Personal Finance

The Cost of Homeownership for Millennials in These Top Cities

This post originally appeared on Fabric

Homeownership has long been a cornerstone of the American Dream. But stagnant wages and rising real estate prices are making homeownership less attainable, especially for millennial families.

“Student debt, rent burden and tight housing supply are the top contributing factors to the affordability crisis,” explains Archana Pradhan, a senior economist at CoreLogic. According to Pew Research, millennials are less likely to own a home than previous generations at the same age.

Fortunately, options still exist for young families looking to settle down. Some locations, especially in the Midwest and Texas, offer more affordable housing as a result of higher wages and/or lower home prices. “These areas have both affordable housing and good economic conditions,” according to Pradhan.

Additionally, a recent report from CoreLogic shows that millennials are applying for mortgages near major hubs, but in neighboring states with lower home prices. For instance, Pradhan says, “Millennial applicants from New York applied for home-purchase mortgages mostly in New Jersey and Pennsylvania, and applicants from California applied for mortgages in Nevada.”

Since millennials now comprise a majority of new parents in the U.S., the next wave of popular cities will be determined in part by where they choose to raise their families.

To help millennials understand how much home they can afford, researchers at Fabric, a company creating financial products for families, analyzed data for the 240 largest metropolitan areas. These areas were grouped by population into large, midsize and small metros.

Fabric calculated the average millennial income for each metropolitan area, using data from the U.S. Census Bureau. Based on that, its researchers then determined the most expensive home a typical millennial could afford, assuming they spend no more than 28 percent of their gross monthly income on housing.

Finally, Fabric compared that number to the median Zillow Home Value Index for each metro as a measure of affordability. Here’s what Fabric found.

How Millennial Income Varies Across the Country

Across the entire U.S., millennials who work full-time make an average $43,913 per year. But this amount ranges widely by location. For example, millennials in Homosassa Springs, FL make an average of $26,225 per year. By contrast, millennials in the tech capital of San Jose, CA make an average of $75,644 per year—nearly three times as much.

In general, metropolitan areas on the East Coast and West Coast boast higher salaries, while those in the South and Southwest report lower amounts.

How Income Relates to Home Affordability

As a general personal finance rule of thumb, it’s best if housing costs don’t exceed 28 percent of household income. Based on this rule, the average millennial could afford to buy a home that costs up to $260,678, given an average annual income of almost $44,000. (This assumes a 30-year fixed mortgage with a 20 percent down payment at today’s interest rates.)

Good news: That is approximately 16 percent higher than the current $225,300 median home value in the U.S.

As with income, home prices and affordability vary widely across the country. Although incomes tend to be higher in coastal cities, home prices often outpace income gains, especially in California.

Despite offering above-average incomes, the San Jose, Los Angeles and San Francisco metropolitan areas are still some of the least affordable. Small Southwest cities such as Santa Fe and Flagstaff also put homeownership out of reach for many millennials.

Conversely, metropolitan areas in states such as Texas, Ohio, Alabama and Pennsylvania are much friendlier for millennials looking to buy homes. For example, Pittsburgh, Cleveland and Toledo offer affordable options for young families.

Millennials Own Homes at a Lower Rate

The national homeownership rate for millennial households is 38.1 percent, compared to 63.9 percent for all households. Not surprisingly, geographic variance in affordability translate into significant differences in homeownership.

Census and Zillow data show a statistically significant correlation between affordability and homeownership among millennials. In parts of the Midwest, more affordable options translate into higher homeownership. On the other hand, homeownership is out of reach for many young families in coastal areas.

One interesting exception is that popular areas in Utah (like Salt Lake City, Provo-Orem and Ogden-Clearfield) are “too expensive” for millennial buyers according to our rules of thumb, yet still boast high millennial homeownership rates. We can’t say definitively why that is, but speculate that these millennials might receive assistance from family, or simply spend a higher percentage of their income on housing.

Home Affordability Varies in the Most Popular Metros for Millennials

The following list of large metros is ordered by the percentage of the population that are millennials.

