 | | |  | Where the Affordable Homes Are
By
Peter Coy
BusinessWeek Online
Forget
the big coastal cities. But if you don't mind a
long commute, can telecommute, or work in smaller cites, you'll find lots of great buys
It
looks like the housing
boom is finally over. If you buy now, the risk is high
risk that you'll get zero or negative returns on your
investment over
the next few years. What, then, should you do?
Easy
-- focus on affordability. If you can, choose a house
in a market where prices haven't gone through the roof,
whether
it's Buffalo, N.Y., in the Northeast; Atlanta in the
Southeast; Youngstown, Ohio, in the Midwest; San Antonio
in the
Southwest; Yakima, Wash., in the Northwest; or Riverside,
Calif., in the West. You'll get more living space,
and you won't
have to worry so much that a financial setback such as a layoff will leave you unable to pay the mortgage.
Go
to
BusinessWeek Online to view the homes by region.
Sure,
affordability has always been important. But in boom
times, homebuyers were willing to stretch their finances
to the
limit because they figured the more house they owned,
the bigger the gains on it would be. What's more, they
reasoned that if
they did lose a job and had to downsize, they could sell their house and pay off the mortgage with money to spare.
GOOD
INFO. That's no longer a sure thing now that the boom
is fizzling. The pace of home sales slowed sharply
in October,
according to a national survey of brokerage firms by
Real Trends, a Littleton (Colo.) real-estate consulting
firm. A slowdown
in deals is what happens when buyers cut their bids,
but sellers aren't yet prepared to lower their asking
prices (see BW
Online, 11/9/05, Red
Alert, or a
Wake-Up Call?").
So
how do you find an affordable market? One good source
of information is the National Association of Realtors'
quarterly
report on the median sales price of single-family homes in 147 of the nation's biggest metro areas. The report
for the third quarter
was released
on Nov. 15.
The
median price is the one that cuts the market in two
-- half the homes sold for more than that price and
half for less. The
cheapest metro area in the Realtors' report was Danville,
Ill., where the median price in the third quarter was
$72,800 -- a
level that's scarcely imaginable to people house-hunting
in, say, San Diego, Miami, or Boston. You can scan
the Realtors'
listings to find relatively inexpensive markets in
every part of the country, although the West on the
whole is the least
affordable region.
LONG-TERM
VALUE? Remember, too, that often the cheapest houses
lie outside the metro areas entirely. As prices rise,
many
people are buying in the exurban fringes of big cities
-- getting affordable housing in exchange for long
commutes. In the New
York area, one such frontier is Pike County, in northeastern
Pennsylvania across the state of New Jersey. It's a
2½-hour
drive each way, but for people who can telecommute,
it's an option. In greater Los Angeles, the closest
thing to a bargain is
the fast-growing Inland Empire of Riverside and San Bernardino counties.
Of
course, most buyers also hope that the place they buy
will hold its value, even if it won't appreciate much
in the short
term because of a softer national market. One of the
best measures of whether a given market will hold its
value is a
quarterly assessment done jointly by economist forecaster Global Insight and National City, a Cleveland-based bank.
The
assessment looks at how
prices in 277 markets
compare
to their historical trends, figuring in such factors
as the ratio of local home prices to local incomes.
(The
measure takes into account the fact that some markets,
like Honolulu, tend to have high price-to-income ratios
over very long
stretches of time, indicating that those ratios are apparently sustainable.)
DRAMATIC
VARIATIONS. By the Global Insight/National City measure,
the best bargain in the country is College Station,
Tex.,
home of the Texas A&M Aggies. Home prices in College
Station are 20% under what history says they should
be, given
incomes, mortgage rates, and other relevant factors,
the analysis says. At the other extreme, Naples, Fla.,
comes out most
overvalued -- at 79% above its trend. Although those
numbers have been updated only through the second quarter,
they don't
tend to vary abruptly from month to month.
Now,
let's scan the country to look for bargains. As you'll
see, prices vary dramatically region by region. While
Springfield,
Mass., looks cheap compared to nearby Boston ($218,000
median single-family home price, according to the Realtors,
vs.
$431,000 in Boston), it's still way pricier than Springfield, Mo. ($122,000) or Springfield, Ill. ($112,000).
