the housing crisis is pretty much over,” which is down 6 percentage points from the 2015 survey. A third (34%) of respondents said they know someone who has personally experienced eviction, foreclosure or some sort of housing loss in the last five years.

At the same time, Americans are optimistic that housing affordability is a solvable problem, should leaders give it the attention voters believe it deserves. It’s a pretty important issue for voters: While 90% of people said having a good, stable job is very important to having a secure, middle-class lifestyle, 85% of people said the same of access to affordable housing, as well as the ability to save for retirement.

It’s not surprising people want to hear the presidential candidates address housing costs, considering that more than half (53%) of survey respondents said they’ve made sacrifices in the last 3 years in order to afford their mortgage payments or rent. Those sacrifices include taking on extra jobs (24%), delaying saving for retirement (19%), going into credit card debt (17%), skimping on healthful food (13%) or cutting back on healthcare (11%). All of these things, particularly going into debt or cutting back on savings, can have serious implications on one’s financial future.

Figuring out a housing budget isn’t easy, but it’s a crucial component of your financial well-being, like minimizing your debt and taking care of your credit. Credit plays a role in your everyday life, like finding housing, so before you rent or buy, be sure to review your credit standing — you can get two free credit scores each month on Credit.com. You may also want to make checking your credit a routine, so there are no surprises down the road.

More on Mortgages & Homebuying:

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Minimum Wage Can’t Cover Rent for a 2-Bedroom Apartment in Any State

housing-wage

You probably won’t be surprised to hear that there isn’t a single state in the U.S. where a worker earning minimum wage can afford the rent for a two-bedroom apartment — or, for that matter, a one-bedroom apartment. You might be surprised to learn that there isn’t a state where renters earning average pay can afford a two-bedroom apartment, either.

The National Low Income Housing Coalition crunched the numbers recently and found that a toxic mix of stagnant wages and rising rents has made things really difficult on a wide swath of U.S. wage-earners. It calculated a “housing wage” by determining how much workers would have to earn hourly to afford a “fair market rent” apartment for 30% of their income. By that measure, the national housing wage is $20.30 for a two-bedroom unit and $16.35 for a one bedroom — both far above even recently increased minimum wages.

But in many parts of the country, the numbers are even bleaker. Near Washington, D.C., the two-bedroom rental wage is about $31 an hour. In New York, it’s $27. In Maryland, it’s $26. In fact, in six staes and D.C., the housing wage is north of $25 an hour, the report says.

Another way of expressing the same problem: Using the national rates, a worker earning the federal minimum wage of $7.25 per hour would need to work 2.8 full time jobs, or approximately 112 hours per week, to afford a two-bedroom apartment. That renter would need to work 90 hours to afford a one-bedroom, according to the report.

“In only twelve counties and one metropolitan area is the prevailing minimum wage sufficient to afford a modest one-bedroom apartment,” the report says. Those regions are all in West Virginia and Washington state.

Meanwhile, the average hourly wage of renters in the U.S. is $15.42, which is $4.88 less than the two-bedroom housing wage.

“In no state is the mean renter wage sufficient to afford a two-bedroom apartment at the fair market rate,” the report points out.

Here’s one example of the troubling numbers at work:

In Washington state, fair market rent on a two-bedroom apartment is $1,203. That means a worker needs annual earnings of about $48,000 to afford that unit, or $23.13 per hour. Based on the state minimum wage, a worker would need 2.4 jobs full-time jobs to afford that. The real average renter wage in Washington is just $16.69, meaning a worker with an average-pay job needs 1.4 jobs to afford a two-bedroom place. In King and Snohomish counties, the region’s most expensive areas, the housing wage is much higher: $29.29.

Part of the problem is skyrocketing rents due to high demand and low supply. Vacancy rates are at their lowest levels since 1985, and rents have risen at an annual rate of 3.5%, the fastest pace in three decades, according to the housing group.

Another part of the problem I’ve written about before: Builders are less interested in constructing medium-prices housing at the moment for numerous economic reasons, preferring mostly high-end construction. This impacts availability of starter homes and rental units.

The National Low Income Housing Coalition says it is using a trust fund to help communities build and rehabilitate affordable rental homes.

“It is also critical to preserve and improve the nation’s public housing stock, expand the number of housing vouchers, and increase funding for other programs providing affordable housing to truly end this crisis,” the report says.

What is the housing wage for your state? You can find out on the map on this page. Remember that your earnings are only one of many things that determine your ability to find housing. Your potential landlord will probably look at a version of your credit report as part of your rental application, and bad credit rating or a history of payment problems could make it harder to find a place to live. A past eviction could be really problematic, as well, though it may not be a deal breaker.

It’s a good idea to review your credit before looking for housing, so you can check it for errors as well as be upfront about anything a landlord may find during a credit review. To keep track of where you stand, you can get a free credit report summary, updated monthly, on Credit.com.

More Money-Saving Reads:

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11 Ways I Saved Money By Leaving New York City

moving_out_of_city

It was a tough choice when I decided to leave New York City last year, just six years after I moved there. But, like a lot of people my age, I was seeing my future in New York as plagued with constant money frustrations.

The cost of the city isn’t easy to ignore. Every New Yorker (unless you make a seven-figure salary) talks about how expensive it is. It’s a conversation people have at every party, it’s a topic we’re constantly complaining about on Twitter, it’s a daily annoyance that permeates almost every decision you make. After all, you either have a monthly unlimited Metro card, stay in your neighborhood or pay $2.75 to go anywhere (that’s $5.50 for a roundtrip).

