Locating Affordable Luxury Homes

Here's a look at the metro areas where pricey houses are a stretch even for the highly paid -- and where they're within comfortable reach

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 (see our real estate slide show, "What a Million Bucks Gets You").

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% of all homes sold but higher than 90% 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% of all incomes in the metro area but higher than 90% 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.

The BusinessWeek Luxury Housing Affordability Index

Metro Areas	Luxury-Home Price*	Affordability Index
Atlanta	$346,000	203
Baltimore	$561,748	119
Boston	$765,000	110
Chicago	$465,000	147
Cleveland	$260,000	223
Denver	$430,000	156
Detroit	$298,250	218
Los Angeles-Long Beach	$890,000	71
Miami	$580,000	92
Minneapolis-St. Paul	$411,300	168
New York	$848,500	80
Newark, N.J.	$620,000	139
Oakland, Calif.	$869,000	96
Orange County, Calif.	$1,191,500	65
Philadelphia	$340,000	202
Phoenix-Mesa	$450,000	129
Pittsburgh	$254,900	212
Portland-Vancouver	$384,000	167
Riverside-San Bernardino, Calif.	$540,000	100
San Diego	$922,900	70
San Francisco	$1,575,000	64
Seattle	$600,000	110
St. Louis	$265,600	237
Tampa-St. Petersburg-Clearwater	$350,000	154
Washington, D.C.	$737,000	114

* First quarter 2005

Data: Fidelity National Financial, Housing & Urban Development Dept.

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Coy is is economics editor for BusinessWeek in New York

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