What is an Affordable Home?
It might be logical to say a $100,000 home in a small town is more affordable than a $200,000 home in a large city, but you can't make that deduction based on those facts.
If the median salary in the small town is $40,000, but the median salary in the large city is $120,000, it paints a different picture.
The home in the small town is 2.5 times more expensive than the median yearly income. Whereas, the median home in the large city is 1.67 times the median yearly income. Therefore, the $200,000 home is more affordable for people living in a large city than the $100,000 home is for the people in the small city.
This method of comparison is called the home price to annual income ratio. This ratio factors in median income to an area's affordability making it a very accurate measure.
At one point in time, there was a rule of thumb that said your home should cost two times your gross annual income. However, housing researchers at the American Enterprise Institute’s Center on Housing Markets and Finance have proven that rule of practice is no longer in place.
How Affordable are the Major Metropolitan Cities?
The Center on Housing Markets and Finance has developed a study of homes purchased by first-time homebuyers in the 50 largest metropolitan areas, all of the markets had a median price to annual income ratio that was greater than double.
Below, we've detailed the 11 most affordable areas on the list. About 73 percent of the affordable cities are within the Midwestern the United States. The two Southern cities on the list represent about 18 percent of the list. There was one Northeastern city on the list representing about 9 percent of the mentioned cities.
The 11 Most Affordable Areas
When looking for a rent to own home, consider looking in these 11 affordable areas to find good jobs and good prices. More so, if you're buying in these areas, check what the median income is and make sure you're not choosing a home for more than the home price to annual income ratios mentioned below.
1. Pittsburgh, Pennsylvania
Pittsburgh is the most affordable city studied. The median first-time home buyer spent 2.3 times the median annual income in order to purchase a home. It's also the only city within the Northeast sector of the United States to make the list.
2. Cleaveland, Ohio
Cleaveland is the second most affordable city studied. The median first-time home buyer spends 2.4 times the median annual income to purchase a home. Cleaveland is the cheapest big city on the list within the midwest. Eight out of 11 cities on this list are in the Midwest.
3. St. Louis, Missouri and Cincinnati, Ohio
St. Louis and Cincinnati are tied for the number three spot on this list. In both Midwestern cities, the median first-time home buyers pay 2.6 times the median annual income within the area.
5. A Seven-Way Tie
Columbus, Ohio; Detroit, Michigan; Milwaukee, Wisconsin; Oklahoma City, Oklahoma; Houston, Texas; Indianapolis, Indiana; and Kansas City, Missouri are tied for the fifth spot on this list. In all the above-mentioned cities, homebuyers spend about 2.7 times the median area income on their first homes.