LendingTree Analysis Reveals Where Homebuyers are Stretching to Buy
CHARLOTTE, N.C., September 6, 2018 – LendingTree®, the nation’s leading online loan marketplace, today released a study on where homebuyers are stretching the most to buy a home.
A well-known rule of thumb says that the home price should not exceed three times the buyer’s annual income. When a mortgage is used to buy a house, the ratio of amount borrowed to income is the extent to which a borrower is leveraged. This study compares leverage ratios across cities to see where borrowers are stretching the most to purchase a home.
The study used Home Mortgage Disclosure Act (HMDA) data that includes over 7 million mortgages originated in 2017 to calculate the leverage rate of borrowers in the 50 largest cities in America. The median amount borrowed was divided by the median borrower income for all purchases in the HMDA database for 2017.
“Home prices continue to reach new highs, with the most recent data showing prices for existing homes at a median of $276,900 in June; new homes are even more expensive at a median of $302,100,” said Tendayi Kapfidze, Chief Economist and report author. “The annual increase in home prices has been outpacing income growth since 2012. As a result, homebuyers have been stretching more and more to purchase their dream homes. Low interest rates have masked this to some extent, as they have subdued the monthly payment, but the recent increase in interest has reduced this mitigating factor.”
Kapfidze continued, “Historical data shows that nationally leverage ratios increased from 2.30 in 2014 to 2.56 in 2017 as home prices rose faster than incomes. To rank the cities, we calculated leverage ratios that show how the median homebuyer in each city fared. However, each borrower is unique, and their homebuying capacity depends on additional factors including credit scores, other debt currently held and down payment.”
Key findings
- California is known for its high home prices and high incomes. Unfortunately, the tech boom is not enriching everyone with cash, and 6 of the top 10 cities are in the Golden State, including the top four (Los Angeles, San Diego, San Francisco, and San Jose).
- Los Angeles leads the way for stretched buyers, with the median homebuyer with a mortgage borrowing 3.75 times their annual income.
- San Diego has similar income to Los Angeles, but cheaper homes give it the second highest leverage ratio of 3.62.
- Home prices are much higher in the Bay Area cities which rank 3 and 4 for stretched borrowers, but higher incomes provide some relief and leverage ratios are 3.52 and 3.50 for San Francisco and San Jose.
- The more affordable cities are clustered in the Rust Belt and southern U.S. states. Pittsburgh and Cleveland have the lowest leverage ratios at just 2.00 times annual income.
- Houston is the largest city in the bottom 10 and has the highest loan amounts of the affordable cities. High incomes driven by the energy and health care sectors helps it to a benign leverage ratio of 2.17.
The Most Stretched Homebuyers in America
#1 Los Angeles
Leverage ratio: 3.75
Median mortgage amount: $461,000
Median borrower income: $123,000
#2 San Diego
Leverage ratio: 3.62
Median mortgage amount: $442,000
Median borrower income: $122,000
#3 San Francisco
Leverage ratio: 3.52
Median mortgage amount: $845,000
Median borrower income: $240,000
The Least Stretched Homebuyers in America
#48 Buffalo, N.Y.
Leverage ratio: 2.03
Median mortgage amount: $136,000
Median borrower income: $67,000
#49 Pittsburgh
Leverage ratio: 2.00
Median mortgage amount: $152,000
Median borrower income: $76,000
#50 Cleveland
Leverage ratio: 2.00
Median mortgage amount: $142,000
Median borrower income: $71,000
| Top 50 cities ranked by leverage ratio | ||||
| Rank | City | Median Loan Amount | Median Applicant Income | Leverage Ratio |
