The REconomy Podcast™: The Five Most Affordable Cities for First-Time Home Buyers

In this episode of the REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi explain why affordability should be viewed from the lens of the potential first-time home buyer and reveal the most affordable cities for first-time home buyers.

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“Our analysis shows that home prices alone do not accurately indicate affordability. It's all about the share of homes for sale that are within that renter's house-buying power.” – Mark Fleming, chief economist at First American


Odeta Kushi - Hello, and welcome back to another episode of the REconomy podcast, where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American. Hey Mark, I've got a question for you. What are the three most important factors when buying a home?

Mark Fleming - Hey, Odeta How are you? Ah, this is maybe a little cliche, but also super easy. Location, location and location.

Odeta Kushi - Exactly. It was an easy one. And today we're going to talk about affordability but not just at the national level, but the market level as well, because real estate is local. And we're going to talk about affordability for those whom affordability matters the most, potential first-time home buyers, since a homeowner is, by definition, already able to afford a home -- the one they own. The key to understanding housing affordability is determining whether a renter can afford to purchase a home, or more precisely how many homes they can afford, if any.

Mark Fleming - That's exactly right. And this topic is even more important because about half of all mortgages originated by the government-sponsored enterprises, that is Fannie Mae and Freddie Mac, are now to first-time home buyers. And that 50% first-time home buyer share is actually most likely going to millennials. Now, most potential first-time home buyers are renters, right? Because if you're a first-time home buyer, you can't be an existing homeowner. And so it's important that we analyze whether housing is affordable for these buyers. But haven't we talked about this before?

Odeta Kushi - You sure have good memory. Way back in episode nine, which we recorded in March of 2021, we actually discussed how the inspiration for this measure of affordability was something called the Gini coefficient. Because the way we depict renter affordability is using a Lorenz curve. So, if you want to know more about that, please refer back to episode nine. Now, the reason I wanted to refresh this analysis is because so much has happened in 2021. House price appreciation hit record after record, as mortgage rates remained low and inventory continued to decline. But, before we get to the numbers, maybe a quick overview of how we calculate the share of homes that a renter can afford.

Mark Fleming - You know, you have a real knack of having me explain all the hard concepts, Gini coefficients, Lorenz curves, we'll come back to that a little bit later. But, from the perspective of a potential first-time home buyer, affordability is a function of two things. House-buying power, that is how much one could afford to buy based upon income and mortgage rates. And now here's the important part that's often overlooked in an analysis of affordability, the share of homes for sale that that potential firs-time home buyer can actually afford, given their buying power. It does you no good, if your buying power is high, but there's little for sale at that price point or below to buy.

Odeta Kushi - That sounds familiar. I mean, you can't buy what's not for sale. That's what we always say.

Mark Fleming - Exactly. Our market level estimate of a first-time buyer's house-buying power is based on the median renter's income because we are focused on that renter, the prevailing 30-year, fixed mortgage rate, and a 5% down payment. Let's make sure we make the point here that one doesn't need 20% down. Let's dispel that myth right out of the gate. For first-time home buyers, 5% and, in some cases, even 3% down payment mortgages are available. And then the assumption that 1/3 of the first-time home buyers pre-tax income is used for the mortgage. We'd like to think of this in the mortgage finance industry as a sustainable level of mortgage debt burden to pay. By comparing data on home sale transactions to the median renter's house-buying power, we can estimate the share of homes for sale in any given market that are affordable for that median renter. So, care to share what happened to affordability nationally before we jump into the market stats, Odeta?

Odeta Kushi - Absolutely. The latest data actually reflects the third quarter of 2021 and nationally renter house-buying power jumped by 14% on a year-over-year basis. This, all else held equal, should result in higher affordability. National house-buying power for the median renter increased from $290,000 to $331,000. However, despite that higher house-buying power, annual house price appreciation increased by a record 19.8% Almost 20% year over year in the third quarter. That higher nominal house price growth outpaced the growth in house-buying power, which means the share of homes for sale that a median renter could afford actually declined. Nationally the median renter could afford 53% of the homes for sale in the third quarter. That's down from 58% one year ago in the third quarter of 2020. So, even though renters could afford more home, the number of homes they could afford declined, making it less affordable overall.

Mark Fleming - Right. So, the key...get it?

Odeta Kushi - I get it.

Mark Fleming - The key is the share of homes for sale that are within that renter's house-buying power? In fact, it's quite possible that markets with the greatest house-buying power are not necessarily the most affordable markets. The markets with the highest house-buying power right now, San Jose and San Francisco, are two of the least affordable markets in our analysis. The median renter's house-buying power in San Jose is over $800,000, but the median renter can only afford 17% of homes available for sale.

