These cities offer best affordability for millennial homebuyers

by Steve Randall02 Oct 2018

Millennial homebuyers face affordability challenges in many cities but a new analysis finds that there are opportunities.

Mortgage insurer Arch MI has ranked 25 affordable cities with solid growth and reveals where home prices are most likely to rise – and fall – in the next two years.

“It’s important for potential buyers to understand that many markets remain reasonably affordable by historic norms, but this may not last much longer since the consensus forecast is for prices and interest rates to continue increasing,” said Dr. Ralph G. DeFranco, Global Chief Economist for Arch Capital Services, Inc.

He added that there are affordable options but if buyers delay they are likely to pay more in the future.

Lower DTI for top 25
All of the 25 of the cities listed in the report have better overall affordability than the US overall, which currently requires 31% of the median household’s income to cover mortgage payments on a median-priced home.

For example, the debt-to-income ratio in Fort Worth-Arlington is 27% and in Oklahoma City is just 19%.

But DeFranco says other costs are often behind a decision to delay purchase by first-time buyers.

“One factor that needlessly hinders some potential first-time buyers is the incorrect idea that you need a 20 percent down payment when, in reality, most first-time homebuyers put down between 3 and 10 percent,” he said.

Risk of falling prices remains low
The quarterly Arch MI Risk Index suggests that there is a 6% probability that home prices will be lower in 2 years.

However, Oklahoma is at the greatest risk of lower prices (26%) at state level while some of the priciest larger metros are also at risk including Houston (22%) and Denver (18%) because their home prices are far higher than expected compared to the historical relationship between prices and incomes.

Fall 2018 HaMMR
Top Five Most Affordable Cities with Both Strong Labor and Housing Markets

Rank

Metro Name

State

Job Growth Y/Y %

Home Price Growth Y/Y %

Median DTI Now

1987–2004 Avg. Median DTI

1

Fort Worth-Arlington

TX

2.7

9.8

27%

26%

2

Jacksonville

FL

3.0

9.7

28%

27%

3

Oklahoma City

OK

2.2

4.6

19%

22%

4

Charlotte-Concord-Gastonia

NC

2.6

9.3

27%

22%

5

Grand Rapids-Wyoming

MI

2.0

8.6

24%

23%

 

United States

US

1.6

6.6

31%

34%

The full report is available at http://www.archmi.com/hammr

 

 


More market update:

Poll

Should CFPB have more supervision over credit agencies?