Where Are the Best Housing Values in the U.S.?

Curious about where the best housing values are in the nation? In a recent Housing Market Perspectives article, St. Louis Fed economist Bill Emmons examined major metro areas in the U.S. to list out places with the best—and worst—relative housing values. He did this for owned homes as well as rental housing.

Relative Values for Owned Housing

Emmons concluded that housing markets in some Upper Midwestern major metro areas now offer the best relative values on average. Meanwhile, coastal areas have some of the nation’s most expensive housing.

How Relative Values Are Determined

To calculate relative housing values, Emmons looked at long-term changes in the ratio of average house prices (or rents) in each metro area to state-level personal incomes. This allowed for meaningful comparisons across metro areas using house price (or rental) indexes rather than levels, i.e., dollar amounts, which he observed are neither readily available nor reliable. Emmons examined changes from early 2000 to early 2018; using this sample period enabled the author to capture the whole boom-and-bust cycle in housing.

“The ratio of nationwide house prices to per capita personal incomes began to increase sharply after 2000, the last year before clear signs of a nationwide housing bubble appeared. The period 2000-18 is also a short enough span for local amenities not to have changed materially,” the article explained.

What Really Makes a Place “Cheap or Steep”?

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Emmons explored this question, noting that “it’s not simply whether average local house prices fall below or sit above the national average.” Consider …

• The relationship of housing and income: Low-priced housing isn’t cheap in places where the average personal income is also modest, the author said. On the flip side, markets with expensive average house prices aren’t necessarily out of reach if average incomes are high, too.
• Desirable amenities: Features and factors that people find attractive—such as a nice climate, low taxes, good jobs, cultural and recreational opportunities—could make steep house prices feel like “relative bargains,” Emmons said.

Therefore, he noted, it’s not enough to gauge a given housing market’s value just by looking at average house prices. And while the measures Emmons employed were “imperfect,” he said that changes in ratios of average house prices (or rents) to personal income can nonetheless reveal large differences in relative housing values around the U.S. … even after taking into account local incomes and amenities.

Additional Resources

• Housing Market Perspectives: Which U.S. Major Metro Areas Now Offer the Best Housing Values?
• Open Vault: Why Economists Don't Like the Mortgage Interest Deduction
• Open Vault: Three Reasons Homeownership Can Hurt Building Wealth