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Homebuying prospects dim for the middle class

New research shows that in many markets, homeownership is increasingly out of reach for the middle class.

By MSN Money Partner May 21, 2014 4:11PM

This post comes from Krystal Steinmetz at partner site Money Talks News.

Money Talks News on MSN MoneyThe American dream of owning a house is out of reach for a growing number of middle-class Americans.

Toy house sitting on money © Vstock, Tetra Images, CorbisA new report from real estate research firm Trulia shows that in the past year, mortgage rates have gone up and home prices have increased faster than incomes across much of the U.S., effectively pricing more people out of the housing market.

In the past year, the number of for-sale homes that are affordable to the middle class has dropped in 98 of the 100 largest metropolitan areas. Jed Kolko, Trulia's chief economist, said:

More than 4 out of 5 homes for sale in Detroit and Cleveland are within reach of the middle class, compared with 1 out of 4 in New York and Los Angeles and 1 out of 7 in San Francisco. Middle-class affordability is worsening in expensive markets and won't improve long-term without more construction.

A home is considered affordable by Trulia if its monthly costs (after a 20 percent down payment) -- including mortgage, insurance and property taxes -- are less than 31 percent of a region's median household income.

The top five most and least affordable housing markets for the middle class, including the percentage of for-sale homes that middle-class Americans can afford to purchase, are as follows:

Most affordable

  1. Akron, Ohio -- 86 percent.
  2. Toledo, Ohio -- 84 percent.
  3. Dayton, Ohio -- 83 percent.
  4. Gary, Ind. -- 83 percent.
  5. Columbia, S.C. -- 82 percent.

Least affordable

  1. San Francisco -- 14 percent.
  2. Los Angeles -- 23 percent.
  3. Orange County, Calif. -- 24 percent.
  4. New York City -- 25 percent.
  5. San Diego -- 28 percent.

Homeownership is a pipe dream for less educated Americans, according to Trulia. The study found that owning a home is out of reach for the less educated in the majority of the top 100 metros. Kolko said:

Even within a local market, affordability depends on where you land in the income distribution; and how much education you have often shapes your income today and in the future. In fact, your education level can matter as much as where you live when it comes to whether you can afford to buy a home.

So if you're a middle-class American, your prospects for homeownership look pretty good in the Midwest, but you've been priced out of the market in much of California and the East Coast.

While this is bad news for many middle-class Americans, it could be worse. According to USA Today:

By historical standards, homes are still relatively affordable as the nation continues to recover from the 2007 housing crash. Nationally, home prices late last year were 20 percent above their 2011 nadir but 21 percent below their 2006 peak, according to CoreLogic Case-Shiller Indexes. … Interest rates remain low. And buying is cheaper than renting in all of the 100 metro areas, Trulia's study found.

Does it surprise you that the middle class is being priced out of buying a home in many markets?

More from Money Talks News

May 21, 2014 10:23PM
I have real problem with the term "income distribution." Income is EARNED, not "distributed."  For most people (not including corporate CEOs, athletes, entertainers, politicians, and other "out-of-whack-with-reality" earners, your earnings (NOT income distribution) is based on your worth to anemployer. Engineers are worth more than high school drop-outs.

May 22, 2014 11:34AM
Again... Whats wrong with renting or saving your money for later? Many Americans want what they can't have and bite off what they can't chew. That's part of the problem we now face from a long time ago. Barrow to the max and then whine about now having enough money . Nice house , car or truck and boat. Can you afford them or does it really matter at this period of time?

Me - I’m going to rent until I have enough money to buy a comparable place in full. And only when I find a place I want to spend the rest of my life in.

While waiting for that, I will make smart decisions with my money:

1) Paying off my debts as they come to me. Never holding a credit card balance longer than a month. If this means living in a small studio apartment and eating ramen, rice, and beans, so be it.

2) I will always buy small, fuel efficient and durable cars. I drive a 2006 Honda Civic now. It costs me nothing to fill up and next to nothing to insure ($25/month from Insurance Panda… woohoo!). I will not drive when I don’t need to, and use public transportation whenever possible.

3) Developing multiple revenue streams. Doing side jobs. Building up small businesses. Doing contract work. Basically doing whatever I can to generate income from multiple sources.

4) Grow my revenue and assets no matter what. Make sure I am always expanding and develop them to the point that they consistently generate reliable cash flow.

5) The most important one - make as much as I can. Save as much as I can.

May 22, 2014 7:58AM
I live on the East Coast and have seen many older people taxed out of their homes that have been in their families for generations. Our taxes here are getting out of control. The only people who can afford to buy homes and live here now are the rich who move in from other states. Our towns do not appear to care because their reasoning is that if we can't afford to pay high property taxes, then there will be an out-of-stater who would love to move into our homes. They consider our property taxes a good deal compared to where they moved from. 

Our highest part of our taxes go to our schools and their nice iPads, iMacs (one for each kid -who break them at our expense because of no respect for the expensive tool they are trusted with) and Taj-Mahal like school "campuses".  I won't even go into high administrative costs that is also sucking us dry. 
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