2009's Most and Least Affordable U.S. Housing

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With historic low prices, in years to come many Americans will look back on 2009 as the year they should have bought a new house

Buying a house in the U.S. hasn't been this affordable in a generation. Not only have housing prices plunged from Miami to Los Angeles, but interest rates are near historic lows. And for first-time buyers who act fast, Uncle Sam will kick in $8,000 toward the purchase.

Interestingly, the most affordable and least affordable housing markets haven't changed much since the housing market was booming a few years ago. Last year, the most affordable housing markets were dominated by cities in Indiana, Ohio, and Michigan, and the same is true this year as well. Midwestern home buyers get the best bang for their buck. And most homes sold in pricey East and West Coast metros remain unaffordable for average earners.

Dennis Torres, Executive Director of Real Estate Operations at Pepperdine University, said the housing crash and low interest rates have combined to create a once-in-a-generation opportunity for buyers. "People are going to talk about this as 'I could have, I should have' for decades," he said. "If you're confident that you'll stay in the location for seven years and you're confident of your income, don't walk, run."

Housing is at its most affordable level since the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) began tracking affordability in 1991. In the second quarter, 72.3% of new and existing home sold were affordable to families earning the median income (down a tiny fraction from the previous quarter but up from 55% a year earlier).

Affordability at Record Highs

The National Association of Realtors' own affordability index, which stretches back to 1981, says that this July's level set a lifetime record for the month. Home prices in Northeast metros such as New York -- which remains the least affordable metro in the country -- have dropped somewhat. But the most significant improvements are in California, Florida, Nevada, Arizona and other hard-hit markets. In San Francisco, the second least affordable metro with a median home price of $580,000 , 26.9% of homes sold in the second quarter were affordable to a family earning the median income of $96,800. That's a big improvement from the same period in 2004 when only 13.3% of homes were affordable for median earners.

Flagstaff, Ariz., the 10th least affordable metro and a popular tourist stop for visitors to the Grand Canyon, is trying to boost affordability by raising the salaries of its residents. It is nurturing the biosciences, renewable energy and other high-paying industries, said Vice-Mayor Al White.

Dave Romero, mayor of San Luis Obispo, Calif., the third least affordable metro in the nation, said home prices remain relatively strong because the city has limiting the supply of properties by limiting growth. The affordability ranking is impacted the many students from nearby California Polytechnic State University living in the area who pull down the median income, he said.

For old-time residents, housing costs can be reasonable. Romero, for example, built his 1,800-square-foot home for $23,000 in 1959. "The real affordability problem is for people trying to buy a new house," he said. "Young families have a really tough time."

Greg Goodnight, mayor of the nation's most affordable metro, Kokomo, Ind., said nice homes aren't for the privileged few in Kokomo. In the second quarter, 97.5% of homes were affordable for families earning the median income in the metro of $61,800. It helps that the median home price was just $79,000. A visit to real estate Web site Trulia.com reveals 94 homes for sale in the area priced between $50,000 and $100,000, most of which with have three bedrooms or more and a garage.

But job reductions at Kokomo's Chrysler plants have pushed unemployment above 14% and made it impossible for many families to even consider a home purchase. Still, the city remains home to four plants -- one stamping and three transmission plants -- all of which are part of the new Chrysler.

"You can get a nice home for $60,000 here with nice amenities and a two-car garage," Goodnight said. "The houses are probably just as inexpensive as other Midwestern cities, it's just that we have a slightly larger wage."

2009's Most and Least Affordable U.S. Housing

When we ran the 2008 version of the Most and Least Affordable Housing Markets in the U.S., the housing downturn was already well under way but the economy had yet to be rocked by the financial meltdown brought on by the collapse of Lehman Brothers. Since then housing continued to decline as foreclosures rose and unemployment deepened. Not surprisingly, the industrial heartland of America, much of it largely dependent on the struggling automotive sector, has been hardest hit. That explains why states such as Indiana, Michigan, and Ohio are home to the nation's most affordable housing markets. The winner? Kokomo, Ind. The nation's least affordable? No surprise there: the area around New York City.

