The salary needed to afford the typical home in metro Denver is catching up to Washington, D.C., and exceeds Miami, Portland, Ore., and Sacramento, according to an analysis Wednesday from HSH.com.
Keith Gumbinger, HSH.com’s vice president, calculates a metro Denver buyer in the third quarter needed to earn $91,276.61 to afford a loan on the median-priced home, which the National Association of Realtors lists at $450,100.
That ranks as the ninth highest salary requirement among the 50 large metros included in the survey.
The calculation assumes buyers put 20 percent down. If they only put 10 percent down, then the salary requirement increases to $105,319.45 in metro Denver. The estimate also used a 4.69-percent interest rate on a 30-year mortgage.
In perhaps the most controversial assumption, the mortgage payment was limited to 28 percent of income, a “front-end” ratio some lenders criticize as too conservative in today’s market. A higher ratio means lenders are willing to accept a smaller income.
Over the past year, metro Denver’s median home prices are up 7.65 percent. But the salary required to purchase that median home in Denver is 14.9 percent higher. Higher interest rates explain the difference.
The top four metros on the list for lack of affordability, all out of California, are San Jose, San Francisco, San Diego and Los Angeles. Boston comes up fifth.
San Jose homebuyers needed a household income of $256,877.50 to qualify for the median home of $1.3 million with a 20-percent down payment of $260,000. No wonder Colorado looks like a bargain.
Just ahead of Denver in the rankings for income required were New York City, Seattle and Washington, D.C.
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In metro Washington, D.C., which covers a huge area, a buyer would need a salary of $93,380.86 to afford the median-priced home versus $91,275.61 in metro Denver, using the conservative underwriting assumptions from HSH.com.
But here’s the rub. In metro Denver, the median household income is just under $72,000, according to the most recently available counts from the Census Bureau. In D.C., it tops $95,000.
Pittsburgh, Oklahoma City and Cleveland represented the most affordable of the 50 large metros studied. In metro Pittsburgh, with a median home price of $155,000, a buyer would need a salary of $38,879.97.
Oklahoma City, Cleveland, Memphis and Indianapolis all had salary requirements of under $42,000 a year to buy the median-priced home in those markets.