The Most Affordable Places to Live in America

Home ownership may be the American dream, but don’t look to the major East or West Coast cities to find markets that are considered affordable. Demand for housing in areas like New York City, Boston and much of California has pushed prices beyond what economists say is reasonable for most household incomes. Small to mid-size cities in the Midwest often offer the best bargains.

Economists calculate affordability in a few ways, but it’s a comparison of average home price to an area’s average income. The National Association of Home Builders uses a ratio of 28 percent: Total cost of ownership including mortgage payment, insurance and taxes should be no more than 28 percent of total household income. Another indicator compares median average house price to median average household income: The lower the ratio, the more affordable the area.

The National Association of Home Builders' recent affordable communities list included Rockford, Illinois; Kokomo, Indiana; Springfield, Illinois; and Syracuse, New York; as the most affordable. More than 88 percent of the households in those communities could find a home for which the total costs were no more than 28 percent of total household income. MSN worked with Bert Sperling to develop the most-affordable real estate bargain list, which factors in livability as well as affordability. Livability includes cultural attractions, feasible commutes and employment opportunities. Wichita, Kansas; Omaha, Nebraska; Harrisburg-Carlisle, Pennsylvania; Madison, Wisconsin; San Antonio; Indianapolis, Indiana; Pittsburgh; Dallas-Fort Worth, Texas; and Tulsa, Oklahoma; topped the MSN list.

Housing prices reflect supply and demand, and you may have to make trade-offs to find an affordable market. Some of the most affordable communities are far from the coast and have flat terrain and harsh winters. Others lack racial or ethnic diversity and may have limited cultural attractions. Small cities may be less attractive to young, single people because of few recreational or professional opportunities, although college towns like Madison, Wisconsin, would be exceptions.

The collapse of the real estate market in 2008 and the multitude of foreclosures related to the sub-prime mortgage crisis, overvalued home prices and the economic downturn are expected to make housing more affordable over the next few years. The S&P/Case-Shiller Home Price Index reported an average national decline in home prices of 16.6 percent between Sept. 30, 2008 and Sept. 30, 2007. Phoenix, Ariz. prices declined 31.9 percent and San Francisco dropped 29.5 percent.
In late 2007 a study by Global Insight found that 63 percent of housing markets in the U.S. were overvalued. These markets found cities like Bend, Ore., Atlantic City, NJ and Madera, Cal. to be as much as 70 percent overvalued and would be expected to face significant price declines. Economists anticipate it could take three years for the market in some areas to self-correct.
However, stricter lending standards and job losses related to the recession make it harder for some consumers to get mortgages. Mortgage rates dropped to historic lows in December 2008 and are expected to make it easier for those with solid credit and income to purchase a home.