Photo Credit: Sean Pavone / Alamy Stock Photo

1. Austin-Round Rock, TX

  • Percentage of population that are millennials: 24.5%

  • Affordability index: -4.0% (moderately unaffordable)

  • What millennials can afford: $295,935 (~1,838 square feet)

  • Median home price: $308,200 (~1,914 square feet)

  • Average income for millennials: $49,852

  • Millennial homeownership rate: 32.7%

Photo Credit: Tim Brown / Alamy Stock Photo

2. San Diego-Carlsbad, CA

  • Percentage of population that are millennials: 24.0%

  • Affordability index: -52.7% (extremely unaffordable)

  • What millennials can afford: $279,513 (~747 square feet)

  • Median home price: $591,400 (~1,581 square feet)

  • Average income for millennials: $47,086

  • Millennial homeownership rate: 23.6%

Photo Credit: Jose Luis Stephens / Alamy Stock Photo

3. Seattle-Tacoma-Bellevue, WA

  • Percentage of population that are millennials: 24.0%

  • Affordability index: -28.4% (highly unaffordable)

  • What millennials can afford: $350,541 (~1,176 square feet)

  • Median home price: $489,700 (~1,643 square feet)

  • Average income for millennials: $59,051

  • Millennial homeownership rate: 34.3%

Photo Credit: Sherry Smith / Alamy Stock Photo

4. Virginia Beach-Norfolk-Newport News, VA-NC

  • Percentage of population that are millennials: 23.6%

  • Affordability index: +3.6% (moderately affordable)

  • What millennials can afford: $237,737 (~1,748 square feet)

  • Median home price: $229,400 (~1,687 square feet)

  • Average income for millennials: $40,048

  • Millennial homeownership rate: 37.1%

Photo Credit: Andriy Kravchenko / Alamy Stock Photo

5. Salt Lake City, UT

  • Percentage of population that are millennials: 23.6%

  • Affordability index: -31.6% (highly unaffordable)

  • What millennials can afford: $246,559 (~941 square feet)

  • Median home price: $360,600 (~1,376 square feet)

  • Average income for millennials: $41,534

  • Millennial homeownership rate: 45.8%

Photo Credit: Cavan Images / Alamy Stock Photo

6. Denver-Aurora-Lakewood, CO

  • Percentage of population that are millennials: 23.2%

  • Affordability index: -27.5% (highly unaffordable)

  • What millennials can afford: $293,998 (~1,114 square feet)

  • Median home price: $405,300 (~1,535 square feet)

  • Average income for millennials: $49,526

  • Millennial homeownership rate: 40.0%

Photo Credit: Marcelo Vinante / Alamy Stock Photo

7. San Jose-Sunnyvale-Santa Clara, CA

  • Percentage of population that are millennials: 23.2%

  • Affordability index: -64.0% (extremely unaffordable)

  • What millennials can afford: $449,042 (~579 square feet)

  • Median home price: $1,245,800 (~1,607 square feet)

  • Average income for millennials: $75,644

  • Millennial homeownership rate: 26.9%

Photo Credit: Pete Niesen / Alamy Stock Photo

8. San Francisco-Oakland-Hayward, CA

  • Percentage of population that are millennials: 23.0%

  • Affordability index: -56.8% (extremely unaffordable)

  • What millennials can afford: $413,940 (~675 square feet)

  • Median home price: $957,400 (~1,562 square feet)

  • Average income for millennials: $69,731

  • Millennial homeownership rate: 24.8%

Photo Credit: Michelle Himes Studio / Alamy Stock Photo

9. Columbus, OH

  • Percentage of population that are millennials: 23.0%

  • Affordability index: +35.5% (highly affordable)

  • What millennials can afford: $257,361 (~2,075 square feet)

  • Median home price: $189,900 (~1,531 square feet)

  • Average income for millennials: $43,354

  • Millennial homeownership rate: 34.7%

Photo Credit: Sean Pavone / Alamy Stock Photo

10. Los Angeles-Long Beach-Anaheim, CA

  • Percentage of population that are millennials: 22.8%

  • Affordability index: -57.8% (extremely unaffordable)

