In a way, the markets of Minneapolis and San Francisco aren’t much different, writes Chief Economist and CEO of STP Advisory Services Susanne Trimbath.
Both cities have similar mortgage rates, as well as a similar unemployment rate. “So how do we explain the difference in affordability, aside from the realtor’s rant of “’location, location, location’?” Dr. Trimbath writes.
San Francisco, like New York, has a sizable population that is less job-dependent because of high-net-worth individuals, so the availability of jobs doesn’t play as big a role as it does in most U.S. markets.
As the high-net-worth homeowners increase the median home price of a market, the average salary needed to purchase a median-priced home also increases. Based on Dr. Trimbath’s study published in New Geography, in 22 out of the 27 (or 82 percent) markets analyzed, the salary needed to buy the median-priced home is greater than the median salary in that city.
The salary gaps in San Francisco, San Diego, Los Angeles, New York City, and Boston are the highest in the nation. Only five markets—Cleveland, Pittsburgh, Detroit, Cincinnati, and St. Louis—have a median home price that does not exceed the median salary needed.