Matt Woolsey, 01.31.08,
2:00 PM ET
While many of the nation's homeowners are worried about falling home prices, others would argue they're not falling fast enough.
You might find them in Santa Monica, Calif.
There, it takes just over 17 years of total earned salary for the
median-income household to afford the median-priced home. In Berkeley, Calif., it takes almost 15 years and for Passaic, N.J. households, it's a more reasonable 13 years.
To
find the rest of the spots on our list, we used data from Demographia,
a St. Louis-based demographic research firm that draws on U.S. Census
data for areas considered suburbs in the nation's 50 largest metros.
Based on these numbers, we calculated how many years of total salary it
would take the median household to afford the median house to find the
country's most overpriced areas.
Based on our numbers, California suburbs are the most difficult
to afford. In addition to Santa Monica and Berkeley, where the median
home costs $1.05 million and $752,500, respectively, they include Hawthorne, where it takes buyers 14.6 years to afford the $585,700 median-priced home.
Such prices make other areas on our list seem like a bargain. In Skokie, Ill., the median-priced home rings in at $396,300, and it takes the median-earning household 6.1 years to afford it. In Alexandria, Va., the median-earning household must wait 6.7 years to buy a $539,200 home.
How
do these suburbs reach such price heights? Much of it has to do with
how homeowners, especially wealthier ones, cluster within cities.
Behind The Numbers
When people move to an area, they often do so because of a
job. That's why migration figures and job growth are invariably
intertwined. As an expanding local economy lifts salaries, housing
prices grow because buyers have the money to pay for better properties.
Salt Lake City is a perfect example. The metro's high job-growth rate
has resulted in huge in-migration and a housing market where prices
grew by double-digit percentages last year.
But the richest
residents often head to the market's prime suburbs, which feature perks
like pretty views, bodies of water and parks that are in short supply
elsewhere.
Those suburbs often begin as small residential
centers, and are designed to be low density and non-commercial. But as
they grow in population, they turn into economic centers of their own,
acting as satellites to the principle city instead of escapes from it.
When a suburb adds stores, restaurants, factories, malls, office
buildings and other commerce centers, it requires a wider range of
people, with a wider range of financial characteristics to keep it
viable.
In a large suburb like Santa Monica, for example, where
the majority of houses are out of reach to the median earner, there are
a million-plus beachfront condos and homes that are occupied by the
Hollywood set; nearby are a high inventory of small apartments rented
to 70% of the local population.
What's happening to home prices in your area? Weigh in. Add your thoughts in the Reader Comments section below.
While California suburbs in particular have always been
expensive, the spreads between median income and median price have
never been this exaggerated. That's because the housing boom pushed
prices up far faster than incomes rose. With every dollar prices rise
above what incomes can cover, it becomes more difficult for renters to
move into buying.
Another obvious place effected by this trend
was South Florida, where prices spiked during the boom, but incomes and
economic activity didn't rise accordingly. West Palm Beach, Fla., and Pompano Beach, Fla.,
both on our list, are good examples of inflated income-to-price
spreads, at $318,300 to $45,250 and $279,500 to $42,409, respectively.
The economic effect?
"This
is brand new," says Wendell Cox, president of Demographia. "It's all
happened in the last six years and we're not sure what it means yet."
One
thing it does mean is heavy out-migration. Cox points out that many of
the areas with the highest spreads--in and around San Francisco and Los
Angeles, most notably--are rapidly losing population to places in the
South and Southwest, locations where affordable housing and business
costs have drawn people and jobs from coastal population centers.
But
incomes don't necessarily need to fall in line with housing prices for
values to trend upward; just take a look at the extreme counterexample
in New York City.
Now, no suburb is likely to ever achieve the
density and economy of New York City, but what has made the city's
legendary lack of affordability sustainable is the balance between the
prices of homes and what different market segments can pay for them.
People don't often move from renting to buying there, but so long as
there are enough people earning enough to sustain the price increases,
it's not critically important what the median income is.
"The
average wage in the financial district is $330,000, but the overall
census numbers are around $40,000," says Jonathan Miller, director of
research at Radar Logic, a New York real estate firm, of the city's
median income level. So long as the number of pricey homes available
doesn't outpace the number of people able to buy them, he says, a
market can be in balance, despite an apparent imbalance in
income-to-home-price ratio.
