Big cities offer adventure, diversity, and many different opportunities. But buying a house in some large cities has become quite expensive for first time home buyers to afford.
This is despite interest rates being near their lowest levels of the past three years. Also, the value of homes will keep increasing. So, in which big cities can you still get a reasonably priced home?
Plenty of research has been done in the past year to show the affordability of homeownership in some metropolitan areas – and some might surprise you on how affordable it might be to buy a home.
For instance, HSH Associates, a mortgage research data website, identified 10 metro areas where your mortgage, taxes and insurance payments for a median-priced home would cost about $1,000 per month. The research company based their information on putting 20 percent down.
According to their research, here were the top 10 most affordable big cities including the median home price and how much salary per year it would take to buy such a house (data from the first quarter of 2016).
Pittsburgh, Penn. — $119,950 home price, $29,481 salary.
Cleveland, Ohio — $111,300 home price, $30,498 salary.
Cincinnati, Ohio — $137,800 home price, $33,784 salary.
St. Louis — $140,700 home price, $33,898 salary.
Detroit — $142,030 home price, $35,538 salary.
Atlanta — $187,800 home price, $36,825 salary.
Tampa — $179,900 home price, $42,187 salary.
Phoenix — $217,900 home price, $43,170 salary.
San Antonio — $195,500 home price, $46,993 salary.
Orlando –$207,600 home price, $47,666 salary.
Click to see current mortgage rates.
Home Prices Low In Some Big Cities
SmartAsset – a financial technology company providing advice to help people making big financial decisions – did a study recently on “Where to Buy: Price-to-Rent Ratio in 76 Cities.” They looked into cities over 250,000 people and applied a price-to-rent ratio. They also calculated a projected average home price for a house or apartment that rents for $1,000 a month in each market.
“Everyone knows how expensive places like Honolulu, San Francisco, and New York City are to live in,” says AJ Smith, vice president of content at Smart Asset.
At the time of their research, San Francisco turned out with the highest price-to-rent ratio at 45.88. So for a $1,000 rental, the house price would be about $550,560. In the research, they used the relative affordability of renting or buying and got their annual rental rates from the Census Bureau.
“But sometimes, a place that used to be affordable can change rapidly depending on the migration of more people. Migration can really affect the housing market, and a shortage of homes in the market can bring prices up high,” Smith explains.
For instance, Denver used to be touted as the big city that was more affordable. However, Denver now has a 26.01 ratio making a $1,000 rental cost $312,129 to buy.
“Denver has become very hot, and many people move there each week. It became less affordable very quickly,” Smith says. “But the market can change so quickly over just a few months.”
She mentions that areas like Tampa are interesting since they are much more affordable than nearby places, such as Miami. Miami has a 23.36 ratio with a home price of $280,320, while Tampa has only a 16.55 ratio.
Through their research, Smith adds that some cities were ideal places to move to because of lower unemployment, more opportunities and affordable homes to buy. One of those places is Buffalo, N.Y. It ranked in the top three lowest ratios at 10.71 (behind Cleveland at 10.52 and Detroit at 6.27).
The rest of the top 10 cities and their price-to-rent ratio include Pittsburgh, 12; Memphis, 12.26; Corpus Christi, Texas, 13.14; Toledo, Ohio, 13.26; San Antonio, 13.68; Milwaukee, Wis., 14.19; and Jacksonville, Fla., 14.34.
“Some places just don’t have places to expand, such as San Francisco. There no areas to build new housing, and they are limited with their inventory,” Smith says.
Picking Between Buying Or Renting
Smith’s company always gets the same question from consumers – Should I rent or buy?
“Some people call and ask if they are missing out on an opportunity of buying a house because they hear from their cousins or neighbors who are buying homes,” she explains. “But it all depends on your personal financial situation and your financial goals into the future.”
You need to ask your own questions about your job stability and how long you plan on staying in an area. The answer will vary for every home buyer depending on their personal situations.
Rent prices are steadily increasing across the country, particularly in more densely populated areas like cities. But with mortgage rates as low as they are, those considering purchasing a home might find it to be a more affordable option in the long run than renting.
Picking between buying and renting will always come down to your personal financial situation, as well as your personal needs. Finding out what mortgage rates are available to you could help in deciding whether or not a mortgage is a good idea.