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Less Than Half of U.S. Cities Are Affordable For People Who Earn a Median Income

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Less Than Half of U.S. Cities Are Affordable For People Who Earn a Median Income

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Most big American cities are no longer affordable for the average worker.

Home buyers earning a median income can only afford a median-priced home in 10 of the 25 largest metropolitan areas in the U.S., according to a survey by personal finance site Interest.com. That’s still a slight improvement on last year when only 8 of those metropolitan areas were affordable, but still lower than 2012 when 14 of those 25 areas were affordable for people on a median income in those regions.

Being priced out of buying a home in the country’s major cities means more multi-family buildings in big cities and more people moving into second-tier cities and rural areas, says Stuart Gabriel, director of UCLA’s Richard S. Ziman Center for Real Estate. “The consequences are large,” he says, “and they’re not just about affordability. It affects economic growth and economic viability of our major metropolitan areas.”

While some people will find ways to work from home, for instance, spiraling housing costs also hurt people who need to work in cities. “Teachers, firefighters and police, these are people who are absolutely essential to the functioning of our urban areas, are priced out of those areas and have to commute long distances to get to work,” Gabriel says. “It’s certainly true here in L.A.”

Sacramento had the biggest drop in home affordability over the past 12 months, falling to No. 18 this year from No. 12 in 2013. But it’s still more affordable than the other three California metro areas on the list: Los Angeles (No. 22), San Diego (No. 24) and San Francisco (No. 25) where the median income is 46{297c5c6b3ea17e3fbdea31491536c8876720203ac47d87d9888529190191d255} less than what is required to buy a median-priced home here. New York is No. 23 on the list.

The cheapest areas are Minneapolis, Atlanta, St. Louis and Detroit. “Low mortgage rates are helping home affordability to some extent, but the key ingredient — which has been missing to this point — is substantial income growth,” says Mike Sante, managing editor of Interest.com. “Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment.”

The Interest.com survey reflects a broader trend: 52{297c5c6b3ea17e3fbdea31491536c8876720203ac47d87d9888529190191d255} of Americans have made at least one major sacrifice to cover their rent or mortgage over the last three years, according to research commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation released earlier this year. These sacrifices include getting a second job, deferring saving for retirement and cutting back on health care.

The study gathered the median home prices in those 25 metropolitan areas and calculated how much financing would be required for a buyer with a 20{297c5c6b3ea17e3fbdea31491536c8876720203ac47d87d9888529190191d255} down payment; researchers then entered that amount and city-specific data on 30-year fixed-rate mortgage rates, median household income, median property taxes, average homeowners insurance costs and average household debt in those areas.

This article was originally published Nov. 14, 2014 on MarketWatch.

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