NORTHEAST:
As elsewhere in the country, the closer you are to
the coast, the more you're going to pay for housing.
And
large metro areas with strong economic growth, like
New York and Boston, fetch high prices. By the Realtors'
measure, upstate
New York is quite cheap, however. The median single-family
home price is $104,000 in Buffalo, $120,000 in Rochester,
and
$118,000 in Syracuse. Albany, the most easterly of
the upstate cities, is also the priciest at $193,000.
But that's still well
shy of metro New York at a median of $534,000.
Bargains
are scarce in New England or New Jersey. Pennsylvania
still has some inexpensive cities -- headed by Pittsburgh
at
$123,000. Buffalo, Rochester, Syracuse, and Pittsburgh
also look good in the Global Insight/National City
rankings, coming up
as undervalued at current prices.
SOUTHEAST:
For a big city, Atlanta looks pretty affordable in
the Realtors measure, at $171,000 for a median
single-family home. You could do a little better in
Memphis at $145,000. Florida, once a cheap place for
Northerners to
retire, is no longer a bargain, although Tallahassee
on the Florida Panhandle is reasonable at $164,000
for a median home.
Undervalued Southeastern and Southern cities, according
to Global Insight/National City, include Albany, Ga.,
Baton Rouge,
La., Charlotte, N.C., and Columbus, Ga.
MIDWEST:
This is the country's cheapest region, going by the
Realtors' median data. Detroit's median price is $172,000,
Cleveland is $147,000, St. Louis is $148,000. Even
cities that have done relatively well in recent years
are reasonably
priced: Columbus, Ohio, is $157,000. Among the cities
that register as undervalued with Global Insight/National
City are Cedar
Rapids and Des Moines, Iowa, and Indianapolis, Ind. But Detroit, despite its low prices, is 20% overvalued by this measure.
SOUTHWEST:
No doubt about it: If you want a housing bargain in
the Southwest, head for the Lone Star State. The housing
boom seems to have passed right over Texas. According
to the Realtors' data, median prices are $147,000 in
Dallas, $145,000 in
Houston, and $138,000 in San Antonio. Those are remarkably
low for large cities with healthy economies. It's no
surprise that
these cities also show up alongside College Station,
Tex., as substantially undervalued in the Global Insight/National
City
study. Dallas, for instance, is 13% undervalued.
NORTHWEST:
Prices in the Northwest have been driven upward by
proximity to California, so great deals are scarce.
The
median price in Portland, Ore., rose 20% and edged
ahead of its sister city in Maine this past year, $254,000
vs. $249,000.
And the Seattle area (home of all those Microsoft millionaires) has a $325,000 median.
As
elsewhere in the country, the smaller cities have the
lowest prices: Yakima, Wash., has a $141,000 median,
while
Kennewick-Richland, Wash., is at $157,000. One good
choice is the charming city of Boise, Idaho, which
isn't only cheap --
$148,000 median price -- but is roughly fairly valued in the Global Insight/National City study.
WEST:
You'd be hard-pressed to find a bargain anywhere in
California, which is probably the most overvalued state
in
the Union. In the San Francisco metro area, the median
price is $722,000. (enough for an entire neighborhood
in Danville,
Ill.) Even the state's cheapest metro-area housing
ain't so cheap -- the Inland Empire east of L.A., at
a median price of
$387,000.
If
you love inexpensive Western living, a good bet is
Salt Lake City at a median price of $181,000. By contrast,
Denver clocks
in at $253,000, Phoenix at $260,000, and Las Vegas
at $313,000. Utah also comes out best on the Global
Insight/National City
value monitor, with Salt Lake, Provo, and Ogden all
looking fairly valued or even undervalued at today's
prices.
Want to take a house tour? Check out our search for Affordable
Homes Under $500,000
region by
region.Back
to Your Money: Affordable Homes. |
| |
| |
| Exclusive Columnists – New! | |
 Cement,
Steel, and Stocks
by Ben Stein
What
do cement and steel prices have to do with your retirement
planning? Taken with other measures, they can tell
you
whether or not it’s a good time to invest in the market. More. |
| | Ben
Stein is one of a group of new columnists exclusive
to Yahoo! Finance.
Read his column
How Not to Ruin Your
Life every other Monday. |
|
| Previous Special Editions | |
|
|
