Is Buying a Home Affordable Right Now?

by Miranda Marquit · 7 comments

I recently sold my home for $173,500 and this, combined with my move across the country, has me thinking a lot about home affordability. While I’m not anxious to buy again anytime soon, I was interested to see how my new local real estate market compares with the market I left behind a few months ago.

First of all, I found there isn’t really anything in my new ZIP code that compares exactly to the home size, year built, and lot size I had previously owned. The closest I could find was a condo-type home (without the large yard we had) for $275,000.

The stand-alone homes with square footage similar to ours are 3 BD/2 BA homes, as opposed to the 4 BD/3 BA home we had in Utah. But these homes are right around $300,000 to $475,000. Buying a home in our new area, (which is part of the Philadelphia metro area) is much more expensive than it was in our semi-rural neighborhood in Utah.

Where is it affordable to buy a home right now?

Home Affordability Across the Country

There are many reasons we aren’t interested in buying right now, and the price we’d have to pay is one of the biggest. However, we’re not the only ones looking at home prices in metro areas and taking a step back.

According to a recent study by Interest.com, only 10 of the 25 largest metro areas in the United States has affordable homes to those with median incomes. Philadelphia’s metro area, where I live now, scored a “C” grade.

It’s probably no surprise that major metro areas are tough places to buy homes. Interest.com points out that, even though low mortgage rates can help, and even though home prices in general are still fairly low, the reality is that major metro areas are places where home ownership isn’t really all that affordable if you’re making a median income.

Unless you live in a place like Minneapolis, Atlanta, or one of the other 10 “affordable” cities on Interest.com’s list, you’re probably better off trying to avoid buying a home on a median income — at least if you don’t want to be house poor.

Avoid Becoming House Poor

While it might be tempting to buy a home in order to buy into what many still see as the “American Dream”, and what many others view as an important financial milestone, it makes sense to hold off and see if it really adds up for you.

In some cases, getting a home could mean becoming house poor. This is a situation in which most of your available income goes toward paying for your housing (mortgage payment, upkeep, utilities, etc).

If you have an expensive home, it might be impressive to others, but it limits your ability to do other things, buy what you want, or even set aside money for a rainy day. Buying a home just to buy can put you in a tough position financially.

Instead, it makes more sense to consider renting. Unless you live in an area in which you can get a low-cost, affordable home without straining your finances in other areas, buying in a major metro area might be a bad idea right now.

Do you live in an area where it’s affordable to buy? Or is renting a better idea than buying right now? 

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  • DealForALiving says:

    Housing is very affordable right now given the low interest rates (if you have good credit). There’s no way that housing will become cheap in cities unless the city itself tanks a la Detroit, so I wouldn’t sit around waiting for Philly real estate prices to drop more than 5% in the next year.

  • bostjan says:

    Buying a home is affordable at anytime, if you’re able to find a good deal and be very patient, I think. Good article!

    • Caleb says:

      I agree. You can definitely help yourself by being wise with spending and saving giving yourself a better opportunity to find a home in the right price range.

  • Joseph Hogue says:

    A lot of arguments for and against home ownership right now, some of them personal and that only you can answer.

    On the ‘con’ side: home ownership as an investment is marginal at best unless you can get a really good deal. Appreciation follows the rate of inflation and the extras like taxes and maintenance really eat into any saving from not paying rent. If you’ve got the discipline to save and invest regularly, you might be better off renting and putting your down-payment in something else.

    One the ‘pro’ side: Rates are still rock-bottom compared to history and it’s hard not justify borrowing. You’ll be hard-pressed to get cheaper money than a 30-year mortgage. As for prices, while they have come up a lot since the crash most markets are still a little lower than where they would be if you just carried the normal rate of appreciation through the last few decades. The housing market is still recovering and that should help support prices for a while.

    The sad fact is that many do not have the discipline to save and invest their money regularly. A monthly mortgage payment is, for some, the only way they are going to build a real nest egg over their lifetime. This is when ownership makes the most sense.

    Great post.

  • We live in a modest home in the suburbs and we paid about $300K, which is quite low for our area which has only started stalling now. It was definitely a stretch when we first jumped ont he property ladder, but we’ve been paying off the mortgage so it’s more affordable for us.

  • moneystepper says:

    I always find it interesting that reports only ever cite house prices vs median income to determine affordability. This demonstrates how our entire generation thinks in term of future earnings rather than what they have today.

    Where are the comparisons of house prices vs net worth or house prices vs cash savings etc etc…? These are equally important to determine the affordability of housing, no?

  • Michelle says:

    We live in an area where it’s a great idea to buy, and that’s why we bought. However, we plan on selling our house soon and renting first because the area we are interested in moving to is definitely an area where you would want to rent first. This way we can learn more about where we want to move, and because renting is cheaper there.

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