Can you afford to buy a home where you live?
A look at the affordability of home ownership in each state reveals vastly differing conditions across the country. This is based on a few things. As a recent LendingTree study detailed, the size of the average down payment and monthly payment on a mortgage varies greatly from state to state. Also, though, median incomes are vastly different from one part of the country to another.
To get a true handle on whether home ownership in each state is within the reach of the average worker, it helps to compare down payment and monthly payment amounts to the median income in each state. The results show that a low income is not necessarily an insurmountable barrier to home ownership as long as real estate values in the area are cheap. Conversely, a high income does not necessarily make it easier to buy a home, if area real estate values are even more inflated.
The following is a look at which states offer housing that is readily affordable for the average worker, and which make it a steeper hill to climb.
Can You Swing the Down Payment on Your Income?
The most expensive down payments in the country are found in Washington DC, but so are the largest median wages – by far. It seems politics pays, or at least lobbying does. As a result, those high down payments are not the toughest to afford for the average worker in the District of Columbia.
That dubious honor goes to California, where the average down payment represents more than twice the state’s median annual income. Think about that. For the average worker, even if you saved every penny you made for two years, you’d still be short of the down payment on a typical house. After taxes and living expenses, of course, the wait for home ownership would be much longer.
Here are the top five states in terms of average down payment amounts as a percentage of the median annual income:
- California: 212.73%
- New York: 189.85%
- Virginia: 159.79%
- New Jersey: 156.29%
- Hawaii: 150.72%
On the other end of the scale, these five states make it the easiest for the typical worker to afford a down payment. Here are their average down payment amounts as a percentage of the median annual income:
- Mississippi: 83.67%
- Arkansas: 83.79%
- West Virginia: 85.28%
- North Dakota: 85.49%
- Wisconsin: 85.68%
Will the Monthly Payment Fit Your Budget?
Of course, the down payment is just the first step in affording a house – you then have to meet those monthly payments. Once again, California poses the biggest challenge to the average worker.
In California, monthly payments represent 3.65% of median annual income. That sounds innocuous enough, until you consider that multiplied over 12 monthly payments this means spending 43.8% of your pre-tax income on your mortgage. And that does not include things like property taxes and insurance.
Here are the five most expensive states in terms of the average monthly mortgage payment as a percentage of the median annual income:
- California: 3.65%
- Utah: 3.49%
- Hawaii: 3.31%
- Virginia: 3.22%
- Florida: 3.20%
In contrast, here are the five states where the average monthly mortgage payment fits most comfortably into what the median income can afford:
- Alaska: 2.44%
- Connecticut: 2.46%
- Wisconsin: 2.47%
- North Dakota: 2.52%
- Ohio: 2.52%
For people who have a choice of where to settle down, this analysis is a reminder that there are two sides to the equation that determines accessibility to home ownership in each state: income and cost. States that best balance decent incomes with reasonable real estate values create the easiest pathways to home ownership.
Gerard Anthony is a finance and economics writer with over 20 years experience in the investment advisory business. As a writer, he provides economic market insight and how current events may affect the average consumer. Gerard has a CFA designation.
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