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More U.S. cities become cost-burdened by mortgages

·2 min read
House price pressure
“Mortgages are becoming less affordable and buyers are becoming more cost burdened than they were 10 years ago,” said Monica Alistar at Point2.

Mortgage rates hit a record-low for the 15th time this year the week of December 10. But in many cities, homeownership is still unaffordable.

Home prices rose faster than wages in 53 out of the top 100 largest cities in the U.S. over the past decade, according to a new study by Point2, a Santa Barbara, Calif.-based real estate search portal owned by Yardi System.

“More and more cities in America are becoming unaffordable,” said Monica Alistar, a communications strategist at Point2. “The most important takeaway is that despite mortgage rates being at a low point right now, home prices and wages can’t keep up.”

In five cities — North Las Vegas, Nev., Las Vegas, Paradise, Nev., Aurora, Colo., and Stockton, Calif. — there was more than a 50% difference between rises in home prices (89%-104% growth) and income (20%-44% growth). For instance, in North Las Vegas, home prices rose 104%, while wages increased only 29%, according to the study.

“Mortgages are becoming less affordable and buyers are becoming more cost burdened than they were 10 years ago,” said Alistar.

In 2020, housing costs represented more than 30% of income (the threshold for being considered cost burdened) in 15 top U.S. cities, up from only 13 cities in 2010, according to the study. Three cities in California — San Francisco, Fremont and San Jose — joined the list of housing-burdened cities in 2020, while Newark, N.J., left the list.

Most cost-burdened cities are on the West Coast. In 2020, Americans spent the highest percentage of their income on housing costs in Honolulu (41%), Los Angeles (41%), Oakland, Calif. (39%), San Francisco (39%) and New York (39%).

“We were expecting California to be a hot point. These markets are by default unaffordable,” said Alistar. “Out of the 15 most unaffordable cities, 11 are in California, and that says a lot about what happens there in terms of real estate and affordability.”

To live within the recommended 30% range for housing costs, homebuyers in the most cost-burdened cities would need to earn at least $10,000 more than their current salaries — over $30,000 more in Honolulu and Oakland, Calif.

“In San Francisco homeowners would need to earn $43,500 more than they do now to make housing affordable. So that’s really a lot. This is important because homeowners would have to earn a lot more to make sure they’re not cost burdened,” said Alistar.

Sarah Paynter is a reporter at Yahoo Finance.

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