New Data Shows Just How Outrageous The Cost Of Housing Is

When we talk about housing we tend to focus on big cities, the suburbs or much smaller cities. 

For example, from Rage Against The Housing Market Machine: 

If you’re looking to buy in LA, where the median home price is roughly $980,000, as of March 2023, you’re looking at a monthly payment in the neighborhood of $5,500. Significantly more than Redfin’s national figure of $2,538.

Or, from These Suburbs Near Big Cities Provide Housing ‘Bargains’:

Specifically, the best suburban deal on a percentage basis is Medley, Florida, just outside of Miami. Square footage costs 65% less in Medley than Miami. From a raw dollar standpoint, you’ll spend $401 less per square foot in Novato, CA, than you will in San Francisco.

You respond well to our installments on the cost of housing – and the subsequent housing crisis – so we figured we’d break it down even further. 

Because there are cities – defined as secondary cities – that come in between places such as San Francisco and Los Angeles and Medley and Novato. Places where renters would often migrate to realize the dream of home ownership. However, according to a recent analysis, this dream is dying, if not dead for an increasing number of renters. 

Point2 looked at 100 secondary cities – large, but not core cities within major metro areas – and found that the transition from renter to homeowner simply can’t happen for quite a few households. The overall cost of housing,  combined with a dwindling and, in some places, non-existent supply of starter homes, makes the move financially precarious, if not impossible. 

• In 41 of America’s top 100 secondary cities, renters make less than half of what they’d need to afford the median-priced starter home (which are properties in the bottom third of all available homes for sale). 
• In 10 cities, the typical renter would require about three times what they currently earn. 
• In 15 of these secondary cities, they’d need less than four months’ worth of extra income to get into a starter home. 
• In Independence, MO and Broken Arrow, OK, renters would only need just under one month of additional income to purchase a starter home. 

On the flip side, renters in Burbank and Glendale, California (spitting distance from Los Angeles) are most screwed. They earn about two-thirds less, on average, to realize the runaway American dream of home ownership. 

Here’s how the aforementioned discrepancies look in raw numbers: 

• In Burbank and Glendale, the typical renter household earns $63,000 and $55,000 a year, respectively. To afford the typical starter home, they would need to make $193,000 a year in Burbank and $167,000 in Glendale. 
• Setting notoriously expensive California aside, the typical renter household in Gresham, Oregon (just outside of Portland) brings in $41,000. To afford the standard starter home, they’d need to earn $94,000. 
• In Indepence and Broken Arrow, there’s some relief a simple part-time job or side hustle might provide. Renter households in Independence and Broken Arrow make $38,000 and $51,000, respectively, and would need to haul $39,000 and $54,000 to afford that shiny new starter home. 

Even still, the down payment could be a barrier to entry. For example, the typical starter home in Broken Arrow goes for $202,986, requiring $40,597 up front if you put 20% down. In Independence, the numbers are $137,486 and $27,497. 

For the record, this analysis assumed a 20% down payment and 6.4% interest rate on a 30-year mortgage. It factored property tax and insurance into the equation. It also used the common standard for housing affordability – that you should not spend more than 30% of your income on your total housing expense. 

The Bottom Line: Location, location, location doesn’t mean what it used to. These days, moving from one location to another doesn’t ease the brunt of housing costs. To really secure a deal, you tend to have to go to ultra small cities or into rural areas. If this is your preference, you’re ahead of the game and, quite possibly, already set. 

For the rest of us, the down payment required, even if it’s in Broken Arrow rather than Los Angeles, can put home ownership out of reach. Because, don’t forget, right alongside the housing crisis The Juice keeps you up to date on, there’s a credit card debt crisis percolating. If you’re struggling to make ends meet amid inflation and the high cost of housing, we can only assume your chances of affording a down payment, let alone securing a mortgage aren’t all that great.

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