  • What millennials can afford: $275,224 (~645 square feet)

  • Median home price: $652,300 (~1,528 square feet)

  • Average income for millennials: $46,363

  • Millennial homeownership rate: 20.9%

Photo Credit: Sean Pavone / Alamy Stock Photo

11. Washington-Arlington-Alexandria, DC-VA-MD-WV

  • Percentage of population that are millennials: 22.3%

  • Affordability index: -17.9% (unaffordable)

  • What millennials can afford: $333,446 (~1,378 square feet)

  • Median home price: $406,200 (~1,679 square feet)

  • Average income for millennials: $56,171

  • Millennial homeownership rate: 35.3%

Photo Credit: Sean Pavone / Alamy Stock Photo

12. Orlando-Kissimmee-Sanford, FL

  • Percentage of population that are millennials: 22.2%

  • Affordability index: -4.4% (moderately unaffordable)

  • What millennials can afford: $226,640 (~1,631 square feet)

  • Median home price: $237,100 (~1,706 square feet)

  • Average income for millennials: $38,179

  • Millennial homeownership rate: 31.7%

Photo Credit: Brian Overcast / Alamy Stock Photo

13. Portland-Vancouver-Hillsboro, OR-WA

  • Percentage of population that are millennials: 22.2%

  • Affordability index: -30.7% (highly unaffordable)

  • What millennials can afford: $275,471 (~1,177 square feet)

  • Median home price: $397,300 (~1,698 square feet)

  • Average income for millennials: $46,405

  • Millennial homeownership rate: 37.6%

Photo Credit: CrackerClips Stock Media / Alamy Stock Photo

14. San Antonio-New Braunfels, TX

  • Percentage of population that are millennials: 22.2%

  • Affordability index: +15.5% (affordable)

  • What millennials can afford: $222,639 (~1,953 square feet)

  • Median home price: $192,800 (~1,691 square feet)

  • Average income for millennials: $37,505

  • Millennial homeownership rate: 34.1%

Photo Credit: Sean Pavone / Alamy Stock Photo

15. Nashville-Davidson–Murfreesboro–Franklin, TN

  • Percentage of population that are millennials: 22.1%

  • Affordability index: 0.0% (moderately affordable)

  • What millennials can afford: $253,454 (~1,701 square feet)

  • Median home price: $253,500 (~1,701 square feet)

  • Average income for millennials: $42,696

  • Millennial homeownership rate: 41.0%

Photo Credit: Sean Pavone / Alamy Stock Photo

16. Houston-The Woodlands-Sugar Land, TX

  • Percentage of population that are millennials: 22.0%

  • Affordability index: +32.7% (highly affordable)

  • What millennials can afford: $272,598 (~2,596 square feet)

  • Median home price: $205,500 (~1,957 square feet)

  • Average income for millennials: $45,921

  • Millennial homeownership rate: 35.9%

Photo Credit: Sean Pavone / Alamy Stock Photo

17. Boston-Cambridge-Newton, MA-NH

  • Percentage of population that are millennials: 22.0%

  • Affordability index: -27.6% (highly unaffordable)

  • What millennials can afford: $338,030 (~1,199 square feet)

  • Median home price: $467,000 (~1,656 square feet)

  • Average income for millennials: $56,943

  • Millennial homeownership rate: 33.8%

Photo Credit: lucky-photographer / Alamy Stock Photo

18. Las Vegas-Henderson-Paradise, NV

  • Percentage of population that are millennials: 21.7%

  • Affordability index: -16.1% (unaffordable)

  • What millennials can afford: $233,153 (~1,430 square feet)

  • Median home price: $277,900 (~1,705 square feet)

  • Average income for millennials: $39,276

  • Millennial homeownership rate: 31.8%

Photo Credit: Sean Pavone / Alamy Stock Photo

19. New York-Newark-Jersey City, NY-NJ-PA

  • Percentage of population that are millennials: 21.7%

  • Affordability index: -24.0% (highly unaffordable)

