8 Affordable U.S. Cities for Homeowners Based on Paycheck Power
Owning your own home has long been part of the American Dream. However, that part of the dream has been fading over the past few years, as the affordability of homes for the average American has become a dimmer and dimmer fantasy. Not only have incomes been dropping, but house prices in some areas have risen; even in places where prices have not climbed, incomes have not been able to keep up with the pace.
Putting numbers to the story, house prices in 25 of the largest metropolitan areas in the United States have gone up 16 percent in the last year, according to Interest.com. Compare that with a rise in incomes of 3 percent on average in those same areas, and it isn’t hard to understand why homes have become less and less affordable across the country.
Another factor that plays into home affordability is the rate at which prospective home buyers can borrow money to purchase a house. Mortgage rates, on average, rose above the 4 percent threshold for a 30-year fixed rate plan in 2013, nearly reaching 4.5 percent. That means that in many areas and to many lenders who may not have perfect credit scores, the rates will be higher than that value.
Regional variance in terms of home affordability also fluctuates. Some cities have higher median incomes than others, and the price of homes also differs. Of the 25 cities included in the Interest.com study, 17 had a negative rating for “paycheck power,” meaning that the median house is not affordable on a median income. With that said, let’s take a closer look at the other cities included in the study: the eight cities in the United States that are the most affordable to live in based on paycheck power.
8. Dallas, Texas
The first stop on our list is Dallas, where a median-income resident can barely afford the median home. This is down from a more than 6 percent surplus that Dallas residents enjoyed last year; in a common trend, paycheck power decreased from 2012 to 2013, with 14 cities featuring paycheck power ratings of more than zero last year, compared to just the eight entries on the list this year.
7. Washington, D.C.
The No. 7 spot on our list is Washington, D.C., where the median paycheck beats the median house price by a factor of 2.8 percent. Though Washington has the highest median income of any city in the U.S., with a value of more than $88,000, it also has one of the highest median house prices in the nation — over $400,000. This hotbed of political activity has grown into a city that is affordable for the city’s elites but is dangerously expensive if you’re not in the higher circles of Washington society.
6. Phoenix, Arizona
A substantial jump in paycheck power to more than 8 percent characterizes the next entry on our list, Phoenix. Though Phoenix’s median income is one of the lower entries of the 25 cities examined, it was still one of the more attractive places to live, given that house prices are quite affordable. If you’re looking for a warmer climate or if you’re searching for an affordable place to live in the Western half of the country, Phoenix might just be your best bet.
5. Pittsburgh, Pennsylvania
The first city past the 10 percent threshold of paycheck power is Pittsburgh, where median income exceeds median house price by a factor of 11.33 percent. Though Pittsburgh possesses one of the lower median incomes, it is another city that makes the list on the strength of its low house prices. The problem for the city is that many of its sources of economic growth in years past have been on the decline, including its industrial sector. This has led to a difficult situation in which the city may be affordable but nevertheless unattractive to potential home buyers.
4. Detroit, Michigan
Next up, we check in with Detroit, where paycheck power is nearly 17 percent. Though that makes the average home in the city very affordable, it is questionable as to whether someone would actually want to purchase such a home; many houses in the city are abandoned or owned by the government, with some properties unable to find a buyer even at prices as low as $500. The holder of the lowest average house price of any city on the list, Detroit’s bankruptcy was in part caused by that very phenomenon: As house prices dropped and homes were vacated, tax revenues for the city have consistently sunk, putting the city in a very sticky situation.
3. St. Louis, Missouri
The third spot on our list goes to St. Louis, where the median paycheck outpaces the median house price by almost 18 percent. St. Louis fits into a similar profile as Detroit — minus the bankruptcy — featuring some of the lowest house prices of any metropolitan area in the country. If you’ve always wanted to live in the shadow of the Gateway Arch, now might be the opportunity to buy, as the city has jumped up one spot in the rankings from last year.
2. Minneapolis, Minnesota
Minneapolis is one city that doesn’t need extremely low house prices or unbelievably high median incomes to justify its spot on the list. With a paycheck power rating of 23.86 percent, Minneapolis handily takes the No. 2 ranking in the country. Minneapolis could even threaten to take the top spot if it weren’t for the city’s unusually high property taxes, another factor that goes into the calculations, as they must be paid every year in order to maintain ownership of a home in the city.
1. Atlanta, Georgia
The top spot on our list goes to Atlanta, a city that boasts paycheck power of nearly 25 percent. Though this may seem impressive, last year, the city took the No. 1 spot with a paycheck power of more than 40 percent, a full 15 percent higher than this year’s figure. Atlanta’s low home prices are helped by an excess of land around the city into which it can expand, which has helped suppress housing prices even as they rise across the nation. Easy access to building materials in the region also makes homes especially affordable.