Odeta Kushi - Oh, that's not very much. There are, however, some markets that are more affordable to a potential first-time home buyer. Mark, may I do the honor of revealing the most affordable market for potential first-time home buyers? Because the top market is near and dear to me, literally and figuratively. I'm just over an hour away from this market as we speak, and I grew up in a nearby city.

Mark Fleming - Of course Odeta. And the market is?

Odeta Kushi - The market is...silent drumroll...Buffalo, New York. I grew up in a suburb of Rochester, New York. Go Bills. So, I'm familiar with Buffalo. Now, the reason this market is the most affordable is because the median renter has a house-buying power of about $340,000, while the median sale price is about $185,000. So the median renter in Buffalo can afford 85% of the homes for sale. By the way, we can look at affordability not just for the median renter, but for any renter. And the great thing about Buffalo is basically everyone can afford more than their share. What do I mean by that? Well, the fifth percentile renter in Buffalo with a house-buying power of just over $70,000 can afford about 13% of homes for sale. So, more than the fifth percentile. And the 75th percentile renter in Buffalo can afford 95% of homes for sale. But Buffalo isn't the only affordable market.

Mark Fleming - That's right, the second most affordable market...another actually in my home state of Pennsylvania. Now, it pains me slightly to say this being from Philadelphia, this is an inside joke for all the listeners from the Keystone State. It's Pittsburgh, where the median renter can afford 82% of homes for sale. The remaining top five markets are Oklahoma City, Columbus and Cincinnati, both in Ohio.

Odeta Kushi - You know, interestingly, in those last two Ohio markets, there is a point in the distribution where a renter cannot afford their equal share. And again, by equal share, I mean that if you're the 50th percentile buyer, you can afford at least 50% of homes available for sale in your market. But, in Cincinnati, for example, that point is the 22nd percentile. So, the 22nd percentile renter can only afford 19% of homes for sale.

Mark Fleming - Yes, with all of those stats, this is the kind of moment where I wish we could show you the graph. But we will be posting the Lorenz curves on Twitter when the episode publishes. I think about it, Lorenz curve. That's pretty impressive to talk about at a cocktail party now, isn't it? Well, when we get back to cocktail parties, that is a good point. Not to mention all this information and more is published in our Economics Center at So, if you are curious about your home market, be sure to check out our interactive charts. Now, there are many takeaways from this affordability analysis. But I think we should highlight just a couple. We've talked in the past about the untethering of workers from their office. That means many workers can work remotely and even move somewhere more affordable. Let's take an example. Mark, what percentile buyer do you think can afford 50% of homes for sale in Los Angeles? Hmm, well, you know, we do know from past runs of this analysis that typically, LA is not considered an affordable market. So, let's say 75th percentile can afford to buy half of all homes for sale.

Odeta Kushi - It's pretty close, but not quite. It's actually the 83rd percentile that can afford 50% of homes for sale in LA with a house-buying power of $842,000 and an income of over $120,000. Now, this same renter can afford at least 94% of homes for sale in Buffalo, Cleveland and Louisville, to name a few. So, if you're in LA and able to work remotely, it's good to know that there are markets where your house-buying power can go a long way.

Mark Fleming - Are you suggesting Buffalo as an alternative to LA, Odeta?

Odeta Kushi - Go Bills!

Mark Fleming - Well, it is important to note that this analysis shows that home prices alone do not accurately indicate affordability. It's all about the share of homes for sale that are within that renter's house-buying power.

Odeta Kushi - Precisely. And mortgage rates, housing supply and nominal house price appreciation trends will drive first-time home buyer affordability in 2022. As we've mentioned in previous episodes, mortgage rates are expected to increase by the end of the year, which will dampen house-buying power, all else held equal. Housing supply is likely to remain limited, which will continue to drive house price appreciation, though likely at a more moderate pace than the previous year. So, in other words, the housing market is going to look very similar to 2021. Of course, real estate is a local phenomenon. Location, location, location. And there are cities, such as Buffalo, Pittsburgh and Oklahoma City, where the dream of homeownership for renters may be more attainable than many realize. And that's it from us today. Please make sure to check out all the data mentioned on today's show and more on our Economics Center. Once you're there, make sure to click on the First-Time Home Buyer Outlook Report. Thank you for joining us on this episode of the REconomy podcast. Be sure to subscribe on your favorite podcast platform. You can also sign up for our blog at first And if you can't wait for the next episode, you can follow us on Twitter. It's @OdetaKushi for me and @MFlemingEcon for Mark. And, as always, if you have an economics-related question you'd like us to feature on a future episode, you can email us at Until next time.

This transcript has been edited for clarity.

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