Even in more expensive metro areas in the United States there are cities with affordable homes but buyers face high prices in sought after locations, new research suggests.
The San Jose metro has been one of the hottest housing markets in the country and buyers in Palo Alto, for example, can expect to spend 75% of their income on a mortgage, according to the report from real estate firm Zillow.
But just 15 miles away, buyers in Milpitas, California, need only spend 35% of their income on a mortgage and this example of disparity in the Silicon Valley demonstrates how hot housing markets are fuelled by cities where high demand for jobs and amenities drive housing values to far outpace incomes.
The phenomenon is one reason there is more inequality in very expensive markets and Zillow’s latest research on mortgage burdens at the city level illustrates how hot spots within popular housing markets have caused runaway housing costs that place significant burdens on the people who live and work there, even as the cities next door remain more affordable.
However, choosing a more affordable city likely requires trade-offs, such as fewer amenities or longer commutes, the report points out. The Bay Area and other expensive West Coast markets get a lot of attention for being unaffordable, but even they have some areas where the share of income spent on housing is relatively low.
But buyers have to be willing to make some trade-offs to live in more affordable cities within the high priced metros, according to Zillow chief economist Svenja Gudell. ‘Some cities in the most in-demand housing markets across the country have such a high housing burden that they are simply not feasible for buyers with lower incomes,’ she said.
‘If income growth doesn’t keep pace with home value growth, especially as mortgage rates rise, inequality will persist,’ she added.
In San Francisco, the report suggests, the flourishing tech industry and physical boundaries of the city have created a housing market with a high housing burden and buyers in San Francisco need to spend nearly 54% of their income on mortgage payments. Across the bay, homebuyers in Oakland fare a little better at 42% of the typical household income.
Within the Seattle metro, Bellevue buyers would have to spend the greatest share of income on housing at 29.6% but less than 10 miles away in Kirkland buyers only need to set aside 22% of their income to pay their mortgage.
This phenomenon doesn’t play out in less heated housing markets. Buyers in almost any part of the Kansas City metro, for example, can expect to spend between 7.3% and 13.2% of their income on a mortgage.
Similarly, buyers in the Las Vegas metro can expect to spend between 14.4% and 18.9% of their income on mortgage payments, no matter which city they are in.
Buyers moving to the Detroit suburbs will have similar mortgage burdens, with buyers having to spend between 10.2% and 15.3% of their income on mortgage payments. The city of Detroit itself has the smallest mortgage burden in the country at just 5.9% of the typical income needed to pay the monthly mortgage.
