Buying a new house is an exciting process. Theoretically the process starts off where you shop around, figure out how much you can afford, and find the house of your dreams. Unfortunately, it’s not always that easy in reality. Depending on what city you live in, the price of a potential new home can dwarf your yearly income. When the home value is drastically higher than annual income, mortgage payments can be unaffordable, and you might end up settling for a much smaller house.
Taking a look at data from Zillow and the U.S. Census Bureau you’ll find some crazy figures. If you live in Detroit, rest easy; the average home value is only about twice the average annual income. Most of the Midwest is fairly reasonable in this respect. West Coast figures aren’t as attractive. Cities in California have home values north of 14 times the average annual income. Better save your money if you plan on living in San Francisco or Los Angeles.
Does this mean you should avoid living in high ratio areas such as California, New York, Texas, and Florida? Not necessarily. Keep in mind these figures are based on average annual income. If you are a high earner, your options are a little more flexible. If your heart is set on a home in one of the higher ratio areas, it’s still attainable for most. There’s a reason Los Angeles and New York are the two most populous cities in the country. Proper budgeting and picking up a second job go a long way.
Want to see where your city sits on the list? Check out this infographic that has a breakdown of 27 major cities and what their income to home value ratio is.