NEW YORK (MainStreet) — Homeownership remains unaffordable for most Americans who are living in major cities.

A median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, which is actually an improvement from 2013, according to a report by, the Chicago-based consumer financial information website.

The most affordable metro areas area Atlanta, Minneapolis and St. Louis while San Francisco is the least affordable since the median income in the city is 46% less than what is required to buy a median-priced home in the area. Median-income households in San Diego, New York and Los Angeles don’t fare much better. 

Baltimore was the biggest gainer over the past year, jumping from the 17th most affordable in 2013 to sixth most affordable in 2014. Minneapolis and Atlanta swapped the top two spots, with Minneapolis taking the crown this year.

“This is the big picture of housing affordability over the last 30 years,” said Mike Sante, managing editor of “A decade from now home affordability will be even worse.”

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Sacramento experienced the biggest drop in home affordability over the past 12 months, sinking from 12th to 18th in the ranking. However, it is still more affordable than the other three California metro areas on the list: Los Angeles (22nd), San Diego (24th) and San Francisco (25th) join New York City among the four least affordable markets.

Median home prices rose by 6% over the past year in the 25 metro areas, while incomes rose by only 2%. Contrary to most expectations, mortgage rates eased a bit, which provided homeowners with some relief.

“The key ingredient, which has been missing to this point, is substantial income growth,” he said. “Millennials in particular are struggling to overcome their student loans and save enough money for a down payment.”

The prices of homes have become “steadily unaffordable because home prices have outstripped income for several decades,” Sante said.

“It is hard for a median income family to afford these homes,” Sante said. “People have to make a lot of really hard choices about their money.”

Families in many of those cities are allocating too much of their income to housing since consumers should spend no more than 28% of their pre-tax income for housing, Sante said. The median household income is $52,250, according to census data from 2013, while the average median income is $60,333 among those 25 cities. The average home price in 2014 was $212,400 at the end of second quarter in 2014 according to the National Association of Realtors and $282,308 in those 25 cities. The full rankings are available here.

Reining In Expenses for Housing

“People should figure out ways to spend as little as they can on housing,” he said. “Buying a house is not always the smart thing to do. You don’t have to be house poor your entire life.”

Consumers who are living in cities with a higher cost of living should not focus on owning a home, but instead concentrate on finding a reasonably priced rental and taking the money that is being saved and investing it into a 401(k) or IRA for their retirement, Sante said.

“Every dollar you put into housing is a dollar you are not saving for retirement,” he said. “It’s not a good idea to spend so much of your income on housing costs especially when most people need to save more for retirement.”

Many urban areas do not have a central place where everyone works such as Atlanta, which gives potential homeowners more options, said Paul Purcell, managing director of William Raveis, a New York real estate company.

“It's sprawling, and not everyone commutes to downtown or midtown,” he said. “Many companies have built outside of their perimeter and there are office parks abound everywhere.”

One hindrance that consumers are facing is that investors are purchasing medium-priced houses to become rental properties, decreasing the number of homes available for purchase for conventional or first-time homebuyers, said Kurt Westfield, managing director of real estate investment firm WC Equity Group in Tampa.

“At one point, the statistic [of investment properties] was as high as 71% of all sales in most of Florida,” he said. “In addition, with the current economy, there are more people looking to rent rather than buy.”

Daunting Prices, Stagnant Income

The real culprit in terms of affordability is that wages have not recovered from the Great Recession nearly as quickly as home prices have, said Rick Sharga, executive vice president at, an Irvine, Calif. real estate company.

Wage stagnation or even deflation is “particularly problematic” for the middle class and the young adult segment of the population, which still lags behind other age groups in terms of unemployment and the ability to secure full-time, good paying jobs, he said.

This problem is only likely to get worse over the next or so unless an unexpected increase in job creation occurs or wages rise since interest rates are likely to increase, Sharga said. The situation is exacerbated by the fact that loans are still hard to come by for most people except the most highly qualified borrowers.

“People who would like to buy homes do have a few choices, but none of them are easy or ideal,” Sharga said. “In many cases, they may need to find a way to supplement their income and using it to make a larger down payment to make securing a loan easier.”

Other buyers may need to consider either a smaller home as their "starter" property or buy a home outside the city on the outskirts of the metro area.

Renters might want to explore the option of renting a single family home from a real estate investor rather than an apartment and ask the owner if they would consider a rent-to-own arrangement over a specified period of time, he said.

“Unfortunately, for many would-be homebuyers, the most likely solution is to bide their time until their income matches up with the market they're interested in buying a house in,” Sharga said.

Many potential homeowners should evaluate what kind of mortgage they really need, said David Reiss, a law professor at Brooklyn Law School. Since most homeowners only stay in their house for an average of seven years, getting a traditional 30-year mortgage may not be the solution and an adjustable rate mortgage which resets after a period of years could be more affordable.

“This advice holds particularly true for families that are thinking about having more kids, since they may move sooner than they think if they come to realize that they want more space,” he said.

--Written by Ellen Chang for MainStreet

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