Thinking of buying a high-end house in, say, San Francisco? Look out. BusinessWeek's latest reading shows that luxury housing is extremely expensive in San Francisco and many other markets — even in comparison to the generous incomes of the kind of people who buy pricey homes in those areas.
Luxury homes are most expensive in relation to top-range incomes in San Francisco, San Diego, Los Angeles and Orange County, Calif., according to the BusinessWeek Luxury Housing Affordability Index, based on first-quarter data. On the East Coast, New York and Miami are nearly as expensive. Boston, Washington and Seattle are just a little behind.
At the other extreme, high-end homes are still affordable to wealthy buyers in such cities as Cleveland, Detroit, Pittsburgh and St. Louis.
Affordable St. Louis
To calculate the index, BusinessWeek uses the 90th-percentile house price in each metro area — that is, the price that's lower than 10 percent of all homes sold but higher than 90 percent of homes sold (prices are supplied by Fidelity National Financial). We compare the 90th-percentile price to the 90th-percentile family income — the earnings that are lower than 10 percent of all incomes in the metro area but higher than 90 percent of incomes. Taking into account prevailing interest rates, it calculates whether the 90th-percentile family income is high enough to afford a 90th-percentile home.
The higher the index value, the more affordable the homes are. By our measure, St. Louis is tops in affordability among major metro areas with an index of 237, while San Francisco is dead last at 64. Texas cities are excluded from the comparison for lack of data.
So if you're hunting for your slice of high-end real estate heaven, beware the two coasts.