Buyers paying higher percentages of their income for new houses... and the worst city is San Jose where homes cost seven times the average salary

By Daily Mail Reporter

PUBLISHED: 17:03 EST, 10 April 2013 | UPDATED: 17:03 EST, 10 April 2013

Home buyers are spending more of their incomes on houses than now than they ever did before the housing bubble.

In Los Angeles, San Francisco and San Jose, California, the median house price is nearly seven times the median income.

However, because of historically low interests rates, consumers are making lower mortgage payments, so they aren't feeling the higher prices.

Real estate watchers fear that this could be creating a new housing bubble.

Pricey: San Francisco is one of the cities with the highest home cost compared to median income

Pricey: San Francisco is one of the cities with the highest home cost compared to median income

The media home cost 2.6 times median income between 1985 and 1999. In the last quarter of 2012, homes cost three times median income.

Median home values have risen sharply - as much as 15 percent in some markets, according to real estate site Zillow.com.

 

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Income, however, has declined or stayed flat in most cities.

Nationwide, home buyers are paying 12.5percent of their monthly incomes on their mortgages. 

Before 2000, they were paying 20percent of their incomes.

THE MOST UNAFFORDABLE CITIES FOR BUYING A HOUSE

The following is a list of the five cities where houses are most expensive, compared to the median income.

The first number is the median price relative to median annual income. The second number lists the percent of month income devoted to mortgage payments.

  1. San Jose, CA - 7.0, 29.5percent
  2. Los Angeles, CA - 6.8, 29percent
  3. San Francisco, CA - 6.8, 28.8percent
  4. San Diego, CA - 5.9, 25percent
  5. New York, NY - 5.2, 21.9percent

THE MOST AFFORDABLE CITIES FOR BUYING A HOUSE

The following is a list of the five cities where houses are most affordable, compared to the median income.

Nationwide, home buyers are paying three times their annual income for houses. Their mortgages cost 12.6percent of monthly income.

  1. Detroit, MI - 1.5, 6.5percent
  2. Atlanta, GA - 1.9, 8.1percent
  3. Dallas, TX - 2.2, 9.3percent
  4. Cincinnati, OH - 2.3, 9.6percent
  5. Pittsbrugh, PA - 2.3, 9.7percent

Low interest rates cane mask the price increases and may be tricking some buyers into taking out bigger mortgages than they can afford.

When interest rates rise are likely to see their payments go up - which could have negative consequences for the house market.

This trend is worse in some cities than in others.

In San Jose, home to many Silicon Valley workers, the median home price has skyrocketed to 7 times the median income. Before 1999, most homes were bought for 4.6 times the median income.

Affordable: Detroit, Michigan, which has seen a complete collapse of its housing market, has the lowest mortages

Affordable: Detroit, Michigan, which has seen a complete collapse of its housing market, has the lowest mortgages as a percentage of income

Oddly enough, though, homes have actually becoming easier to afford on a month-to-month basis.

Mortgage payments dropped from taking more than 35percent of monthly income to less than 30percent.

San Francisco and Los Angeles have seen similar trends.

A home in New York City now costs 5.2percent of median income. However, homeowners pay 22percent of their monthly income - compared with paying 31percent historically.

The median cost of houses compared to income has actually dropped in several cities.

In Detroit, houses cost only one and a half times the median income. In Atlanta, homes prices are 1.9 times the median salary.



 
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@rb....Yes, you are right. Many Californians are moving to Austin, Texas and making it unaffordable. I think in the future Austin will be like some of these other place.

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The chickens will come home to roost . . . with a thud. Then, cash will be king for those who have waited patiently on the sidelines, and are able to go bottom feeding.

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@ Tifany - $200,000 is great, but then you have live in northern Alabama. It may come as a complete shock as you clearly haven't ever left "north" Alabama, but salaries in places like Silicon Valley are commensurate with the cost of living. Otherwise, people couldn't afford to live there, could they?

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@But I don't see how rising interest rates will affect whether people can afford their mortgages unless they signed up for an adjustable rate since you're locked in at your rate when you sign for the loan. - katie , new Hampshire USA, 11/4/2013 01:51.... I guess it depends how long you have a fixed rate for. Also, if you buy a ridiculously over priced house based on the fact that the monthly payments still look reasonable the fact that the house is so overvalued makes the interest irrelevant. You are borrowing up front more than the value of the whole term of the mortgage plus interest at more normal levels. The bank lend you money that doesn't exist and you create it when you pay it all back, even though they appear to give the seller money it still doesn't exist yet. Also, there is a chance the house may be only worth a fraction of what you pay for it if the world suffers with climate change and a poor economy or even war or oil running low. We are at a critical time.

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My parents bought a house in San Jose in 1974 for $34,000.00. It sold in 2000 for $760.000.. Unfortunately they lost the whole profit by buying in Central Valley. Property value plunged $400,000.00 in one year alone. The Central Valley is bankrupt and loaded with foreclosures and abandoned houses. The Bay Area bubble will burst too.

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Love the weather in SoCal but hate everything else about it. Those with a lot of money live in the nice enclaves, those that don't are not exactly California Dreamin.

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LisaRox We are also in the same boat. I could have written your comment. We live on the Peninsula. It is out of control. I do not understand it at all. This bubble has to pop and then we will buy again. We sold a few years ago and put the money in the bank and it will stay there until the madness subsides.

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Just wait till the Fed stops putting $85 Billion or so into the economy a month and interest rates start to go up.2007 will look like a cake walk.

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The Estate agents don't appear to be too bright. Look closely at the signs in the picture "I am GOREGEOUS" inside.

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We are looking for a house in Maine and we are 26. It is still easy to get a mortgage and we were pre approved for well over what we can afford which is why I thought the housing crisis occurred in the first place? Anyway we know what we can afford. But I don't see how rising interest rates will affect whether people can afford their mortgages unless they signed up for an adjustable rate since you're locked in at your rate when you sign for the loan.

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