  • What millennials can afford: $332,990 (~1,281 square feet)

  • Median home price: $438,300 (~1,686 square feet)

  • Average income for millennials: $56,094

  • Millennial homeownership rate: 25.2%

Photo Credit: Sean Pavone / Alamy Stock Photo

20. Dallas-Fort Worth-Arlington, TX

  • Percentage of population that are millennials: 21.6%

  • Affordability index: +12.1% (affordable)

  • What millennials can afford: $272,051 (~2,125 square feet)

  • Median home price: $242,600 (~1,895 square feet)

  • Average income for millennials: $45,829

  • Millennial homeownership rate: 34.0%

Photo Credit: 4k-Clips / Alamy Stock Photo

21. Oklahoma City, OK

  • Percentage of population that are millennials: 21.6%

  • Affordability index: +63.1% (extremely affordable)

  • What millennials can afford: $238,826 (~2,596 square feet)

  • Median home price: $146,400 (~1,591 square feet)

  • Average income for millennials: $40,232

  • Millennial homeownership rate: 42.5%

Photo Credit: Zoonar GmbH / Alamy Stock Photo

22. Minneapolis-St. Paul-Bloomington, MN-WI

  • Percentage of population that are millennials: 21.6%

  • Affordability index: +9.9% (moderately affordable)

  • What millennials can afford: $294,567 (~1,466 square feet)

  • Median home price: $268,100 (~1,334 square feet)

  • Average income for millennials: $49,622

  • Millennial homeownership rate: 49.6%

Photo Credit: Cynthia Lindow / Alamy Stock Photo

23. Grand Rapids-Wyoming, MI

  • Percentage of population that are millennials: 21.5%

  • Affordability index: +31.9% (highly affordable)

  • What millennials can afford: $251,327 (~1,770 square feet)

  • Median home price: $190,500 (~1,342 square feet)

  • Average income for millennials: $42,338

  • Millennial homeownership rate: 54.2%

Photo Credit: Steve Minkler / Alamy Stock Photo

24. Riverside-San Bernardino-Ontario, CA

  • Percentage of population that are millennials: 21.4%

  • Affordability index: -38.7% (highly unaffordable)

  • What millennials can afford: $225,036 (~1,047 square feet)

  • Median home price: $367,100 (~1,707 square feet)

  • Average income for millennials: $37,909

  • Millennial homeownership rate: 40.7%

Photo Credit: rudi1976 / Alamy Stock Photo

25. Chicago-Naperville-Elgin, IL-IN-WI

  • Percentage of population that are millennials: 21.4%

  • Affordability index: +30.6% (highly affordable)

  • What millennials can afford: $293,617 (~1,971 square feet)

  • Median home price: $224,800 (~1,509 square feet)

  • Average income for millennials: $49,462

  • Millennial homeownership rate: 38.8%

Methodology & Full Results

All age, demographic, income and home ownership statistics were derived from the U.S. Census Bureau’s 2017 American Community Survey 1-Year PUMS Data. Median home value and price per square foot were sourced from Zillow.

For this analysis, millennials were defined as any person between the ages of 22 and 36, inclusive. The average millennial income was calculated for all millennials working full-time. The homeownership rate for millennials was calculated as the percentage of millennial-headed households that are owner-occupied.

The maximum home price that a millennial can afford was determined based on a 20 percent down payment, a 30-year fixed mortgage, and the “28 percent rule,” which states that a person should spend no more than 28 percent of their gross monthly income on housing expenses. The affordability index was then calculated as the percent difference between this maximum millennial home price and the median home price for the metropolitan area.

Across all metrics, only metropolitan areas with a population of at least 100,000 were analyzed. Metros were grouped into the following categories based on population:

  • Large metros: more than 1,000,000 people

  • Midsize metros: 350,000 – 1,000,000 people

  • Small metros: 100,000 – 350,000 people

Only large metros were included in the final list of items.

This material is designed to provide general information on the subjects covered. It is not, however, intended to provide any specific advice or to serve as the basis for any decisions.

Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.

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