In recent years, the housing boom has pushed home prices up much faster than incomes. This means the kind of house the average buyer can afford has been shrinking. So now we have situations where families earning the median income cannot afford a median-priced home.
In Santa Monica, for instance, it takes the average person 17 years of income to pay for the median priced home. In Passaic, New Jersey, it’s 13, and in Alexandria, Virginia, it’s 11. Forbes' magazine surveyed the worst neighborhoods with the most over inflated income-to-price spreads—here's the list:
Santa Monica, California
California suburbs are the most difficult to afford nationwide, but Santa Monica is the least affordable of them all. Santa Monica boasts golden beaches and sexy Pacific coastline—and all the ritzy condos and mansions overlooking the beach are bought up by the super wealthy Hollywood set. It’s only 8 square miles, but it has plenty of beach and bike trails and the schools are rated as some of the best in the country.
In fact, lots of Southern California residents are relocating to the South and Southwest because housing has become unaffordable.
- Median home price is $1.05 million
- Median income is only $61,000
- It takes 17 years of income to buy a median priced home here
- In recent years, the housing boom has pushed prices up much faster
- The inland rental units house the rest of the population, about 70% of the community
Passaic, New Jersey
It’s where rock and roll’s first female super-group The Shirelles, made their start and compared to the median home price in New York City of $1 million, this is a huge bargain. It is just 10 miles outside New York City, the country’s most expensive real estate market—but with median income of $29,000, a home of $385,000 is unaffordable. Many residents are Hispanic and African American residents and it’s extremely densely populated (22,000 people per square mile)
- Median home price is $385,000 (was $225,000 in 2003)
- It takes 13 years of income to buy a median priced home here
- Big gap between those living in new developments with pretty skyline views and the 20% living below the poverty line in decrepit rentals
Home to Harvard and M.I.T, and the large student and teacher population can’t afford to buy. The market saw a huge spike in 2005 (up 17 percent in less than two years)—it has come down in the past three months, but the market went up 200% in ten years.
- Median home price is $587,000
- Median income is $51,000
- Would take 11 years of income to buy a median priced home
West Palm Beach, Florida
The housing boom in West Palm has also caused prices to spike up further than incomes can handle, resulting in lots of overbuilding and foreclosure trouble. Ten years ago, the median home went for about $72,000. Today the median home costs $318,000, more than four times that amount—but in the past year, homes have gone down 11%. Oceanfront property goes for as much as $15-$20 million
- Median home price is $318,000
- Median income is $45,000
- Would take 7 years of income to buy a median priced home
Overpriced has a very different meaning in the South (on the whole, you still get much more space for your money).
Alexandria is just outside D.C. and considered one of the most affluent areas in the country Plenty of tourism keeps Alexandria going, and it’s a convenient and pleasant community for people commuting to D.C. with lots of wealthy neighborhoods. Prices are down $35,000 from last year, and about half of the homes on the market have had at least one price reduction since coming to market. But even the high median income of $80K can’t buy a median priced home of $539,000—maybe a starter home under $300K
- Median home price is $539,000
- Median income is $80,000
- It would also take 7 years of income to buy a median priced home
Bottom line: Living in an overpriced suburb is not necessarily bad news. Remember, there must have been a reason for the neighborhood to become overpriced in the first place. If you can afford to buy in these places, there is no good reason I can think of not to. There is a rule in real estate that I think applies here: everybody wants what everybody else has. So don’t worry about these overstuffed markets plummeting anytime soon.
For more of Barbara Corcoran's real estate tips and advice, visit barbaracorcoran.com.