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RELEASE: AEI Center on Housing Markets and Finance Announces the 10 Best and Worst Metropolitan Areas for First-time Homebuyers

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December 04, 2018

FOR IMMEDIATE RELEASE: Washington, D.C. (December 4, 2018) — A new study from the AEI Center on Housing Markets and Finance ranks the affordability of 50 metropolitan regions in the US for first-time homebuyers by using the ratio of home prices to incomes, with Pittsburgh being the most affordable and San Jose the least.

Specifically, AEI scholar Edward Pinto and Senior Research Analyst Tobias Peter calculate the median home-price-to-income ratio for the 50 largest metropolitan areas by using government-guaranteed loan transactions to obtain actual 2017 home prices and the income of borrowers.

This was made possible by AEI’s new merged property and mortgage financing data set, which consists of 2.7 million first-time-buyer loan transactions. In addition to calculating the price-to-income ratios, Pinto and Peter also factored in the square footage and the price per square foot of living area.

Across the 50 metro areas, the ratio was 3.3. This ratio indicates that median first-time homebuyers bought a house worth 3.3 times their household income.

The 10 most affordable cities for first-time homebuyers had an average ratio of 2.6, while the 10 most expensive ones had an average ratio of 4.3.

Based on these new findings, Pinto and Peter note that it is much easier to become a first-time buyer in some parts of the nation than in others. Among their key findings:

  • Both house prices and incomes are higher in the 10 least affordable metropolitan areas compared to the 10 most affordable ones. Incomes were 51 percent higher in the 10 least affordable than in the 10 most affordable ($92,000 versus $61,000). But higher home prices more than canceled out this extra income. The median price of a home in the 10 least affordable metro areas was 2.5 times more expensive than in the 10 most affordable areas ($409,000 versus $159,000).
  • When it comes to being able to easily buy your first home, it’s not how much you make, but where you buy. While first-time homebuyers in both Houston and Portland had similar median incomes, buyers in Portland paid 52 percent more than in Houston. On a price-per-square-foot basis, median first-time homebuyers in Portland paid twice as much as the median ones in Houston ($207 per square foot versus $100 per square foot).
  • Homes for a first-time buyer are similar in size across the country. A more expensive house doesn’t mean a bigger house. The median finished square footage of homes for first-time buyers was similar for the 10 least affordable areas and the 10 most affordable ones (1,363 square feet versus 1,428 square feet).
  • Affordability has remained relatively constant in the most affordable metropolitan areas, but it has worsened in the least affordable ones. In the 10 most affordable metro areas, the first-time homebuyer affordability ratio increased from 2.5 in 2013 to 2.6 in 2017. This is the result of a modest increase in the median price of purchased homes (+7 percent over five years) combined with a lower increase in median income (+4 percent over five years).In the 10 least affordable metro areas, the first-time homebuyer affordability ratio had a larger increase (from 4.0 in 2013 to 4.3 in 2017). The ratio would have increased even more had it not been largely offset by an increase in median incomes (+16 percent over five years) to counteract the substantial increase in the median price of purchased homes (+24 percent over five years).

    First-time homebuyers in Denver lost the most ground, as their affordability ratio increased from 3.5 in 2013 to 4.1 in 2017. This is because Denver has had strong home price gains (+48 percent over five years), which greatly outstripped the increase in income (+20 percent over five years).

Please click here for the study’s methodology and for the measurement of house pricing trends.

To arrange an interview with Edward Pinto or Tobias Peter, please contact Joy Fan at [email protected] or 202.419.5210.

The American Enterprise Institute (AEI) is a public policy think tank dedicated to defending human dignity, expanding human potential, and building a freer and safer world.