Cities hit hard by foreclosures make for large inventories of cheap homes

Housing remains one of the biggest drags on the national economy, with housing prices continuing to slide in many large metro areas as overloaded inventories clog the market. This makes for dozens of U.S. cities where homes can be bought for low prices -- often $150,000 or less.

According to U.S. News analysis of data from the National Association of Realtors and the U.S. Census Bureau, many of the metropolitan areas where homes are the most affordable are also cities that have been hardest-hit by foreclosures, like Las Vegas, Phoenix, and Atlanta. In these cities, home prices are low, and median incomes are substantial enough to make home-buying affordable, even attractive.

The data shows that the discrepancies between home prices and median incomes varies widely from one city to another. In the most affordable cities, homes prices are less than three or even two times the median household income. On the other end of the spectrum, home prices in the most expensive cities are six to seven times the median incomes. In contrast, the national median single-family existing home price -- $171,900, according to the National Associaton of Realtors -- is roughly 3.25 times the national median income (per U.S. Census Bureau 2009 figures, adjusted for inflation).

In the most affordable cities in the nation, buyers might pay a very small fraction of their incomes to buy mid-market homes. Take for example an Atlanta median-income homebuyer and a median-income homebuyer in San Jose, where homes are among the most expensive in the nation, with a median price of $610,000. If both take out 30-year fixed-rate mortgages at 4.75 percent interest on 80 percent of the price of their respective cities' median-priced houses, the financial toll on the buyers is starkly different. According to Bankrate.com's online mortgage-rate calculator, for the San Jose buyer, that would mean monthly payments of $2,546, or about 35 percent of that city's median monthly household income. That is not far outside the realm of what many personal finance experts consider "affordable" -- traditionally, spending no more than one-third of one's income on housing. However, it is far more than the Atlanta homebuyer, for whom monthly payments would be $426, or less than 10 percent of median income.

Of the 51 metropolitan areas with populations over 1 million, these are the 10 most affordable metro areas -- those with the smallest ratios of median home prices to median household incomes:

Sources: National Association of Realtors, 2011 Second-Quarter Median Sales Price of Existing Single-Family Homes (Median Price); U.S. Census Bureau American Community Survey 2009, median household income, adjusted for inflation. Median home price data unavailable for Detroit; Nashville, Tenn.; and Pittsburgh, Pa.

Though the data is limited to single-family homes and does not include purchases of condominiums, it provides a snapshot of the broad range of housing markets in the nation and which areas are still struggling, three years after the housing bubble popped. Many cities suffering from low home prices exemplify just how far the housing market has yet to go before it achieves full recovery. The median home price in the Atlanta metro area tumbled 16.8 percent over the last year, while in Minneapolis it fell 17.7 percent and in Las Vegas, 11.3 percent. Such price declines may hurt sellers and the local economy, to be sure, but as Fears says, low home prices can help to clear inventory and set the stage for a stronger market. "Even though in the near term it means there's some pain and some unfortunate circumstances, long-term it means a healthy, stable market," says Ken Fears, manager of regional economics at the National Association of Realtors.

Indeed, it is important to note that the housing crisis has profoundly damaged many local economies. For example, while Las Vegas may be affordable for a person making the median income in that city, jobs in Sin City are currently difficult to come by. Las Vegas is among the metropolitan areas with the worst unemployment, at 13.8 percent as of June 2011. However, unemployment figures suggest that many of the cities with the most affordable houses also still have robust economies, relative to the national situation. In 7 of the 10 cities, the June unemployment rate was below the national figure of 9.2 percent.

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