The Most Affordable Big Cities for U.S. Home Buyers in 2019

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Looking for the most affordable big-city housing markets in the U.S.? You won’t find them on either coast. A new report shows that inland real estate markets are the most affordable big cities in the U.S. for home buyers, as of spring 2019.

The national real estate brokerage Redfin has created a “housing affordability calculator” that, among other things, shows the most affordable cities in the U.S. for home buyers. And it probably comes as no surprise that most of them are inland real estate markets.

To create the ranking, the company identified cities with the highest share of active listings that would be affordable for buyers with an annual household income of $61,732 (the median household income in the U.S., when last measured). Their calculator specifically looks at the 100 most populous U.S. metro areas.

As of spring 2019, cities like El Paso, Detroit and Dayton were topping the list of most affordable big housing markets in the U.S.

5 Most Affordable “Big City” Housing Markets for Home Buyers

Here are the five most affordable big cities for home buyers as of spring 2019, based on Redfin’s analysis. The percentage beside each city indicates the “share of active listings affordable with an annual household income of $61,372.”

  1. El Paso, Texas: 89.4% (most affordable)
  2. Detroit, Michigan: 81.7%
  3. McAllen, Texas: 80.0%
  4. Lakeland, Florida: 79.7%
  5. Dayton, Ohio: 79.6%
  6. Camden, New Jersey: 75.8%

In this context, “affordable” is based on the notion that homeowners should spend no more than 30% percent of their gross monthly income on housing costs. That’s not a hard-and-fast rule, and some homeowners spend a lot more than that. But many financial advisors recommend using the 30% rule of thumb as a guideline, to avoid spending too much on a home.

Related: Lakeland, Florida the hottest market

The Least Affordable Markets Are All in California

At the other end of the pricing spectrum, we find the least affordable big cities for home buyers. And not surprisingly, California dominates the list of priciest markets.

Using the same metrics mentioned earlier, the least affordable housing markets in the U.S. as of spring 2019 were as follows:

  1. San Jose, CA: 0.1%
  2. San Francisco, CA: 0.9%
  3. Oakland, CA: 2.2%
  4. Oxnard, CA: 2.6%
  5. Orange County, CA: 4.9%

Again, the percentage shown beside each metro area represents the share of real estate listings that would be affordable with the U.S. median household income of $61,372 (and housing costs equaling 30% of gross monthly income).

Clearly, home buyers in these and other California cities need to earn a lot more than the national median income to afford a home purchase. And in many cases, they do. In San Jose, California (where the median home price is now north of $1 million), the median household income is roughly $114,000 according to Forbes.

Home Prices Still Climbing

To compound an already-growing problem, home prices are still climbing in most U.S. cities.

According to the latest figures from Zillow, the median home value in the United States rose by more than 7% over the past year. They anticipate a gain of around 5% over the next 12 months (extending into spring 2020).

While home prices have cooled down in some of the most expensive housing markets listed above, they are still rising. San Jose, San Francisco, Oakland and other California cities all have positive 12-month forecasts from Zillow.

We could see even bigger price gains in some of the most affordable U.S. cities listed above.

For example, Zillow’s research team recently predicted that the median home value for Dayton, Ohio (one of the cities in the first list above) would rise by around 9% over the next 12 months.

Housing affordability has become an issue in many real estate markets across the country. While it is most obvious in pricey markets like San Francisco, it’s a nationwide trend. An October 2018 report from ATTOM Data Solutions showed that housing affordability nationwide had sunk to a 10-year low.

To quote that report:

“Nationwide, the Q3 2018 home affordability index of 92 was down from an index of 95 in the previous quarter and an index of 102 in Q3 2017 to the lowest level since Q3 2008, when the index was 87.”

Home prices are still climbing in many U.S. cities, including the least and most affordable cities listed above. But in many cases, wage growth is not keeping up.

Home prices nationwide rose nearly 60% from 2012 to 2018, according to the S&P Corelogic Case-Shiller 20-City Composite Index. But household income climbed by less than 30% during that same period, based on data from the U.S. Bureau of Economic Analysis. That’s a serious imbalance.

The Exodus from High-Priced Markets

Over the past few years, we’ve seen a major exodus from some of these high-priced real estate markets. In 2018, for example, the San Francisco Bay Area led the nation in terms of out-migration (people leaving the area). A lack of housing affordability was the number-one reason cited.

In many housing markets across California — and even in places like Seattle and Boston — a family with a median household income for the area cannot afford to buy a median-priced home. Some of them choose to stay in place, often having to dial back their housing expectations.

But those with home-buying aspirations often choose to leave, pursuing affordable housing in cities like those in the first list above.

One example worth citing is the Los-Angeles-to-Phoenix “exodus.” Among the thousands of people who moved out of L.A. during 2018, the top out-of-state destination was Phoenix, Arizona.

And there’s a stark difference here, in terms of housing costs:

  • As of April 2019, the median home price in Los Angeles was nearly $700,000.
  • The median house value for Phoenix, Arizona during that same period was around $242,000.

It’s an interesting time for the U.S. real estate market. We seem to have entered an era where many people who earn a decent income still have to move halfway (or all the way) across the country to buy a home.