A new study by real estate portal Zillow suggests that more than 40 percent of Boston-area homes may be unaffordable for median-income buyers. Around the country, more than half of homes currently on the market in seven major American metros are unaffordable for local residents, according to a Zillow analysis.
California buyers are among the worst off in terms of affordability, with three cities in the Golden State ranking in the top five for least affordable among the 35 major metros Zillow surveyed. But it was Miami that ranked as the most unaffordable city, with 62.4 percent of homes listed for sale unaffordable. Next in line were Los Angeles (57.2 percent), San Diego (55.3 percent), San Francisco (55.2 percent), Denver (52.8 percent), San Jose (50.9 percent) and Portland, Ore. (50.3 percent). Boston’s 40.1 percent unaffordability rate ties it with Washington, D.C. for 15th place among the 35 largest cities in the U.S.
Zillow determined affordability by analyzing the current percentage of an area’s median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000. If the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, that home is considered unaffordable for typical buyers.
Nationwide, just one-third of homes (33.6 percent) are currently unaffordable, and in many metro areas, the majority of homes remain more affordable now than they have been historically for buyers making the area’s median income.
"As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options," Zillow Chief Economist Stan Humphries said in a statement. "We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas."
Currently, homebuyers making the median income in greater Boston should expect to pay about 22 percent (or about $1,380/month) of their monthly income on mortgage payments, compared with 27.8 percent during the pre-bubble years (1985-2000), according to Zillow’s analysis. If mortgage rates rise to 5 percent in the next year, Zillow expects homeowners in the Boston metro to be spending 24.9 percent of their monthly income on mortgage payments.
