One California city saw buyers with mortgages borrow 3.75 times their income
Four California cities were revealed to have most stretched homebuyers in America, with home prices exceeding buyer's annual incomes by more than three times, according to a study of HMDA data released by LendingTree.
Homebuyers in Los Angeles were found to be the most stretched in the US. The city had a leverage ratio of 3.75 given its median mortgage amount of $461,000 and median borrower income of $123,000.
LendingTree compared the ratios of amount borrowed to buy a house to income across the 50 largest cities in America to see where borrowers are stretching the most to purchase a home.
With incomes similar to Los Angeles but cheaper homes, San Diego had homebuyers with a mortgage borrowing 3.62 times their annual income, the second-highest leverage ratio in the study. San Francisco and San Jose have leverage ratios of 3.52 and 3.5, respectively, as higher home prices are offset by higher incomes.
"The annual increase in home prices has been outpacing income growth since 2012,” LendingTree Chief Economist Tendayi Kapfidze said. “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."
LendingTree recorded the lowest leverage ratios in Pittsburgh and Cleveland, which both posted a ratio of twice the average annual income. The more affordable cities are clustered in the Rust Belt and southern US states.
Despite its high loan amounts, Houston was in the bottom 10 of the study’s rankings. The city’s energy and health care sectors drove its median income higher, resulting in a benign leverage ratio of 2.17.
