Which states have the cheapest houses?
As home prices keep climbing, many would-be buyers are looking outside their current ZIP codes for affordable housing.
The good news is, home prices aren’t rising at the same pace everywhere.
If you’re looking for affordable homes in 2022, the South, Southeast, or Midwest could be your best bet. A few states show up repeatedly for having some of the cheapest homes on the market, including Texas, Florida, Tennessee, Ohio, and Michigan. And those aren’t the only ones.
Finding a cheap house in 2022 will take some research and flexibility. But it’s not impossible. Here’s what you should know.Verify your home buying eligibility. Start here
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Consider looking farther out for cheap housing
If the real estate market is red-hot in your current area, it often makes sense to look at different cities or states where housing is cheaper. This could help you get into a home and start building equity much sooner than you’d imagined.
“The good news is that there are jobs available almost everywhere across the country today, and many people can now work from home. This makes it possible for people to consider moving almost anywhere to find a home they can comfortably afford,” says Rick Sharga, executive vice president for RealtyTrac.
“A home is considered affordable if the housing expenses don’t eat up more than 30% of the owner’s or family’s monthly budget.”
According to Gay Cororaton, senior economist and director of housing and commercial research for the National Association of Realtors (NAR), a home is considered affordable if housing expenses don’t eat up more than 30% of the family budget.
“That’s because a family has other essential expenses — food, clothing, education, health, student debt, leisure, and savings for retirement. If homebuyers can’t afford to pay the mortgage, they may end up losing their home, including the savings used for the down payment,” she says.
Wondering where you can find those mythical affordable homes? Here are a few suggestions.Verify your home buying eligibility. Start here
“Hidden gems” in the real estate market
In its newest report, 2022 Housing Market Hidden Gems, the NAR named the top 10 markets with strong underlying housing market fundamentals but where housing prices remain undervalued and relatively inexpensive.
These areas are anticipated to experience greater price appreciation this year — so buyers who get in early may stand to benefit the most.
The NAR’s hidden gem markets, in alphabetical order, are:
- Dallas-Fort Worth, Texas
- Daphne-Fairhope-Farley, Alabama
- Fayetteville-Springdale-Rogers, Arkansas-Missouri
- Huntsville, Alabama
- Knoxville, Tennessee
- Palm Bay-Melbourne-Titusville, Florida
- Pensacola-Ferry Pass-Brent, Florida
- San Antonio-New Braunfels, Texas
- Spartanburg, South Carolina
- Tucson, Arizona
“Essentially, these are markets where prices are still affordable, based on home price to wage income ratio, and that have strong market conditions such as job and wage growth,” says Cororaton.
“In these markets, home prices are three times or less than the median family income. Compare that to an area like San Francisco, San Jose, or Los Angeles where home prices are seven times the level of income.”
She points to Tucson as a particularly good bang for your buck.
“Tucson is very affordable compared to Phoenix. As of the second quarter 2021, the median property value was $261,046, which is equivalent to three times the median family income compared to the median property value in Phoenix — which is $364,186, 4.3 times the median family income,” Cororaton adds.
Big cities with the cheapest houses
Based on a recent report from ATTOM, several large metro areas are still within range for many prospective buyers — although fewer in this newest study than in past ATTOM studies.
In fact, among the 575 counties in the report, only 135 (23%) are more affordable than their historic affordability averages in the fourth quarter of 2021.
“According to this report, there are several large metro areas that are still fairly affordable for most homebuyers,” Sharga explains. These include:
- Chicago, Ilinois
- Houston, Texas
- Dallas, Texas
- San Antonio, Texas
- Detroit, Michigan
- Philadelphia, Pennsylvania
- Cleveland, Ohio
- Columbus, Ohio
“Homes are also relatively affordable in smaller metro areas like Allentown, Pennsylvania; Decatur and Peoria, Illinois; and Macon, Georgia. In all of these cities, homeownership expenses are typically less than 28% of monthly local wages,” Sharga adds.
That last point is important because what’s affordable to a buyer will depend as much on their income and the cost of financing as it will on the list price of a home.