Most Affordable

1. Kokomo, Ind.

Homes affordable to median-income families: 97.5%
Affordable homes in Q2 2004: N/A
Median home price: $79,000
Median family income: $61,800
Unemployment rate: 14.4%


Kokomo, the most affordable town in the nation, is about an hour outside Indianapolis and is home to Indiana University at Kokomo, which serves an 11-county area in north central Indiana. The town, which is home to a Chrysler transmission plant that employs 1,800 workers, has seen its unemployment rate shoot up above 14%. But its median family income is still relatively high, while its home prices are low.

2. Lansing-East Lansing, Mich.

Homes affordable to median-income families: 96.2%
Affordable homes Q2 2004: 90.6%
Median home price: $88,000
Median family income: $67,000
Unemployment rate: 12.7%

3. Mansfield, Ohio

Homes affordable to median-income families: 95.2%
Affordable homes in Q2 2004: 87.5%
Median home price: $79,000
Median family income: $55,600
Unemployment rate: 14.3%

4. Elkhart-Goshen, Ind.

Homes affordable to median-income families: 94.9%
Affordable homes in Q2 2004: N/A
Median home price: $104,000
Median family income: $59,200
Unemployment rate: 16.7%

Least Affordable

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1. New York-White Plains, N.Y.-Wayne, N.J.

Homes affordable to median-income families: 21.2%
Affordable homes in Q2 2004: 15.2%
Median home price: $419,000
Median family income: $64,800
Unemployment rate: 9.6%

Manhattan is world famous for its culture and nightlife, but living in or near the city requires most people to stretch their finances. The suburbs include ultra-wealthy Greenwich, Conn.; Alpine, N.J.; and Scarsdale, N.Y. Long commutes are common in the tri-state area because land gets more affordable away from New York.

2. San Francisco-San Mateo-Redwood City, Calif.

Homes affordable to median-income families: 26.9%
Affordable homes in Q2 2004: 13.3%
Median home price: $580,000
Median family income: $96,800
Unemployment rate: 9.3%

San Francisco is one of the most beautiful cities in the world. It's also one of the most expensive. It's a progressive city with a vibrant economy, a vibrant arts and cultural scene, and a busy seaport. The University of California at San Francisco is one of the nation's top medical colleges. The city has become a biotech and technology center like neighboring Silicon Valley.

3. San Luis Obispo-Paso Robles, Calif.

Homes affordable to median-income families: 31.8%
Affordable homes in Q2 2004: 10.2%
Median home price: $364,000
Median family income: $70,800
Unemployment rate: 9.5%

San Luis Obispo, a coastal city located between Los Angeles and San Francisco, is surrounded by mountains and is popular for hiking, biking, rock climbing, boating, waterskiing, and other outdoor activities. The metro is home to California Polytechnic State University.

4. Ocean City, N.J.

Homes affordable to median-income families: 32.6%
Affordable homes in Q2 2004: N/A
Median home price: $350,000
Median family income: $67,200
Unemployment rate: 8.0%

Ocean City is a popular beach resort in Cape May County. It has eight miles of beaches, a 2.5-mile boardwalk, two amusement parks, a water park, and a downtown shopping district.

Editor's Note: The metropolitan statistical areas (click here to learn more about MSAs) included in this story were ranked based on the share of homes sold in the second quarter of this year that would have been affordable to a family earning the local median income. Affordability is calculated by comparing the median household income to housing costs, assuming that a family can afford to spend 28% of its gross income on housing. The housing costs were calculated using new and existing sales records supplied by First American Real Estate Solutions and include principal, interest, estimated property taxes, and insurance. It's based on a 30-year fixed-rate mortgage for 90% of the sales price. The interest rate is a weighted average of fixed and adjustable rates during the quarter as reported by the Federal Housing Finance Board. The median household income estimates are published by the Housing & Urban Development Dept.

Source: National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index

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