Middle-class buyers see fewer affordable homes

• Higher home prices%2C interest rates cut into housing affordability
• Middle-class buyers coast to coast see fewer homes for sale that they can afford
• Biggest drops in affordability come in California but cities outside%2C too

Middle-class home buyers are finding fewer homes on the market that they can afford.

In 14 of the top 100 metropolitan regions, more than half of the for-sale homes earlier this month were out of reach for middle-class buyers, show data from real estate tracker Trulia.

A year ago, that was true in just eight of the leading metros, the data show.

Rising prices, higher interest rates, flat incomes and fewer foreclosed homes for sale are combining to limit choices for the middle class, says Jed Kolko, Trulia chief economist.

Trulia considers homes affordable for middle-class buyers if their total monthly payment — after a 20% down payment and including taxes and insurance — is less than 31% of their metro area's median household income.

Affordability isn't as good as it was last year because home prices and interest rates are both higher. Home prices nationally were up 12.4% in August year-over-year, CoreLogic says. Trulia's study assumes a 4.5% fixed rate for a 30-year mortgage vs. 3.5% last year.

What's more, there are fewer lower-priced homes for sale in many of the metros given the receding foreclosure crisis.

In August, 12% of existing home sales were distressed homes, down from 23% last year, the National Association of Realtors says.

The drop-off in affordable homes for middle-class buyers is widespread, falling or flattening in 99 metros since last October. Only Rochester, N.Y., saw a slight gain.

Some cities are seeing faster declines than others.

This year, only 23% of for-sale homes in Orange County, Calif., were affordable for middle-class buyers, Trulia's data show. That's down from 44% last year.

"People have missed the boat," says Orange County Realtor Cindee Cano.

She had one family recently relocate to Tennessee after they found that the three-bedroom condominiums they could afford a year ago in Orange County were no longer available in their price range.

Rather than shop for a two-bedroom condo, they bought a single-family home in Tennessee, Cano says.

By Trulia's count, 11 of the 20 metros with the biggest drops in housing affordability for middle-class buyers have been in California.

But significant changes also are occurring elsewhere.

Boston's middle-class buyers can now afford 41% of the homes on the market in that metro area, down from 53% last year. In Denver, the share has fallen to 55% from 70% and in Seattle, to 55% from 66%, Trulia's data show.

Despite the drops, overall housing affordability remains high by historical standards. Home prices are still 5% undervalued based on long-term price, income and rent levels, Kolko says.

In 40 of the 100 metros this month, 70% or more of the homes were still within reach of middle-class buyers, Trulia's data show.

Some of those cities have also seen big price gains, including Las Vegas, Atlanta and Detroit. But the strong affordability has more to do with long-term patterns, Kolko says, including ample land for building.

Coastal California, in contrast, has long been one of the least affordable places to live given limited land for development and strong housing demand.

Middle-class buyers in higher-cost areas also must squeeze into smaller spaces to get affordable housing, Trulia's data confirm.

The median size of an affordable home for a middle-class buyer in the New York metro region was 978 square feet, Trulia says. In San Francisco, it was 1,000.

Middle-class buyers in Houston and Raleigh, N.C., meanwhile, could afford median-sized homes larger than 1,800 square feet.