| 1 | Los Angeles | $ 461,000 | $123,000 | 3.75 |
| 2 | San Diego | $ 442,000 | $122,000 | 3.62 |
| 3 | San Francisco | $ 845,000 | $240,000 | 3.52 |
| 4 | San Jose, Calif. | $ 648,000 | $185,000 | 3.50 |
| 5 | Salt Lake City | $ 249,000 | $ 72,000 | 3.46 |
| 6 | Denver | $ 320,000 | $ 95,000 | 3.37 |
| 7 | Riverside, Calif. | $ 292,000 | $ 87,000 | 3.36 |
| 8 | Seattle | $ 409,000 | $123,000 | 3.33 |
| 9 | Portland, Ore. | $ 309,000 | $ 95,000 | 3.25 |
| 10 | Sacramento, Calif. | $ 315,000 | $ 98,000 | 3.21 |
| 11 | Washington | $ 357,000 | $112,000 | 3.19 |
| 12 | Boston | $ 374,000 | $118,000 | 3.17 |
| 13 | Las Vegas | $ 232,000 | $ 74,000 | 3.14 |
| 14 | Miami | $ 268,000 | $ 86,000 | 3.12 |
| 15 | Virginia Beach, Va. | $ 225,000 | $ 73,000 | 3.08 |
| 16 | New York | $ 358,000 | $120,000 | 2.98 |
| 17 | Baltimore | $ 270,000 | $ 92,000 | 2.93 |
| 18 | Nashville, Tenn. | $ 231,000 | $ 79,000 | 2.92 |
| 19 | Providence, R.I. | $ 230,000 | $ 79,000 | 2.91 |
| 20 | Phoenix | $ 221,000 | $ 76,000 | 2.91 |
| 21 | Orlando, Fla. | $ 216,000 | $ 77,000 | 2.81 |
| 22 | Richmond, Va. | $ 214,000 | $ 77,000 | 2.78 |
| 23 | Minneapolis | $ 217,000 | $ 81,000 | 2.68 |
| 24 | Jacksonville, Fla. | $ 195,000 | $ 73,000 | 2.67 |
| 25 | Tampa, Fla. | $ 192,000 | $ 73,000 | 2.63 |
| 26 | Atlanta | $ 206,000 | $ 79,000 | 2.61 |
| 27 | Charlotte, N.C. | $ 204,000 | $ 79,000 | 2.58 |
| 28 | Raleigh, N.C. | $ 233,000 | $ 91,000 | 2.56 |
| 29 | Philadelphia | $ 192,000 | $ 75,000 | 2.56 |
| 30 | Chicago | $ 221,000 | $ 88,000 | 2.51 |
| 31 | Birmingham, Ala. | $ 170,000 | $ 68,000 | 2.50 |
| 32 | New Orleans | $ 195,000 | $ 79,000 | 2.47 |
| 33 | San Antonio | $ 201,000 | $ 82,000 | 2.45 |
| 34 | Hartford, Conn. | $ 196,000 | $ 80,000 | 2.45 |
| 35 | Louisville, Ky. | $ 154,000 | $ 63,000 | 2.44 |
| 36 | Austin, Texas | $ 246,000 | $104,000 | 2.37 |
| 37 | Dallas | $ 244,000 | $104,000 | 2.35 |
| 38 | Kansas City, Mo. | $ 179,000 | $ 78,000 | 2.29 |
| 39 | Indianapolis | $ 160,000 | $ 71,000 | 2.25 |
| 40 | Milwaukee | $ 183,000 | $ 82,000 | 2.23 |
| 41 | Columbus, Ohio | $ 176,000 | $ 79,000 | 2.23 |
| 42 | St.Louis | $ 162,000 | $ 74,000 | 2.19 |
| 43 | Memphis, Tenn. | $ 166,000 | $ 76,000 | 2.18 |
| 44 | Houston | $ 208,000 | $ 96,000 | 2.17 |
| 45 | Oklahoma, City | $ 155,000 | $ 72,000 | 2.15 |
| 46 | Cincinnati | $ 157,000 | $ 73,000 | 2.15 |
| 47 | Detroit | $ 135,000 | $ 66,000 | 2.05 |
| 48 | Buffalo, N.Y. | $ 136,000 | $ 67,000 | 2.03 |
| 49 | Pittsburgh | $ 152,000 | $ 76,000 | 2.00 |
| 50 | Cleveland | $ 142,000 | $ 71,000 | 2.00 |
About LendingTree
LendingTree (NASDAQ: TREE) is the nation’s leading online marketplace that connects consumers with the choices they need to be confident in their financial decisions. LendingTree empowers consumers to shop for financial services the same way they would shop for airline tickets or hotel stays, comparing multiple offers from a nationwide network of over 500 partners in one simple search, and can choose the option that best fits their financial needs. Services include mortgage loans, mortgage refinances, auto loans, personal loans, business loans, student refinances, credit cards and more. Through the My LendingTree platform, consumers receive free credit scores, credit monitoring and recommendations to improve credit health. My LendingTree proactively compares consumers’ credit accounts against offers on our network, and notifies consumers when there is an opportunity to save money. In short, LendingTree’s purpose is to help simplify financial decisions for life’s meaningful moments through choice, education and support. LendingTree, LLC is a subsidiary of LendingTree, Inc. For more information, go to www.lendingtree.com, dial 800-555-TREE, like our Facebook page and/or follow us on Twitter @LendingTree.