The tough part of leaving NYC wasn’t realizing it was outlandishly, unforgivably, unrelentingly expensive. The tough part was leaving the good friends — the family, really — I had in New York. But I knew certain dreams I had, like buying a home, were just not possible in a city where rent on a one-bedroom apartment within an hour’s commute of my office was continually edging closer to $2,000 a month. So I made the leap (or the drive, to be specific) and relocated to Richmond, Va.

Here are the big differences in cost I’ve discovered since leaving the big city for the South.

1. Housing Costs

I tell everyone this fact — my mortgage for a four-bedroom house (including taxes and insurance) is less than my rent for a one-bedroom apartment in NYC ever was. It may be the New Yorker in me (I wasn’t lying, everyone compares their rent price at parties in NYC), but I am still blown away at how much more I can afford outside of the city.

2. I Ended My Reliance on Seamless

Everything in NYC is just a little bit harder than everywhere else. It’s the same for other big cities, I’m sure, but every time I’d look at an elderly woman walking with her cart down the block to get groceries, I was reminded that there are conveniences other Americans are privy to that New Yorkers aren’t. One of those things is making food at home. I found it so hard to plan meals in advance and instead ended up relying on Seamless. I lived in Queens — one of the most diverse counties in America — and that diversity is reflected in the endless delivery options. Want a burger? There were at least four dozen places to get one. Sushi? Same thing.

The Seamless delivery options for my first apartment when I moved to Richmond? 11 total, mostly pizza places. And a few of them had a $9 delivery fee, making it an easy choice to stop ordering.

3. My Crock Pot Is My Best Friend

It’s hard to have a lot of appliances in your kitchen as a New Yorker. You’re lucky if you have enough counter space for a toaster oven, let alone a crock pot or a stand mixer or a juicer. Don’t get me wrong — people make it work, but it wasn’t until I moved to Richmond that I got appliances that have made spending less money on food easier.

My crock pot is a saving grace. I spend about $120 on groceries for a week and that provides every meal. I work from home, so I now wake up in the morning and, in the time I would have spent commuting in NYC, my husband or I get everything into a crock pot and turn it on. Dinner is ready hours later, and I don’t have to rely on high-cost but high-convenience options like fast food.

4. Drink Costs

Going out in a city where you drive everywhere naturally limits how much you drink while out. Also, instead of the average cocktail being $12, I’m paying $8 a drink. For a 20-something like myself, it adds up quickly.

5. Ubers/Lyfts/Taxis

A taxi ride home after a night out was my “splurge” in NYC. And by splurge, I mean all my discretionary income would end up going toward taxi rides. It was a vice. I have my own car now, so I drive everywhere. You might be saying, “but your car costs more than a monthly Metro card!” and you’re right. But when you add up what I spent on subway fares, cab rides and Ubers, I spend less every month on my car loan payment, gas and car insurance.

6. I Broke My Starbucks Addiction

I used to buy a venti skinny vanilla latte from Starbucks most days. Another vice. It was on the way to the office every day (in fact, there were two on my walk from the subway exit to my office door). Add it up — $5 a day (roughly) x 5 days a week x four weeks a month = $100 month. I make my own coffee now (Blanchard’s Dark As Dark, for any Richmondites). It’s $9 a bag and a bag lasts me and my husband a week. Total cost a month = $36. That’s a nice little savings.

7. Commuting

I work from home, I don’t commute. Monthly savings: $116.50 (price of an unlimited 30-day Metro card)

8. The ‘Walk From the Subway’ Splurge

Every now and then I’d walk home from my subway stop and see a really delicious-looking napoleon in a bakery window, or a sale sign on artisanal soaps or a new hair product that looked like it would make my hair longer, better, stronger, less frizzy. I’d stop and swipe my card. The daily temptation was hard to avoid, and it added up pretty quickly. When you walk by a store at least 10 times a week, it’s easy to stop in once in a while and justify it as a one-off expense.

9. Movie Tickets

A movie ticket in NYC was close to, if not more than, $15 per person. That means a night out with my husband was $30 minimum. In Richmond? Under $10 per person. A small savings, but we’re movie buffs and go to the movies often enough that it makes a small difference.

10. Buying In Bulk

Costco! I can’t tell you how much I love Costco. Granted, I’m a new devotee so the shine may have worn off for others, but I have really started to crunch the numbers and am figuring out how much buying in bulk can save me, especially for things I know won’t expire, like cleaning supplies. In New York City, I could’ve shopped at Costco, but I couldn’t store a massive pack of paper towels in my tiny apartment, so bulk buying wasn’t really an option.

11. Trips Home for the Holidays

I used to spend $600 a year getting a flight home to Ohio for the holidays. My husband would spend about the same to join me. Now, we can drive home. It takes a little longer, but with gas prices about $1.50 a gallon in our area, we drove home this year and back for less than $75 in gas costs. $75 in gas vs. $1,200 in plane tickets. It’s a big savings, especially around the holidays when everyone’s credit card balances are up (potentially hurting their credit scores — you can see if your credit scores are taking a hit for free on Credit.com).

Should everyone leave NYC? No! But leaving the city has its appeal.

More Money-Saving Reads:

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