Mortgage Payments Within Reach for High School Grads in Most Cities; Down Payments, Not So Much
The good news is, households including at least one person with a high school diploma or GED can afford the typical mortgage payment in most large metro areas across the U.S., said Zillow Inc., Seattle. But soaring home values that have outpaced incomes have made down payments a barrier for many, particularly first-time home buyers.
The Zillow analysis found the typical mortgage payment is affordable with a high school education in 36 of the 50 largest metro areas in the U.S., but the barrier of a down payment is keeping many would-be buyers in the rental market.
Zillow reported buyers need 1.5 years longer to save for a 20% down payment on the typical home than 30 years prior, and the difference is much more extreme in the most expensive metros–13.3 years longer in San Jose, for example. Zillow Director o Economic Research Skylar Olsen said this effect is especially pronounced for first-time buyers who do not have the equity of an existing home to put towards a down payment on a new one. Zillow data shows that 46% of a typical down payment comes from savings for first-time buyers, compared with 35% for repeat buyers.
“The influx of highly educated workers into already-expensive metros with stagnant or slow-growing inventory has made it difficult for those with less education and earning potential to enter those markets,” Olsen said. “While a bachelor’s degree may be enough to afford a mortgage on the typical home in the San Diego metro at large, it’s likely to be insufficient in pricey areas like La Jolla. And that’s only after scraping together a sizable down payment, which is a huge hurdle for most buyers.”
Zillow said for households in the 14 metros where a high school diploma is insufficient to make a mortgage payment, earnings associated with at least a two-year associate’s degree are required. The median income of a university degree holder is necessary to afford the median mortgage payment in the five most expensive West Coast metros. A bachelor’s degree is typically needed in San Diego and Seattle, while the typical income of someone with an advanced degree is required in San Jose, San Francisco and Los Angeles. The typical mortgage payment is affordable for those with associate’s degrees in Boston, New York, Sacramento, Washington, D.C., Denver, Portland, Riverside, Salt Lake City and Miami.
Zillow said in only one metro, Oklahoma City, can those with less than a high school degree usually afford the typical mortgage payment. Households in Oklahoma City benefit from a combination of low housing costs–only three of the 50 largest metros have a lower median mortgage payment–and relatively high median incomes for households in which nobody has a high school diploma.
Zillow said median rent was 27.8% of the typical U.S. household income in the first quarter, up slightly from the previous quarter and just below levels from a year earlier. Rent was most affordable for those in Pittsburgh, where the median rent is 21.4% of the typical household income. Los Angeles is the least affordable large metro for renters–46.1% of the typical income is required to pay the median rent there.
