Soft home prices boost affordability

NEW YORK (CNNMoney.com) -- Midwest cities dominated the top of the most affordable, housing markets list, according to the latest survey from the National Association of Home Builders (NAHB).

The report covered the three months ended June 30 and Indianapolis retained its number-one rating among big U.S. cities for being most affordable. Indiana neighbor, Kokomo, ranks first among all 215 markets rated. The highest ranked market outside the region is Cumberland, Maryland, rated 12th.

As for least affordable housing markets, Los Angeles is dead last.

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Nationally, home affordability has improved quite a bit over the past year as many markets experienced price declines or stagnation and earnings have increased. To be deemed affordable, housing expenses must be no more than 28 percent of income. Expenses include property taxes and insurance as well as the mortgage payment.

The percentage of homes affordable to the median income household for the nation as a whole increased to 43.1 percent compared with 40.6 percent during the same three months of 2006.

The NAHB survey, done in collaboration with Wells Fargo Bank, bases its affordability ratings on the percentage of new and existing homes sold in the individual markets that were affordable to households earning the median income for that area. It also takes into account mortgage rates.

Thus, Indianapolis's 86.8 rating meant that less than 14 percent of all homes purchased in the metro area were unobtainable by a typical family. By contrast, only 3 percent of Los Angeles homes sold could be comfortably afforded by an average family.

That's despite the fact that median household income for the two metro areas was roughly the same - $63,800 for the Hoosier capital and $61,700 for Angelenos. The difference, of course, was in the median price of homes. In Indianapolis, $122,000 bought the median home compared with $530,000 in Los Angeles.

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Nine of the 10 least affordable markets were in California. Salinas (3.7 percent), Merced (3.8 percent), Santa Ana (4.4 percent) and San Francisco (5.7 percent) formed the bottom five. The only outsider to crack the list was New York City with 6.3 percent of homes affordable to median-income households.

Detroit (86.0 percent), Buffalo (84.8 percent) and Cleveland (78.7 percent) were other large metro areas with high affordability numbers.

In a survey last week, the National Association of Realtors said that the median price for a single-family home sold during the three months ended June 30 fell to $223,800, 1.5 percent below the price a year ago.

Some of the results of the survey were more positive. More metro area markets - 97 of 149 - gained ground than lost.

One of the four U.S. regions, the Northeast recorded a slight price gain of 0.7 percent. The West lost 0.4 percent, the South 1.6 percent and the Midwest 2.2 percent.

NAR predicts home prices will turn slightly positive again by spring of 2008 and rise about 2 percent that year.

Among individual metro areas, prices in the second quarter plunged most in Elmira, New York, down 17.9 percent to $71,700. Other big losers included Palm Bay, Florida (down 15 percent to $183,300), Davenport, Iowa (down 11.3 percent to $103,300) and Sarasota, Florida (down 11.3 percent to $311,400).