Where the Affordable Suburbs Are

Demandand pricesfor homes in the best suburbs remains strong. But good deals in good communities exist if you know where to look

Finding an affordable house in a well-located, high-quality suburb is not easy, even in this climate of slumping real estate markets and omnipresent "For Sale" signs. The credit crunch is making it tougher than ever for buyers without trust funds or Wall Street paychecks to finance a dream pad in their favorite suburb.

So, what to do when one is priced out of the tony suburb with million-dollar homes, award-winning schools, and the snazzy downtown? BusinessWeek.com, with the help of Sperling's BestPlaces, put together a list of best affordable suburbs in each of the 50 states. Of course, the list doesn't catalog all the great suburbs out there, but we tried to discover relatively affordable communities where you'll find low crime and unemployment rates, decent schools, reasonable commutes, and good shopping and entertainment options.

Defining "Affordable"

"We looked for places on the outskirts of cities that were no more expensive than 80% to 125% of the metro area's median home price," said Bert Sperling, founder and president of Sperling's BestPlaces, based in Portland, Ore., and co-author of Best Places to Raise Your Family: The Top 100 Affordable Communities in the U.S. "We didn't want to exclude ones where you could pay a little more and have an exceptional experience. We also didn't want places that were truly expensive."

Sperling drew his data from several sources. The violent crime index is derived using FBI crime statistics and other indicators from the U.S. Census Bureau, such as family structure, household income, and level of education. The average commute time, population, and median household income were provided by the U.S. Census Bureau. Unemployment rates came from the Bureau of Labor Statistics. The median listing price for the fourth quarter 2007 was collected from multiple listing services across the country.

Of course, "expensive" is relative. Take, for instance, the suburbs we chose outside of New York, San Francisco, and Honolulu, the nation's three most expensive cities, according to the third-quarter Cost of Living Index released Dec. 11 by the American Chamber of Commerce Researchers Assn. The median asking price in Novato, Calif., 30 miles north of San Francisco, is $750,000. In Putnam Valley, N.Y., in the foothills of the Taconic Mountains an hour from midtown Manhattan, the median listing price is $545,000. And in the Honolulu suburb of Kaneohe, the median market price for a house is $825,000. But for locals who have gotten used to seeing $2 million or $3 million listings, three-quarters of a million might not seem like a fortune to pay for convenience and a good quality of life.

Heartland Bargains

Still, you'll get more home for your money in a suburb such as Winterville, Ga. (eight miles from the city of Athens' vibrant music and art scene), where the median asking price is $159,900, or in Hill City, S.D. (outside Rapid City), where the median listing was $210,000. Sound like a bargain? It might be. It all depends on what you can afford. The median household income is about $45,000 in both suburbs, but the median household income is twice as high in Putnam Valley, N.Y.

Home prices in the middle part of the country—from the Appalachians to the Rocky Mountains—appreciated more moderately than did prices in and around major metropolitan areas on both coasts where the job market was strong and room for growth was limited. Salaries in the middle of the country are generally more closely tied to home prices than in places that saw the most rapid home price appreciation.

The Costly Coasts

However, finding a good, affordable neighborhood in which to raise your family outside cities such as Boston, New York, San Francisco, Honolulu, and Washington, D.C., has gotten harder in recent years. "In places like that, you need to drive until you can afford something," said Walter Maloney, a spokesman for the National Association of Realtors.

In the suburbs immediately outside of Washington, a city that saw huge appreciation during the boom and has since slowed, prices are actually rising because the supply of homes is limited, Maloney said. Conversely, home prices are falling in fringe areas, miles away, where developers overbuilt, he said.

Location and affordability are primary considerations when buyers choose a suburb. The most important things are "quality of the neighborhood," "convenience to job," and "affordability," according to a National Association of Realtors survey completed a month ago.

Sperling said he tried to find places where the population was growing, an indication the place is desirable.

Blooming Communities

In the case of Phenix City, Ala., located across the Chattahoochee River from Columbus, Ga., and the Fort Benning Army base, people are moving to the area in droves, said Victor Cross, president of the Phenix City/Russell County Chamber of Commerce. An influx of about 35,000 people is expected over the next few years as the result of the relocation of the U.S. Army Armor Center & School from Fort Knox, Ky., to Fort Benning, Ga. The town is sprucing up its downtown and builders are preparing to accommodate the new arrivals by putting up new subdivisions, Cross said.

"It's a strain on health care and education," Cross said. "But when the dust settles, it's great for everybody—there will be a huge positive economic impact."

Putnam Valley (N.Y.) supervisor Sam Davis said his town with its winding roads, lakes, and horse farms still has a rural flavor, which is being threatened by development. He said new people are moving to Putnam Valley, looking for a relatively affordable place to live, and they're helping to push up home prices and property taxes.

Putnam Valley is somewhat affordable, especially compared with neighboring Westchester County, in part because the town is not on the train line to New York City. Residents generally drive to work. Manhattan is approximately an hour away by car.

Closer to home, many Putnam Valley residents work at IBM (IBM) and Pepsi (PEP) in nearby Westchester County, and General Electric (GE) in Stamford, Conn.

"Anybody who wants to move here should buy an existing home, not a new one, if we want to keep it as the 'best affordable,'" Davis said.

Sperling said his favorite affordable suburbs have a "small town" quality of life. He especially likes Coralville, Iowa, near Iowa City, the home of the University of Iowa. And Snohomish, Wash.—about 15 miles northeast of Seattle—is "separate enough from the metro area that it has its own distinct quality, with a sense of history and a real downtown."

Click here to see the complete list of the 50 Best Affordable Suburbs in the U.S. for 2007.

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