Access to affordable housing is better in the South and Midwest
The 30% financing guideline became popular decades ago, when the primary motivation was to increase affordability for very poor people. It actually comes from an amendment to the landmark 1968 Fair Housing Act , which prohibited discriminatory lending practices that kept minorities and poor people out of certain neighborhoods.
In 1969, Senator Edward Brooke, a black Republican and fair housing advocate, introduced what became known as the “Brooke Amendment ,” which was passed in response to rent increases and complaints about public housing. That year, public housing rents were limited to 25% of a resident’s income. Congress raised this limit to 30% in 1981.
While there are many reasons to keep housing expenses low enough so that it doesn’t strain your budget, this number can vary from situation to situation. Nevertheless, financial advisors and government policy makers still view the 30% rule as a good starting point when it comes to determining how much someone should spend on housing.
Moving costs aren’t cheap, but if home ownership is valuable to you then relocating to the South or Midwest could be a good investment.
The West is the least affordable region to buy a home
Compared to the share of income that Midwestern and Southern families spend on housing, Western states seem like a completely different world. In Hawaii, which is the least affordable state to pay a mortgage, the average mortgage payment makes up 62.3% of the median household income. That’s nearly four times more than in West Virginia. And the median home price is just as shocking, at more than $903,000.
There are many reasons why Hawaii is so expensive, but chief among them is that it is an island. Almost everything, including building materials, has to be brought there by ship or plane, which increases the cost of living. Its tropical climate also makes it a desirable place for foreign investors to buy property, which increases the cost of housing.
But Western states that aren’t as isolated or idyllic as Hawaii also were on the least affordable end of our rankings. In fact, all of the top 10 least affordable states were in the West except for Washington, D.C. The Census classifies Washington, D.C., as a Southern state, making it the least affordable Southern state. Residents of the nation’s capital spent nearly 44% of their income on mortgages, making it the third least affordable state.
The remaining states in the top 10 are Montana, Washington, Oregon, Utah, Idaho, Colorado and Nevada, where residents spend anywhere from about 43% to 40% of their income on mortgages.
One reason for this is the region’s high home prices. Seven of the 10 most expensive average homes were in Western counties. Interestingly, the state’s income doesn’t match Westerners’ tendency to spend such a large portion of their income on their homes.
The states with the highest median household incomes are in the Northeast, led by Maryland, Washington, D.C., Massachusetts, New Jersey, and New Hampshire, all around $90,000 a year. California ranks sixth, with a median household income of around $85,000.
Methodology
To determine how affordable it is to buy a home in each state, Today’s Homeowner compared two criteria:
- Average Monthly Mortgage Payment. We assumed a 30-year, fixed-rate mortgage at an interest rate of 6.15% (current figure from Freddie Mac as of the week of January 19, 2023). Using that rate and average home prices from Zillow, we calculated the average monthly mortgage payment.
- Median monthly pre-tax household income. Data comes from the U.S. Census Bureau’s 2021 1-Year American Community Survey.
To calculate the average share of income spent on a mortgage, we divided the average monthly mortgage payment by the average monthly pre-tax household income. States were ranked accordingly.