Rising home prices, stalling wages and tough mortgage standards are making it more and more difficult for America’s middle class to become homeowners, according to a new study by Trulia.
In 20 of the top 100 metro-areas a majority of homes are now out of reach for middle class buyers. In San Francisco only 14% of for-sale homes are affordable for the middle-income buyer. In Los Angeles only 23% are available and in New York just 25% are. Middle-income buyers are much more likely to find housing in the Midwest - cities in Ohio accounted for five out of the 10 most affordable.
Trulia calculated affordability by figuring out whether monthly payments - including mortgage, insurance, and property taxes - were less than 31% of the metro area’s median household income.
“There are several factors going into this,” says Yahoo Finance’s Henry Blodget. “You’ve got a lot of investors coming in buying up houses, driving the prices up and turning around and renting them so that’s playing a role.”
The second biggest factor according to Blodget? Wages. “Middle class wages are not doing well, they’re not keeping up and the middle class is getting steadily poorer.”
“Part of this also,” points out Yahoo Finance editor-in-chief Aaron Task, “is that banks have been very miserly with lending since the financial crisis because the pendulum swung too far during the bubble, you know if you could fog a mirror you could get a mortgage. But now you have to have a credit score of 795 and at least 20% down and all kinds of income verification.”
Melvin L. Watts, director of the Federal Housing Finance Agency which oversees Freddie Mac and Fannie Mae, encouraged broader credit access in a speech yesterday. "Housing finance is such a critical part of the economy," he said. "To stop or stand in place is just not an option."
“It’s tough,” says Blodget, “but if we want to encourage home ownership, then maybe the standards get loosened a little bit.”
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