LendingTree recently released its quarterly Housing Affordability Rankings for the first quarter of 2016. This study gives some insight into different ways the barrier to homeownership varies in different parts of the country.
While it is easy to compare average home prices, in reality the total price of a home is not generally the real barrier to homeownership – after all, few people pay for their homes in full upfront. For most people, the size of the down payment and the amount of subsequent monthly mortgage payments represent the true measures of housing affordability.
The LendingTree study looks at both down payments and monthly payments, including measuring down payment in both absolute and percentage terms. A look at each of these housing affordability metrics shows where the barriers to homeownership are highest, and where they are more reasonable.
Down Payments – Dollar Amounts
Where should you expect to come up with the most cash in order to buy a house?
Washington D.C. leads the way, with an average down payment amount that is pushing six figures, at $98,440. Joining the nation’s capital on the pricey side are California, with an average down payment of $84,729, and New York State, with an average down payment of $78,980.
It is no secret that the District of Columbia, California, and New York are expensive real estate markets. What this study makes clear is just how far in advance you may have to plan in order to raise a sufficient down payment to buy a house in these areas.
In contrast, down payments are most affordable in Mississippi, at an average of $24,263 during the first quarter. Arkansas, at $25,649, and West Virginia at $25,790 have the next lowest average down payment amounts.
Down Payments – Percentages
Of course, not everybody buys the average-priced house in a given market, so actual down payment amounts can vary considerably. However, whether you are a down-market or an up-market shopper, you can get an idea of how big a barrier you will face by seeing how high down payments tend to run as a percentage of the purchase prices.
New York typically requires the highest percentage down payments, at 19.74 percent. California and Hawaii are not far behind, at 19.56 percent and 19.44 percent, respectively.
Down payments tend to represent a much lower portion of the purchase price in Mississippi, which had the lowest percentage down payments at just 13.01 percent. North Dakota at 13.50 and Alabama at 14.13 were the next lowest.
Once you get past the down payment, your budget still has to be able to afford the monthly mortgage payment month after month.
This can be an especially big challenge in the District of Columbia, where the average monthly payment offered on a mortgage in the first quarter was $1,666. Though the next two markets are also pricey, notice how steep the drop off is after Washington D.C.: an average monthly payment of $1,454 in California and $1,284 in Hawaii.
The average monthly payment for South Dakota runs less than half of Washington D.C.’s average, at just $795. The next two cheapest states are Indiana at $856 and Iowa at $859.
For information about your local market, you can check the details of the LendingTree Housing Affordability study. If you are planning to relocate, these comparisons of affordability in different markets might influence your decision. Even if you are planning on staying put, knowing the size of the affordability hurdle you face can help you plan your home buying strategy.