Angelenos, congratulations — you officially live in one of the worst metro areas for first-time home buyers, according to a new study by Bankrate.com.
Out of the 50 largest metro areas studied, Los Angeles ranked 49th in affordability, 48th in employment factors, 30th in safety, and 39th in housing-market tightness, as the supply of homes for sale nationwide has fallen to historically low levels during the COVID-19 pandemic. But on the flip side, L.A. ranked third in wellness and culture.
Los Angeles was ranked the “worst metro for first-time buyers,” followed by Las Vegas, Seattle, Riverside and San Jose.
The typical seasonally-adjusted home value of homes in the U.S. hovered at $ 349,816 in May 2022, which includes the middle-price tier of homes, according to Zillow. Home values have increased 20.7% nationally over the past year, it added.
To put that in context: The typical home value of homes in Los Angeles is $ 1,007,124, Zillow added, with home values up 17.1% over the past 12 months.
And it is a situation that looks will only get worse: On Wednesday, the U.S. Federal Reserve raised the benchmark interest rate by 0.75 percentage point, the biggest increase since 1994 as it tries to tame rising inflation from a 40-year high.
A widening housing affordability gap
But Los Angeles, Riverside and San Jose aren’t the only cities in California that are proving out of reach, particularly for first-time buyers. According to personal-finance site Bankrate, 10 of the worst metro areas for first-time home buyers are located in California, including San Francisco, San Diego and Sacramento.
“The housing boom of the past two years has widened the affordability gap between low-priced and high-priced metro areas,” Jeff Ostrowski, Bankrate’s senior mortgage reporter, said in a statement.
“But with remote work becoming the norm for white-collar employees, it’s possible to keep the fatter paycheck while living in a cheaper area,” he added. “For this study, we looked not only at housing affordability but also at a variety of other factors, including local unemployment rates, commute times, crime rates and public health.”
The best places to buy a home
But there are some bright spots, if buyers are open to relocating, the survey found.
Pittsburgh, for instance, was the “best” metro for first-time home buyers, scoring points for affordability, lack of housing-marking tightness and safety. (House prices in Philadelphia rose 6.5% over the last 12 months to $ 233,563 in May 2022, Zillow Z, +1.70% said.)
To evaluate housing-market tightness, Bankrate looked at the average days on market for homes for sale for March 2022 as provided by Realtor.com, and the annual change in housing inventory through March 2022. (Realtor.com is owned by the same parent company as MarketWatch.)
Pittsburgh was followed by Minneapolis, Cincinnati, Kansas City and Buffalo as the best metro areas for first-time buyers. Bankrate also highlighted Philadelphia as a housing market that was not only more affordable than many cities out west, but also ranked highly for its relative safety.
The rankings were pretty much the same in a separate study by the personal-finance website NerdWallet. With cities like Pittsburg, Cleveland, and Buffalo taking the top spots as having the most “affordable” homes for first-time buyers, L.A., San Diego, and San Jose, Calif. topped the list of the most out-of-reach areas. NerdWallet included Miami on its list of least affordable places, too.
A myriad of sources
The Bankrate survey used a variety of sources, including the U.S. Census Bureau, the U.S. Labor Department, and violent-crime and property-crime data released by the Federal Bureau of Investigation.
To calculate affordability, the researchers looked at the typical income needed to qualify for a mortgage in each metro area, based on the median home price in the first quarter of 2022 as reported by Attom Data Solutions; a 10% down payment; a 5% mortgage rate on a 30-year loan; plus a mortgage debt-to-income ratio of 25%.
It also cross-checked those figures with the U.S. Census Bureau’s most recent estimates of median income for households headed by 25- to 44-year-olds in each metro area, and calculated the homeownership rate for 25- to 44-year-olds in each metro area.
For wellness rankings, Bankrate used the 2020 Community Well-Being Index released by digital healthcare company Sharecare SHCR, +1.52%, which examines access to healthcare, food and community services, including libraries and churches.
The culture ranking looks at the number of arts and entertainment outlets and cultural institutions per capita, based on Bankrate’s analysis of U.S. Census Bureau data.