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Where Buyers Are Straining Their Income on Housing

As home prices hit new highs, many buyers are stretching more and more to get the house of their dreams, according to a recent study from LendingTree. Despite low interest rates cutting back monthly payments, with the median home price of $276,900 and new homes priced at a median of $302,100, homeowners are spending more and more of their income on their home.

"The annual increase in home prices has been outpacing income growth since 2012,” said Tendayi Kapfidze, Chief Economist at LendingTree “As a result, homebuyers have been stretching more and more to purchase their dream homes. Low interest rates have masked this to some extent, as they have subdued the monthly payment, but the recent increase in interest has reduced this mitigating factor."

“To rank the cities, we calculated leverage ratios that show how the median homebuyer in each city fared,” said Kapfidze “However, each borrower is unique, and their homebuying capacity depends on additional factors including credit scores, other debt currently held and down payment."

As a general rule, the home price should not exceed three times the buyer's annual income, however, LendingTree identified 10 cities where owners are overstretching. Six of these 10 cities are in California, including the top four: Los Angeles, San Diego, San Francisco, and San Jose.

Los Angeles buyers are the most stretched in the nation, with the median homebuyer borrowing 3.75 times their annual income on their mortgage. Meanwhile, San Diego, with a similar income to Los Angeles but cheaper homes, had the second highest leverage ratio of 3.62.

San Francisco and San Jose have even higher incomes, and leverage ratios are 3.52 and 3.50 respectively in these cities.

Several of the other cities ranked in this top 10 are on the west coast, including Seattle and Portland. Also in the top 10 are Salt Lake City and Denver.

LendingTree found Pittsburgh and Cleveland to have the lowest leverage ratios, at just 2.00 times annual income.

Find the full report from LendingTree here.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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