The Most and Least Affordable Places to Buy Your First Home
By Wei Lu, Victoria Stilwell Victoria Stilwell and Christopher Cannon Christopher Cannon
July 28, 2016

Being a first-time homebuyer often comes with a lot of advice. Make sure you can afford your mortgage. Pick a real estate agent who knows the market. Scrape together a good-sized down payment.

We’ve got one more to add to the list: Don’t buy out West.

Bloomberg News analyzed the 100 largest U.S. metropolitan areas to determine the least and most affordable places for people between ages 25 and 44, a proxy for those in their prime home-buying years. We ranked places by the difference between the median household income for that age group and the estimated minimum earnings needed to purchase a single-family home in the region as of 2015.

Affordability Gap
There were six locations that registered an affordability gap—where the minimum salary needed to afford the mortgage outstripped actual income. Urban Honolulu took the top spot, with the following five regions all located in California.

Swaths of the Midwest offer first-timers the best deal, the Bloomberg Housing Affordability Index shows. In the region of Des Moines, Iowa, the estimated monthly mortgage is just $613, implying an annual income of just over $22,000 needed to make payments. That compares with the area’s median household income of about $72,200 last year, making it the most affordable for a would-be buyer.

Pittsburgh and Baltimore also ranked among the most reasonable, followed by the regions near Minneapolis; Kansas City, Missouri; and Omaha, Nebraska—three other Midwestern cities.

“We really see this vastly different story about the prospects for homeownership if you're a young household,” said Ralph McLaughlin, chief economist at real-estate search engine Trulia. The outlook is “really great if you're in the middle part of the country, and not-so-great if you’re on the western or eastern extremes.”

That brings us to an important note: Because Bloomberg’s ranking used metropolitan statistical areas as proxies for cities, New York looks more affordable than most Americans probably consider it. That’s because the New York statistical area is huge. It not only includes the most populous city in the U.S. and suburban New York counties, but also large sections of New Jersey and even part of Pennsylvania, where home prices and the corresponding mortgages would be much more manageable.

Tight supply is one of the primary culprits behind affordability problems in certain U.S. regions. Inventories of available homes across the nation are tight, and entry-level properties especially are in short supply.

In areas such as California, “really it's a combination of strong job growth and little new housing supply” that's led to an affordability crunch, McLaughlin said. “If you want to find a home it’s going to be difficult, and even if you do find one, it's going to be expensive.”

Meanwhile markets in the Midwest have bigger supplies of available housing that can better absorb any increases in demand, McLaughlin said. That makes the region “a great place to buy a home,” although “job growth in those markets isn’t necessarily leading the pack by any means,” he said. In Iowa payrolls have climbed by 3.5 percent since June 2013. Compare that with 8.8 percent in California.

Median income vs. needed income to buy a home in the top 100 metro areas
The distance between the two dots illustrates the gap—or cushion—in actual income versus that needed for a person to afford a home in one of the regions below.
  • Median household income
  • Minimum salary required
  • Top 5

  • Bottom 5

Looking more broadly, there are still several economic forces working in first-time buyers’ favor. Borrowing costs are declining, joblessness is improving and household formation is finally starting to rise, which could set the stage for first-time buyers to jump into the market.

So for anyone opting to take the plunge now, here’s more advice. Wherever you're thinking of buying, make sure you’re also planning to stay put for a few years or so, McLaughlin said. Otherwise it may be cheaper to rent.

“If you're in the Midwest, it’s almost a no-brainer in those markets—you wouldn't have to be in your home for longer than about two or three years for it to be a better deal than renting,” he said. “If you’re in parts of the costly coasts, maybe think twice.”