Financial experts often advise not to spend more than 30% of your annual income on housing costs. However, buyers in several areas are far exceeding that rule.
LendingTree researchers recently ranked the nation’s 50 largest cities according to how much financial leverage buyers in each metro have to achieve homeownership. The study defines “leverage” as the ratio of how much money a person borrows to his or her annual income.
Five of the cities in the top 10 where buyers are stretching their budgets the most are in California. The most leveraged home buyers can be found in the following cities:
1. Los Angeles
- Leverage ratio: 3.91
- Median mortgage amount: $485,000
- Median borrower income: $124,000
2. San Diego
- Leverage ratio: 3.64
- Median mortgage amount: $455,000
- Median borrower income: $125,000
3. Salt Lake City
- Leverage ratio: 3.53
- Median mortgage amount: $265,000
- Median borrower income: $75,000
4. San Francisco
- Leverage ratio: 3.51
- Median mortgage amount: $885,000
- Median borrower income: $252,000
5. Denver
- Leverage ratio: 3.48
- Median mortgage amount: $345,000
- Median borrower income: $99,000
On the other hand, buyers in the Rust Belt and South are finding some of the most affordable homes in the nation. The average home price in the 10 most affordable cities is about $90,000 to $171,000 less than the average home price nationwide. The following are the “least leveraged” cities in America:
1. Pittsburgh
- Leverage ratio: 2.04
- Median mortgage amount: $155,000
- Median borrower income: $76,000
2. Cleveland
- Leverage ratio: 2.07
- Median mortgage amount: $145,000
- Median borrower income: $70,000
3. Detroit
- Leverage ratio: 2.14
- Median mortgage amount: $135,000
- Median borrower income: $63,000
4. Cincinnati
- Leverage ratio: 2.26
- Median mortgage amount: $165,000
- Median borrower income: $73,000
5. Indianapolis
- Leverage ratio: 2.26
- Median mortgage amount: $165,000
- Median borrower income: $73,000
Source: “LendingTree Study Reveals the Most Stretched Homebuyers in America for 2019,” LendingTree (Oct. 21, 2019)
