United States of America is the largest economy in the world by nominal GDP. Real estate plays an integral role in the U.S. economy. For example in 2018, real estate construction contributed $1.15 trillion to the nation’s economic output. That is 6.2 percent of U.S. gross domestic product. It is more than the $1.13 trillion in 2017, but still less than the 2006 peak of $1.19 trillion. At that time, real estate construction was a hefty 8.9 percent component of GDP.
Most of the people want to buy a house for living with the family or for investments purpose. Buying a house in the United States of America is complicated, often stressful, but extremely satisfying if the choice is optimal. Before buying a house, it is necessary to analysis the real estate market, doing financial planning and determining the risk profile. In this work, we are going to analyse the real estate market and finding the 30 most affordable US cities to buy a home.
If we consider the price to income ratio, the less expensive city is Peoria, where are necessary 0.99 years to buy an apartment. Memphis is in the second place with 1.33 years, followed by Fort Wayne with 1.42 years, Toledo with 1.48 years and Wichita with 1.58 years.
If we consider price to rent ratio of the city centre, the real estate market is undervalued in all the cities analysed in this work, so buying an apartment is better than renting.
If we consider price to rent ratio outside the city centre, the real estate market is undervalued in all the cities analysed in this work, so buying an apartment is better than renting.
If we consider the mortgage as percentage of income, the less expensive city is Peoria, where the mortgage payment is about 7.52% of the incomes. Memphis is in the second place with 10.01%, followed by Ford Wayne with 10.7%, Toledo with 11.1% and Wichita with 12%. The most expensive cities are Raleigh with 16.79%, Albany with 17.46% and Hartford with 17.49%.
Lastly, it is recalled that there could be many occasions to buy an apartment at discount price when the real estate market is overvalued and not only when it is overvalued. In addition, that could be many expensive apartments despite the real estate market is undervalued.
About the data used in this work
Real estate market analysis is made considering an apartment of 90 square meters which price per square meter is the average of price in the city centre and outside of city centre. The indicators used are:
- Price to income ratio. It is calculated by dividing apartment price to median familial disposable income for a year. Lower value is better.
- Price to rent ratio. It is calculated by dividing the apartment price to the received rent income or the estimated rent that would be paid if renting. Lower values suggest that it is better to buy rather than rent, and higher values suggest that it is better to rent rather than buy.
- Mortgage as percentage of income. It is calculated by dividing the monthly cost of the mortgage to take-home family income. Lower value is better.
The data used in this work are provided by Numbeo and are relating to mid-2019.