Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Affordable Housing: An Afterthought For the Middle Class

Written by Than Merrill

Housing sector turmoil, in the wake of the decline, has generated a degree of uncertainty on a national level. Every class, from the upper to the lower, has been impacted in one way or another. Of particular concern, however, is the current situation facing middle class homebuyers. Rising home prices, higher interest rates, stagnant incomes and fewer available foreclosures are making it increasingly difficult for the middle class to pursue the acquisition of a home. More specifically, the majority of Americans are finding fewer homes on the market that they can afford.

According to Trulia, a popular real estate valuation site, more than half of the for-sale homes in the month of October were out of the price range for middle class buyers in 14 of the top 100 metropolitan markets. Conversely, the previous year only witnessed eight of the leading metros exhibit a propensity over-budget properties.

To gauge the current situation, Trulia considers homes affordable for middle class buyers if their total monthly payment — after a 20% down payment and including taxes and insurance — is less than 31% of their metro area’s median household income.

Recent trends within the housing sector witnessed home prices and interest rates climb beyond expectations, forcing affordability to become a commodity relegated to the past. According to CoreLogic, on a national level, home prices increased approximately 12% in August year-over-year. Subsequently, Trulia’s recent assessment accounts for an interest rate of 3.5% that accompanied 30-year fixed mortgages from last August. Similar mortgages were the unfortunate recipients of a 4.5% fixed rate this year, making houses that much more difficult for prospective buyers to acquire.

Contributing to the difficulty for potential middle class buyers is a distinct lack of distressed properties being made available. Foreclosures and short sales are dramatically down from this time last year. According to the National Association of Realtors (NAR), 12% of existing home sales in August were of the distressed classification, down from 24% last year. Of those metros that participated in the review, only Rochester, N.Y. saw an increase in the amount of distressed properties made available to middle class buyers.

While the availability of affordable homes has decreased in 99 metros since last October, the rate of decline appears to be faster in certain regions. Orange County, in Southern California, experienced a 44% decrease in homes that were deemed affordable to the middle class. As of now, only 23% of the homes for sale in this area are affordable to middle class buyers.

“People have missed the boat,” says Orange County Realtor Cindee Cano.

Perhaps even more concerning, however, is the location in which these decreases are taking place. According to Trulia, 11 of the 20 metros with the biggest drops in housing affordability for middle class buyers have been in California. In the latest housing affordability index released by the National Association of Home Builders (NAHB), California hosts four of the top five least affordable housing markets.

The following markets reflect the least number of affordable homes for middle class Americans:

  • San Francisco: 14.2% of homes are affordable to the middle-class in San Francisco.
  • Orange County, CA: 23.1% of homes are affordable to the middle-class in Orange County.
  • Los Angeles: 24% of homes are affordable to the middle-class in Los Angeles.
  • New York: 25.3% of homes are affordable to the middle-class in New York.
  • San Diego: 28.4% of homes are affordable to the middle-class in San Diego.

Despite the recent decline in available homes that fit middle-class criteria, housing affordability on a national level remains historically high. In 40 of the 100 metro areas, 70 percent or more of the homes remained within reach to middle-class buyers.