D.C. Residents Have Most Income After Mortgage Payment

Amid worsening affordability in the U.S., people in the Washington, D.C., metro area have the most money left over after they pay their mortgage, said Zillow Inc., Seattle.

The Zillow analysis found after assuming for median annual gross income and mortgage payment, homeowners in Washington, D.C., have nearly $7,000 of their monthly income remaining after paying for their house, the most of the 35 largest housing markets. The typical renter in Washington, D.C., has nearly $6,500 left over from their salary after their monthly rent payment, second only to San Jose at more than $6,800.

Conversely, residents of Los Angeles and Florida feel the tightest pinch. Los Angeles homeowners have the least left over ($3,450) after paying their mortgage each month, followed by Miami, Tampa and Orlando. Renters in the three major Florida metros have the smallest pools of remaining spending money after they pay rent, with Los Angeles following just behind. The outlook is worse for those in Los Angeles when California’s income tax rates are considered. On top of housing costs, these taxes cut further into the income left over for variable cost-of-living expenses such as transportation, child care and education.

“A good-paying job with career growth potential often comes with expensive housing, leaving less for life’s other essentials such as taxes, child care, transportation, medical services, food and leisure,” said Skylar Olsen, Zillow Director of Economic Research. “Finding that balance where housing costs leave a comfortable amount of spending money is tricky, especially when the prices of life’s non-housing essentials also vary widely by market.”

The analysis found a mortgage payment on the typical home in the U.S. required 17.5 percent of the median income in the fourth quarter, up from 15.4 percent a year ago but still below the historic average of 21 percent from the late 1980s and 1990s. Using this traditional measure of housing affordability, less expensive Midwest markets such as Pittsburgh, St. Louis and Cincinnati top the list.

Zillow said the typical U.S. renter spent 27.7 percent of their income on rent payments in 2018, down slightly from 28.1 percent in 2017, but higher than the historic average of 25.8 percent. Rent payments accounted for more than 30 percent of the median income in 13 large U.S. metros, widely considered the standard for unaffordable housing costs.

Meanwhile, Redfin, Seattle reported Minneapolis has the nation’s highest homeownership rate for low-income families, with 57.7 percent of households with incomes in the bottom 25th percentile for the metro area homeowners in 2017, followed by Pittsburgh (55.8%) and St. Louis (55.5%), all inland areas where the typical home sells for the less than the national median of $285,000.

“Homeownership allows people to share in the prosperity of their communities and gain wealth through home equity,” said Redfin chief economist Daryl Fairweather. “In many expensive metros, low-income residents aren’t able to access the benefits of homeownership because of a lack of affordable starter homes. But in areas like Minneapolis and Pittsburgh, low-income workers are still able to get their foot in the door on the American Dream of homeownership.”

Redfin said Los Angeles, New York and San Diego, all expensive coastal markets, are home to the three lowest homeownership rates for households in the bottom quartile of income at 31 percent, 35 percent and 37.6 percent, respectively. Los Angeles and San Diego feature in the top three least affordable places for millennials. This analysis includes the 50 largest metro areas in the U.S.

The report said in nine of the 10 metro areas with the highest homeownership rates for low-income families, the rate went up from 2012 to 2017, with the largest gains in Louisville (5.2 percentage points), Charlotte (4.2 pts.) and Nashville (4.1 pts.). Philadelphia is the only are in the top 10 where the homeownership rate went down during that time period, but the drop was only 0.6 percentage points. The rate also rose in all 10 of the least affordable areas for low-income families, with Sacramento (4.7 pts.) and San Diego (4.1) points seeing the biggest increases.