Surprising might have been the wrong adjective. Because the data we’ll discuss in today’s article didn’t surprise me. It shocked me. I just didn’t want to be too sensational. But, really, you can’t overstate the gravity of a situation spinning out of control.
Granted, I had to step out of my own shoes for a second and take on the mindset I assume a majority of renters have. That if they’re going to buy a house, they want and expect more space. More square feet than they have in the apartments they’re dying to escape. And I’m sure a ton of renters still want to become homeowners in America.
Because, generally speaking, people in the United States dislike — maybe even hate — apartment living as a lifestyle and personal financial choice. They want more space and to stop throwing money away on rent.
Here again, I have to bite my tongue and set aside my own decidedly urban living tastes and preferences. Because to really appreciate this data — which helps illustrate our nation’s housing crisis — you probably have to value square feet. Or maybe not. Even as a city dweller more than fine with renting smallish spaces, I was shocked and even a little bit saddened.
The Shocking Findings of the Point2Homes Study
Point2Homes conducted an interesting study. They looked at the 100 largest cities in America. Using the average rent and median home price/price per square foot in each city, they came to the following conclusion:
Aspiring homebuyers who want to trade their monthly rent for a monthly mortgage of the exact same amount (complete with property taxes and homeowners insurance) in big cities on the East and West coasts — but also in many Sunbelt cities — might be in for a shock: In 63 large urban hubs in these regions, a rent-to-mortgage swap would translate to (much) less than 1,000 square feet.
That’s shocking, right?
I mean I knew shit was bad. But not this bad.
The Good News and the Bad News About Homeownership
First, the good news. The top five places out of the 37 where you can make an even swap — rent for mortgage payment — and secure more than 1,000 square feet of living space:
- Detroit, MI: 2,421 sq. ft.
- Cleveland, OH: 2,048 sq. ft.
- Philadelphia, PA: 1,462 sq. ft.
- Baltimore, MD: 1,308 sq. ft.
- Fort Wayne, IN: 1,287 sq. ft.
Now, the bad news. A sampling of the 63 places where you’ll get less than 1,000 square feet, starting with where you’re worst off:
- Fremont, CA (right across the San Francisco Bay Bridge): 506 sq. ft.
- Honolulu, HI: 548 sq. ft.
- San Francisco, CA: 567 sq. ft.
- San Jose, CA: 574 sq. ft.
- Seattle, WA: 613 sq. ft.
- New York City (all five boroughs): 617 sq. ft.
- Manhattan: 473 sq. ft.
- Brooklyn: 501 sq. ft.
- Queens: 624 sq. ft.
- Bronx: 635 sq. ft.
You can imagine the other places on the list. Miami, San Diego, Los Angeles, Long Beach, Irvine, Austin and DC.
Some others might surprise you. Laredo, Texas (659 sq. ft.) and Tulsa and Oklahoma City, Oklahoma (both 684 sq. ft.). Wichita, Kansas also made the list at 747 square feet. The report didn’t note why these unusual suspects fare so poorly on size and space. If you have an idea, let us know in the responses.
From Apartment to Apartment: The New Reality
One of the intriguing things about this is if you try to go this route in, say, San Francisco or Manhattan — and I don’t suggest it, if it’s even possible — you’re most likely going to go from apartment to apartment. From renting an apartment to buying an apartment. And, while the study wasn’t clear on this, logic tells me you might go from a larger rented apartment to a smaller owned apartment, especially maybe if you’re coming from a relatively longstanding rent-controlled situation.
Who the hell knows? All we know is that it’s messed up.
This is just another death knell for the American dream.
Putting Yourself in Their Shoes: The Current Homeownership Landscape
If you’re a before 7% interest rates, before record housing prices, before overall inflation homeowner you have to put yourself in the shoes of a person attempting to make the renter-to-homeowner transition today in the United States. Because the reality is a majority of people are in sound situations with sub-5% mortgages and even paid off homes. Often, homes they acquired before prices went absolutely insane.
Buying a home simply isn’t possible for an increasing number of people of modest means.
The Shocking Numbers: Median Home Price and Monthly Payments
Even running the numbers on the monthly payment for the median-priced home in America today might shock you.
The median price of a house nationally is $440,000, as of July 2023. This is only $9,000 lower than the all-time high set in June 2022.
Let’s say you can put 10% down. That’s $44,000 up front, just for the down payment. At a 7% interest rate on a 30-year mortgage, you’re looking at a monthly payment of about $3,400, including property taxes and insurance. To afford this payment — using the don’t spend more than 30% of your income on housing standard — you need to earn roughly $11,333 a month, or approximately $136,000 a year.
Talk about shocking.
Sacrificing Quality of Life for Homeownership
Not everyone wants to take on that lofty of an obligation.
Not everyone wants to bite off more than they can or probably should chew.
Not everyone wants to move to a less expensive city or rural area at — in their eyes — the expense of their quality of life.
If you prefer smaller cities or rural areas, you’re lucky. Lucky that your tastes and preferences align with home ownership in less expensive parts of the country.
However, everyone else should not have to earn six figures, be otherwise wealthy or sacrifice and settle on location or space (as I take the role of the other again) to become a homeowner.
It used to be that you could make the transition from homeowner to renter in a place like San Francisco. And, certainly in smaller, yet still lively cities such as Portland and Austin. If those days aren’t gone, they’re fewer and farther between.
If you couldn’t stay within The City, maybe you moved to the next best urban environment. Say Oakland or Brooklyn. Those days absolutely are gone.
And I’m not talking about home ownership for the sake of home ownership. As a rite of passage or some shit. That’s old school thinking.
I’m talking about home ownership that makes you better off financially today and for the duration than you were yesterday.
I’m talking about the idea of not wanting carry a massive housing expense into relative old age. You pretty much can’t accomplish this goal as a renter if you don’t have a huge stream of monthly income post, say, 60 years old.
I’m talking about the 25- or 35-year old who can’t set themselves up to be mortgage or rent payment free by 55 or 65. Because home ownership is now out of their reach.
I’m talking about the 45- or 50-year old (people more like me!) who didn’t become homeowners and, now, have no choice but to make a massive move if they want a favorable housing situation going forward.
Good affordable housing has become like good affordable healthcare in America. It’s a privilege of the wealthy and the lucky. A privilege you could more easily attain 20, 10, even 5 years ago.
The Uncertain Future of the American Dream
The American dream has become a pipe dream, leading large swaths of the population to face uncertain futures full of big decisions they never thought they’d have to make.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
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