In some major cities across the country, home prices have risen to a point where the average teacher cannot afford to buy a home — or even come close. And with house values still climbing across the U.S., the situation could worsen in the years ahead.
According to a recent report by Trulia’s senior economist Cheryl Young, teachers often cannot afford to buy homes in western markets like San Francisco and Seattle, along with Denver.
“As home price growth outstrips wage growth, occupations such as teachers, first responders and restaurant workers struggle to afford to live in the communities they serve,” Young wrote.
San Jose, San Francisco and Denver top the list of housing markets where teachers are being squeezed out by rapidly rising prices.
The 5 Least Affordable Housing Markets for Teachers
The company used wage data to determine the percentage of teachers who could afford to buy a home using 30% of their income, in different areas of the country. Thirty percent was the threshold used for what is considered “reasonably” affordable.
Using this methodology, Trulia’s team analyzed 55 of the largest metro-area housing markets in the country. The five most challenging markets are shown below.
Note: The first two columns in this table came from the Trulia report. The second column shows the percentage of real estate listings that would be affordable to a typical teacher in each area.
|Metro Area||% of Affordable Listings||Median Home Value*|
|San Jose, CA||0.7%||$1,209,700|
|San Francisco, CA||5.2%||$949,500|
|San Diego, CA||9.8%||$590,100|
* Home values obtained from Zillow in May 2019
We can glean a few insights from this report:
- It’s hard to be a teacher in California’s major cities, at least in terms of home-buying potential.
- Good luck buying a house in the San Jose metro area, at least if you’re a teacher. The same goes for much of the Silicon Valley.
- Thanks to skyrocketing home prices over the past few years, Seattle has become one of America’s least affordable cities. (But that housing market currently appears to be descending from its peak.)
- Denver, Colorado also has a big gap between teacher pay and home prices, forcing many professionals to either continue renting or endure longer commutes.
Surprisingly, there were also some (relatively) more affordable housing markets where teachers have a hard time affording a home purchase. For example, in the Raleigh, North Carolina metro area only 11% of active real estate listings were deemed “reasonably” affordable in the study.
To quote the report:
“In other, somewhat pricier markets including Denver, San Diego and Seattle, however, at least 90% of homes for sale are out of reach of teachers’ budgets. And even in more moderate markets such as Raleigh and Orlando, annual teacher wages in the mid-to-high $40,000s are only enough to reasonably afford 11.1% and 19.5% of available homes, respectively.”
Tips for Those Considering a Home Purchase
Here are some tips and ideas for those intrepid educators who want to plunge into one of these pricey real estate markets.
1. Keep renting for a while.
There are quite a few teachers in the country who cannot afford to buy a home in the city or county where they teach. This is especially true in California, as shown in the list above. That’s just a harsh reality of the real estate world.
In such cases, renting is often the only option. But that doesn’t mean you have to give up your dream of homeownership forever. You might only have to put it on the back burner for a while.
Real estate is cyclical. Home prices rise, level off, and sometimes even dip. Then the process repeats itself — more or less.
For example: Seattle appeared on Trulia’s list of tough housing markets for teachers mainly due to steady home-price gains that occurred from 2012 to early 2018. But prices in that city have actually dropped over the past 12 – 18 months. Things change.
Renting also gives future home buyers the opportunity to put money aside for a down payment and closing costs.
2. Look for teacher-oriented financing programs.
City, county and state governments often partner with mortgage lenders and/or non-profit housing groups to offer financing programs for first-time home buyers. Many of these programs are well suited for teachers, and some of them are specifically designed for educators.
For example, the California Housing Finance Agency created the “Extra Credit Teacher Home Purchase Program” (ECTP). This is a subordinate loan with deferred payment that can be applied to the down payment and/or closing costs on a home purchase. It can also be combined with a CalHFA first mortgage.
That’s just one example of the mortgage programs available to teachers. Some organizations offer grants as well. Do some research to find out what programs are available in your city, county and state.
3. Minimize your down payment.
Some teachers find themselves in a situation where they could afford the monthly payments on a house, but not the upfront down payment. After all, the down payment can be a sizable chunk of change. And surveys have shown that many Americans believe they have to put down at least 20% on a home purchase.
Here’s the reality:
The down payment for a conventional mortgage loan could be as low as 3% of the purchase price. FHA loans offer a down payment of 3.5%. And in most cases, borrowers can use “gift money” from an approved third party such as a family member or close friend.
4. Look for “islands” of affordability in pricey areas.
The median home price for a metro area might seem high at first glance. But it’s just the midpoint figure for the entire area. When you drill down to the individual cities that make up a metropolitan or combined statistical area, home prices can vary quite a bit.
The Seattle metro area appeared on the list above mainly because of the steep home prices in the cities of Seattle and Bellevue. But in neighboring Tacoma (which also falls within that metro area), homes are a lot more affordable by comparison. There’s currently a $400,000 difference between the median home value in Seattle and the median within nearby Tacoma.
Similarly, prices tend to drop as you move away from the city center and into the outlying areas. It’s a tradeoff. Living farther from work means a longer commute. But it might also put homeownership within reach.
San Jose is a unique exception to this general rule. Home prices in that city — and in the surrounding areas — have risen so much that it is now the toughest real estate market in the country for teachers. The market there is so tough that the San Jose Unified School District wants to tear down old school buildings and use the land for rental housing for teachers.