2023’s Most Affordable Cities for Home Buyers

WalletHub Financial May 23, 2023

J. David Chapman

Ph.D. – Realty1, LLC, Owner/Broker – University of Central Oklahoma, Real Estate Professor and State of Oklahoma, Real Estate Commissioner, City of Edmond, Former City Council member

Home prices surged over the last few years during the COVID-19 pandemic, with the median sales price skyrocketing from $313,000 in Q1 2019 to $436,800 in Q1 2023. While prices may be starting to lower in some parts of the country this year, interest rates have rapidly climbed. For example, the average 30-year fixed mortgage rate shot up from a historic low of 2.65% in January 2021 to 6.39% in May 2023.

With the combination of inflated prices and high interest rates in play, many consumers may wonder if they can even afford to buy a home. Fortunately, owning real estate in some cities is much less expensive than others.

In order to determine the most affordable cities for home buyers, WalletHub compared 300 U.S. cities across ten key metrics. The data set ranges from the costs of homes and their maintenance to tax rates and vacancy rates.

What should home buyers consider when choosing a city to settle down in?

We need to change the narrative concerning housing. Whether consumers buy or rent should become a financial and personal decision. The financial decision should consider the initial cost of buying versus renting, but also the ongoing expense of maintenance, property taxes, and insurance. There is a tax deduction for the interest paid on the mortgage, however, I am finding very few people can use it because they are taking the standardized deduction. My guess is that renting should be a strong consideration in many circumstances. In the end, it will likely depend on how long they are going to stay in the home and their plans for the future.

What are some housing market predictions for 2023?

2023 will be a transition year to a more normal marketplace for housing, however, it will likely remain inflated because of inflation in materials and labor. There is still a huge demand for housing at the bottom of the pricing sector. We will see less pricing increases at the top of the pricing sector. The middle sector will become more normal. So, the narrative is really 3 separate markets. The bottom will remain less affordable and tough to buy, the middle will normalize, and the higher-priced homes will likely be bargains.

Will home prices finally become affordable this year?

The narrative is really 3 separate markets. The bottom will remain less affordable and tough to buy, the middle will normalize, and the higher-priced homes will likely be bargains. Bottomline, we will still have an affordable housing crisis in the U.S.

When in 2023 should home buyers consider making a purchase? Is 2023 a good year to buy a home?

It totally depends on the buyer’s situation. As always renting is a good option if you are going to be in the home for less than 4 or 5 years. If you are likely to be in the home for more than 4 years, buying is a good option.

How can state and local authorities increase home-buying affordability?

This is something I have worked on for years in my community. The first thing is to evaluate the code and make changes to allow higher density. The higher density will leverage and counteract the higher land prices we are experiencing. One way to accomplish higher density is to allow Accessory Dwelling Units (ADUs). Sometimes called “granny flats” the model allows more than one dwelling on a single lot and those smaller homes are generally considered affordable housing. The next way to accomplish more density is to reduce the setbacks between dwellings to allow structures to build closer together, again leveraging the land costs. Duplexes, triplexes, fourplexes, and apartment allowances will also help. There are three ways to accomplish these changes. First, you can change the building code and zoning to allow for it. This takes a long time and is likely to experience headwinds. The second is through variances at City Planning Commission and City Council. This is quicker but also might encounter public resistance. The best and third way is through the development of “overlay districts.” Overlay districts are a planning tool used by local governments to regulate land use within a particular geographic area. It is applied on top of an existing base zoning district to provide additional regulations, restrictions, or allowances that address specific issues or concerns – in this case, affordable housing. A second, and in my opinion less desirable method, is to implement government policies and programs. These may include rent control laws, subsidies for developers to build affordable housing, tax incentives for landlords who offer affordable units, and direct financial assistance for low-income individuals and families. I believe that a market approach is nearly always better.

Methodology

To determine the most affordable cities for home buyers, WalletHub compared a sample of 300 U.S. cities (varying in size) across ten key metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the most favorable conditions for home affordability. Data for metrics marked with an asterisk (*) were available at the state level only.

Finally, we determined each city’s weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order our sample. Our sample considers only the city proper in each case and excludes cities in the surrounding metro area. Each city was categorized according to the following population-size guidelines:

• Large cities: More than 300,000 people

• Midsize cities: 100,000 to 300,000 people

• Small cities: Fewer than 100,000 people

 
The metrics used are listed below with their corresponding weights.

• Housing Affordability: Triple Weight (~25.00 Points)
  Note: This metric was calculated as follows: Median House Price / Median Annual Household Income.

• Maintenance Affordability: Full Weight (~8.33 Points)
  Note: This metric measures maintenance costs as share of income.

• Average Cost of Homeowner’s Insurance*: Full Weight (~8.33 Points)

• Cost of Living: Full Weight (~8.33 Points)

• Cost per Square Foot: Double Weight (~16.67 Points)
  Note: This metric measures specifically the median list price per average home square footage.

• Real-Estate Tax Rate: Full Weight (~8.33 Points)

• Rent-to-Price-Ratio: Full Weight (~8.33 Points)

• Median Home-Price Appreciation: Full Weight (~8.33 Points)

• Quarterly Active Listings per Capita: Half Weight (~4.17 Points)

• Vacancy Rate: Half Weight (~4.17 Points)
  Note: This metric was calculated as follows: Vacant Housing Units / Total Housing Units.
  Sources: Data used to create this ranking were collected from the U.S. Census Bureau, The National Association of Realtors, Council for Community and Economic Research and Insurance Information Institute.fers, but our offers do not represent all financial services companies or products.

• 2023’s Most Affordable Cities for Home Buyers (wallethub.com)