“In some markets, home prices can be much lower than national averages, but local wages can be even lower. So buyers really need to do a careful assessment of their own finances as well as home prices before moving forward on a purchase,” recommends Sharga.Verify your home buying budget. Start here
Another take on the cheapest cities
These aren’t the only rankings to consider carefully. Other sources publish affordable market lists, too. (Though many of the same states show up again and again.)
For example, mortgage lender Better recently published its list of the 10 most affordable cities in America:
- Knoxville, Tennessee
- Memphis, Tennessee
- Kalamazoo, Michigan
- Jacksonville, Florida
- St. Louis, Missouri
- Columbus, Ohio
- Oklahoma City, Oklahoma
- Las Vegas, Nevada
- Buffalo, New York
- San Antonio, Texas
“It’s important to look at the cost of living index for a given market or city, which offers a snapshot glimpse of how expensive everyday goods and services are, including the price of a gallon of milk, a visit to the doctor, and more,” notes Christian Wallace, head of real estate services for Better.
“As you can imagine, the cost of living from place to place can vary drastically. As more affordable homes require smaller down payment amounts, it’s not surprising that many people are interested in finding cities where the dollar goes further.”
Tips for buying a cheap house
Finding an affordable home is only part of the process. You also need to secure financing, get your offer accepted, and close the deal.
Want to improve your odds of success at every stage of the home buying process? Follow these tips from the experts.
1. Look farther outside the city center
“A big part of finding affordable homes comes down to geography. As a rule, the farther you move from the center of the city, the more affordable homes typically will be,” advises Sharga.
“Similarly, the farther away from coastal areas or other high-demand locales, the lower the prices,” he adds. “Newer homes tend to be more expensive than older homes, too, so looking within more mature, established areas might help.”
2. Find a great real estate agent
Local agents and Realtors can help you identify areas within a market that may be more affordable than others.
“Many buyers start their search virtually and on their own, but you really need a Realtor who can help you navigate the home search and purchase process — an expert who can help you make a good price offer given their knowledge of market conditions in the area,” says Cororaton.
To learn more about choosing a buyer’s agent, read 6 Tips to find a great real estate agent.
3. Consider a fixer-upper
Don’t be afraid to consider entry-level and fixer-upper properties, also.
“Fixer-uppers can be a good way to buy a home at a discount, and loan programs like the FHA’s 203K loan will allow repair costs to be built into the mortgage, thereby minimizing your out-of-pocket cash requirements,” Sharga suggests.
4. Don’t forget about property taxes
Property taxes are another essential factor to ponder.
Keep in mind that most homeowners have their property taxes tacked onto their monthly mortgage payments. So your tax rate can have a big impact on your home buying budget.
“Property taxes vary by city, county, and state. Lower property taxes leave you with more wiggle room to buy a higher-priced home,” adds Wallace.
5. Choose your mortgage carefully
Shopping around carefully for the right mortgage can make a big difference as well.
“Comparing among different lenders and loan programs lets you see a range of loans you may qualify for and gives you the best chance to find a lower interest rate, which can cut your buying and ownership costs,” Wallace continues.
There can be a big difference in mortgage rates from one lender to the next. And your rate will determine your monthly interest payment, which impacts the total amount you can borrow. So finding the lowest rate won’t just save you money from month to month; it can actually help you afford a more expensive home, too.
6. Look for down payment and closing cost assistance
Remember to pursue buyer assistance programs if you are eligible and they are available. Each state has down payment assistance programs that can help you come up with the upfront cash needed to secure a home. Take a closer look at these resources:
- Down payment assistance programs in all 50 states
- Housing finance agencies in all 50 states
- HUD local home buying programs
- HUD homeownership assistance
- FHA Down Payment Grants
- Chenoa Fund
- National Homebuyers Fund
The bottom line
Keep in mind that mortgage rates are likely to continue to increase over the next several months as the Fed reins inflation back.
“Also, don’t expect home prices to fall, given the significant underbuilding in the housing market,” Cororaton adds. “Home prices will still rise, although at a slower pace this year.”
Those are further reasons to look more closely at affordable areas around the country, even if it requires moving out of state.
“If you can afford a home now and are in your life cycle where you are thinking of buying, don’t postpone your purchase if at all possible,” says Cororaton.Time to make a move? Let us find the right mortgage for you