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Most Affordable Real Estate Markets

The National Association of Home Builders (NAHB) and Wells Fargo have released their new Housing Opportunity Index (HOI) for the third quarter of 2004.  The HOI, which looked at 163 metropolitan areas, revealed a national trend of housing affordability declining significantly since early 2004.  This was not a surprise considering how hot the real estate market has been over the past year, resulting in considerable appreciation of property.  The rate of appreciation has been outpacing income growth in many areas of the country. 

“Despite some of the best financing conditions in decades, housing affordability at the national level has fallen to the point that only a little more than half (50.4 percent) of all homes sold in this country during the third quarter of 2004 were affordable to families earning the median U.S. household income," said NAHB President Bobby Rayburn.  “This compares to about 61 percent of homes sold that were affordable to median income earners in the year's first quarter.”  Rayburn added, “In many markets, working families are finding it considerably more difficult to afford homes today than they did at the start of 2004.”

The most affordable real estate market, which was at the top of the affordability rankings, was Lima, Ohio.  Lima, which is among the smallest metropolitan areas ranked by the HOI (less than 250,000 people), had 90.5-percent of homes sold during the third quarter that were affordable to families earning the area's median income of $52,500 with current mortgage financing conditions.  The median sale price of all homes sold in Lima during that period was $82,000.  Despite being the most affordable real estate market, there was still a slight decline in affordability since the first quarter of 2004, when 92.4-percent of homes sold in Lima was affordable to median-income earners, and the median sale price was just $78,000.

Ranked just after Lima for affordability in the small cities category were Cumberland, Md., and Mansfield, Ohio. Among mid-sized cities (250,000 to 1 million people), Saginaw-Bay City-Midland, Michigan was the most affordable housing market and the second most affordable in the overall rankings.  In mid-sized markets, Lansing-East Lansing, Michigan and Canton-Massillon, Ohio were ranked after Saginaw-Bay City-Midland.  Among major (over 1 million) markets, Grand Rapids-Muskegon-Holland, Michigan was the most affordable market, followed by St. Louis, Missouri. 

California was easily the state with the least affordable real estate market.  An incredible 19 of the 25 least affordable markets are located in California.  The least affordable housing market in the third quarter was the Santa Barbara-Santa Maria-Lompoc metropolitan area, where less than 5-percent of homes sold were affordable to families earning the median household income of $64,700.  The median house sale price during the quarter was $447,000.  Compared to the first quarter of 2004, the numbers show a substantial decrease in affordability, where the median price was $380,000 and nearly 11-percent of homes sold were affordable to median-income earners.

San Francisco, which has previously held the title of least affordable housing market, was the nation’s 11th least affordable real estate market.  The city still maintained its lead as having the highest median sale price, but since the city has a high median household income ($95,000), it reduced the HOI.

By region:

Midwest: Most affordable - Lima, Ohio; Least affordable – Chicago, Illinois                       

South: Most affordable – Cumberland, Maryland; Least affordable – Naples, Florida

West: Most affordable - Pueblo, Colorado; Least affordable – Santa Barbara, California

Northeast: Harrisburg-Lebanon-Carlisle, Pennsylvania; Least affordable – Nassau-Suffolk, New York