"Record" affordability? What record affordability?
Although home values have plummeted about 30 percent from their 2006 peak and mortgage rates continue to hover at record lows, the American dream of owning a home is still out of reach for much of the middle class, according to a recent report.
In its first Home Affordability Study, personal finance information site Interest.com found that in 11 of the nation's 25 largest metropolitan areas, households making the median income in their respective area wouldn't be able to afford a median-priced home.
"Home prices are down—that's absolutely true," says Mike Sante, managing editor of Interest.com. "But we've also been through a decade of stagnant income and that really affects the ability to afford a house."
The least affordable cities included many of the usual suspects: San Francisco, New York, Los Angeles, San Diego, and Miami. In those cities, a variety of factors—including geography, sky-high property taxes, and surging homeowner's insurance—conspired to put buying a home further out of reach for middle-class Americans.
Although San Franciscans have some of the highest median wages in the country at about $72,000, the median price of homes in the region—more than $550,000—still makes putting down roots in the area a challenge.
Homes are so expensive in places such as San Francisco, San Diego, and New York partly due to space constraints. Blocked in by water, military installations, and other limiting factors, there aren't many options when it comes to increasing the supply of homes to meet demand and ease the pressure of rising prices.
But while scarce space in popular coastal metro areas is keeping housing out of reach for many, the abundance of it in other regions has helped keep the lid on living costs. Atlanta is a good example, Sante says: Unlike San Francisco and San Diego, Georgia's capital city has been able to expand in all directions as its population and demand for housing has grown.
"The availability of cheap land has allowed the city to expand and hold down the cost of housing," Sante says. "There are families who move out of places like San Francisco to Atlanta because the housing is much more affordable."
Detroit, Minneapolis, Phoenix, and St. Louis join Atlanta as being among the nation's most affordable places to live, according to the study.
There's no question that falling home prices have increased affordability in many places, but more declines in prices isn't what it's going to take to allow more Americans to become homeowners. The real issues continue to be high property taxes and stagnant wages, Sante says.
"We've already seen median home prices fall; now the key thing to see is median income increase," he says. "We need that increase to change the equation."
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Meg Handley is a reporter for U.S. News & World Report. You can follow her on Twitter or reach her at email@example.com.