Starter Homes Cost More Than $1 Million in 237 American Cities
by John Lawrence
In many US cities a starter home costs more than $1 million making it unaffordable for most young people who make less than $400,000. CBS News reports:
If you put 20% down on your $1 million home, you would need an $800,000 mortgage for the remainder of what you owe on the purchase. In this case, your mortgage payment would be $7,739 per month, inclusive of estimated property taxes and homeowners insurance costs. That amounts to about $92,868 per year in mortgage payments.
With 0% down, you can expect to pay $9,070 per month inclusive of estimated property taxes and homeowners insurance costs. With less than 20% down, you should also expect to pay for private mortgage insurance (PMI), which would cost about $1,250 per month. That works out to a total of $10,320 per month, or $123,840 in annual mortgage payments.
Based on these figures, you would need to earn $331,671.43 annually to afford a $1 million home with a 20% down payment if you follow the 28% rule. Or, you would need to earn about $442,285.71 annually to afford the same home with no down payment based on this rule.
Obviously, only very rich families with parental support can afford to buy a starter home in 237 American cities. So what is the solution? If you're young, move to an American city where the average price of a starter home is around $200,000. Cities like South Bend, Indiana, Cleveland, Ohio, or Topeka, Kansas. Indianapolis, Indiana has cheap starter homes. The median price for a housing unit in Indianapolis is $232,000. However, think twice about cities that are desirable or undesirable due to climate change. I wouldn't buy a house in a city in the south, for instance. Also there are several other factors like what's the job situation. As time goes on, some areas of the country will become virtually uninhabitable due to climate change. In general you have to consider the topography. Are you close to a river or creek that could flood? Are you close to a forest that could burn? Does the area have adequate water resources? What about infrastructure? I wouldn't want to be too close to the ocean as climate change raises ocean levels and shore lines are washed away.
Young people should be given a path to home ownership like returning GIs from World War II. They could buy a house with nothing down. Their mortgages were guaranteed by the government. In exchange for a two year commitment to the American Climate Corps, young people should also be able to buy a house with nothing down. Home ownership is the time proven way to build middle class wealth. Renters will never build wealth. The government should be in the business of creating a strong middle class. This can only be accomplished by encouraging wide spread home ownership, and this has to start with young people getting into homes.
