Low inventory and high demand is pushing up home prices across the United States, according to the latest report from real estate data company CoreLogic. Prices were up 7.1% in November 2016 compared to November 2015, and will climb another 4% by late 2017, CoreLogic predicts. If home prices rise at the expected pace, that will put them at the same level they were at in April 2006, not long before the housing market crashed.
High price increases don’t necessarily mean we’re in the midst of another housing bubble, at least according to some experts. Stronger underwriting standards and an absence of the overbuilding that helped trigger the mortgage crisis are signs the housing market is healthy, according to Nationwide’s Health of Housing Markets Report.
“Home prices reaching or even passing their pre-crash highs of a decade ago does not signal a bubble in the near future,” David Berson, Nationwide’s senior vice president and chief economist, said in a statement. “Even with record-high prices in some markets, housing remains relatively affordable.”
Others aren’t so sure housing is still affordable, though. “This continued price appreciation is contributing to a growing affordability crisis in many markets around the country,” Anand Nallathambi, president and CEO of CoreLogic, said in October.
Whether rising prices are cause for alarm, it is clear that in certain high-priced markets, you need to earn a lot of money to be able to afford a home. The average annual wage in the U.S. hovers just below $50,000, but in many large cities, you’d find it difficult to buy a home on that salary, at least according to research by HSH.com, which provides information about mortgage and consumer loans.
Using 2016’s third-quarter median home price data from the National Association of Realtors and the average interest rate for a 30-year fixed-rate mortgage, HSH.com was able to determine how much you would need to earn to afford a new home in 27 of the largest U.S. cities. When available, they factored in information about property taxes and homeowners insurance to get more accurate estimates. They also assumed people would spend 28% of their monthly income on a mortgage payment and put 20% down.
On average, you need to earn about $52,000 a year to buy a home in the U.S. But in cities like Phoenix, Cincinnati, Tampa, and St. Louis, you could earn less than $45,000 per year and still be able to afford the average home in your city (assuming you could save enough for a 20% down payment.)
In some other cities, however, homes have become increasingly unaffordable. In the following 11 cities, you’d need to bring home more than $65,000 every year to get a foot into the housing market.
- Salary you need to buy a home: $64,748
- Average annual wage: $53,340
- Average home price: $327,000
- Monthly mortgage payment: $1,511
- Mortgage rate: 3.61%
Home prices in California’s capital city in the third quarter of 2016 were up 12.22% from the same period in 2015. You need to earn roughly $65,000 per year in order to afford to buy a home.
- Salary you need to buy a home: $64,879
- Average annual wage: $45,110
- Average home price: $315,000
- Monthly mortgage payment: $1,514
- Mortgage rate: 3.59%
In Miami, home prices rose 8.62% between the third quarter of 2015 and the third quarter of 2016. With the average home in the area selling for $315,000, you’d need to earn about $65,000 annually to afford to buy.
9. Portland, Oregon
- Salary you need to buy a home: $69,786
- Average annual wage: $52,140
- Average home price: $358,500
- Monthly mortgage payment: $1,628
- Mortgage rate: 3.67%
In Portland, Oregon, home prices rose 12.28% from 2015 to 2016. However, prices were relatively stable from the second quarter to the third, and interest rates were down slightly, which meant that the required salary to buy a home fell by $827.
- Salary you need to buy a home: $70,741
- Average annual wage: $54,450
- Average home price: $386,800
- Monthly mortgage payment: $1,651
- Mortgage rate: 3.63%
Home prices in the Mile High City fell almost 2% from the second to third quarter of 2016. In turn that meant the salary required to buy a home also fell by $2,000, to $70,741. Still, that number is roughly $15,000 more than the average annual wage in the Denver area.
7. Washington, D.C.
- Salary you need to buy a home: $78,460
- Average annual wage: $65,910
- Average home price: $393,500
- Monthly mortgage payment: $1,831
- Mortgage rate: 3.52%
Home prices in the Washington, D.C., metro area rose a modest 1.73% between third quarter 2015 and 2016. But you’d still need to earn nearly $79,000 annually to afford a home in the nation’s capital.
- Salary you need to buy a home: $81,774
- Average annual wage: $59,060
- Average home price: $422,100
- Monthly mortgage payment: $1,908
- Mortgage rate: 3.76%
Seattle home prices jumped a little more than 9% from 2015 to 2016. However, price gains from the second to the third quarter were just 0.38%. Combined with slightly lower mortgage rates, home affordability increased a bit. The average monthly mortgage payment was $21 lower in third quarter compared to the second.
5. New York
- Salary you need to buy a home: $85,488
- Average annual wage: $59,990
- Average home price: $397,600
- Monthly mortgage payment: $1,995
- Mortgage rate: 3.56%
The average home in the New York metro area costs nearly $400,000, and you’d need to earn just under $86,000 to afford the purchase ($98,820 if you only put 10% down). The silver lining for would-be buyers is that prices were mostly flat year-over-year.
- Salary you need to buy a home: $86,054
- Average annual wage: $65,860
- Average home price: $435,300
- Monthly mortgage payment: $2,008
- Mortgage rate: 3.5%
You need to make about $86,000 per year to afford the typical home in the Boston metro area. Though average home prices increased roughly 15% from the first to second quarter of 2016, they actually fell by 0.11% from the second to the third quarter. As a result, the average salary you needed to buy a home in Boston fell by about $1,500.
3. Los Angeles
- Salary you need to buy a home: $100,147
- Average annual wage: $54,000
- Average home price: $536,700
- Monthly mortgage payment: $2,337
- Mortgage rate: 3.65%
Los Angeles has the biggest quarter-over-quarter price increase of any city on HSH.com’s list, with home prices up 11.81%. Year-over-year, prices are up 5.90%. The city is now one of three in the U.S. where you need a six-figure income in order to buy a home. And with the typical property selling for more than half a million dollars, you’d also need to come up with more than $100,000 for a 20% down payment.
2. San Diego
- Salary you need to buy a home: $108,654
- Average annual wage: $54,210
- Average home price: $589,300
- Monthly mortgage payment: $2,535
- Mortgage rate: 3.78%
San Diego is one of three metros where you need to earn more than $100,000 per year to afford the average home. Real estate prices in the city climbed roughly 6.3% from 2015 to 2016. You’d need $117,860 to make a 20% down payment on the average home in this Southern California metro.
1. San Francisco
- Salary you need to buy a home: $152,173
- Average annual wage: $66,900
- Average home price: $835,400
- Monthly mortgage payment: $3,551
- Mortgage rate: 3.66%
You’d need to earn well into the six figures to afford the typical house in the Bay Area, HSH.com found, and homes are only getting more expensive. Prices in the second quarter of 2016 were up 5% from the same time in 2015 (though they did fall quarter-over-quarter). You’d need $167,090 to put 20% down on an $885,600 home. A 10% down payment equals $83,540, but your income would need to be $184,415 to comfortably afford the payments.