Shifting to a New Metropolis Can Save You 1000’s on Housing. Right here Are the Least expensive States to Get a Mortgage
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Matthew Richmond and his partner, Randy, loved living in San Francisco, but it was getting more and more expensive. Their 700-square-foot basement garden apartment was costing them $4,000 a month.
“It was becoming kind of untenable,” Richmond, a Realtor, says.
They moved to Detroit in 2017. They bought a 100-year-old, 3,200-square-foot Tudor/Colonial-style home for about $240,000 and started fixing it up. Richmond says their total housing costs now are about two-thirds to three -quarters of what they were in San Francisco, for a home more than four times the size.
“There were definitely advantages to moving here,” Richmond says. “We were able to afford something that we could not afford, obviously, in San Francisco.”
Michael Weinstein and his fiancée Brittany Schulte moved from Boston to Chicago so they could find more homes in their price range and save money.Courtesy of Michael Weinstein
With housing prices rising everywhere, but especially in what have traditionally been high-cost-of-living cities on the coasts, many people are having similar thoughts to Richmond. Michael Weinstein and his fiancée moved from Boston to Chicago in 2020 with the goal of finding a house they can afford. They found one in the city’s Lincoln Park neighborhood earlier this year. “There were a bunch of reasons but a huge part of it was the ability to buy something in Chicago,” he says.
In terms of dollars, the difference between the home prices in different areas of the country can be massive. But there are more factors to weigh before you decide if such a move makes sense.
Here’s what you need to know before making any moves.
The Cheapest and Most Expensive Cities to Buy a Home
The cost of buying a home varies widely across the country, driven by economic trends, jobs, amenities and other factors. “The more expensive markets are in the West region of the country but the fast-rising prices are also in the South region,” says Gay Cororaton, senior economist and director of housing and commercial research with the research group at National Association of Realtors.
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*Fourth quarter of 2021 data, according to preliminary data from the National Association of Realtors (NAR).
There’s a wide gap between the most expensive cities in the US and the least expensive, in terms of home prices. For example the difference in home prices between the West and the Midwest is more than $250,000. According to the NAR data, you could buy a house at the median price in each of the 10 cheapest cities for the cost of one house in San Jose, California, with change left over.
The metro areas with the highest median home price in the fourth quarter of 2021, according to NAR data, were:
- San Jose-Sunnyvale-Santa Clara, CA, at $1.675 million;
- San Francisco-Oakland-Hawardy, CA, at $1.31 million;
- Anaheim-Santa Ana-Irvine, CA, at $1.15 million;
- Honolulu, HI, at $1.05 million; other
- San Diego-Carlsbad, CA, at $845,000;
The metro areas with the lowest median home price were:
- Decatur, IL, at $110,400;
- Peoria, IL, at $132,200;
- Youngstown-Warren-Boardman, OH-PA, at $136,400;
- Cumberland, MD-WV, at $137,900; other
- Davenport-Moline-Rock Island, IA-IL, at $147,500.
A city with cheaper home prices might not necessarily be cheaper to live in. Look at insurance, property taxes and other secondary costs to see if you could actually save money.
The past couple years have seen some significant trends in migration from higher cost-of-living cities to lower cost-of-living places because of rising prices, more flexible work environments, and low interest rates. A study by housing data firm CoreLogic found that those trends are easing a bit with the waning of the pandemic and employers expecting more in-person work. Affordability, outdoor amenities, and job opportunities pushed people from more expensive places like San Francisco, Los Angeles, New York, and Seattle, says Selma Hepp, deputy chief economist at CoreLogic.
“They started moving more to areas that were more affordable but also had more outdoor amenities, whether that be lakes or mountains or beaches,” she says. “As a result of that we saw home prices in areas like Idaho and Utah, Wyoming, Arizona, Colorado go up.
The Cost of a Mortgage in Other States
Don’t worry about shopping around to find which state has the best interest rate on a mortgage, says Kimber White, partner at the Florida mortgage broker RE Financial Services. Interest rates don’t vary much from state-to-state.
The interest rate might be the same, but there could be differences in the other costs that come with closing on a home, White says. Title insurance, legal fees, and other closing costs might vary a bit, to the tune of a couple thousand dollars.
Another way costs might vary has to do with the price of the home. Any costs that are calculated as a percentage of the home value will differ significantly if you’re looking at big gaps in prices, Hepp says. “A lot of times if you’re getting a bigger mortgage in a more expensive area, those closing costs are going to be higher.” For example, if closing costs are 4% of the loan amount, the amount paid in closing costs increases significantly as the home prices go up.
Same goes for the down payment. A 20% down payment for a $250,000 home is a lot less than 20% of a $600,000 home.
Important Cost of Living Considerations
The price of the house and what you can afford aren’t exactly the same. Moving to a city with cheaper houses won’t necessarily save you money if you have to take a big pay cut to do so. Look first at how much money you can make in that city before considering what your homebuying budget should be, Cororaton says.
People who can work from home — from anywhere — have more freedom to move to an affordable city. “With working from home it does not make sense to live in a place that is just very expensive,” she says.
A rule of thumb is that you shouldn’t spend more than 30% of your income on housing. Cororaton suggests looking at your budget and considering if the place where you’re living is keeping you above that threshold. “If you’re spending 50% of your income on housing, that is very unaffordable,” she says.
Consider other factors, such as property taxes and insurance, Hepp says. “In areas that have more peril risks, hurricanes, tornadoes, floods, fires, you may have higher homeowners insurance. There’s also areas that flood a lot, you have to have additional flood insurance. Or you have to have additional earthquake insurance.”
Richmond saw firsthand the effect of secondary costs when he moved to Detroit. Home values are lower, but property taxes and insurance costs are higher. In Detroit specifically, that’s because the population decline has left fewer people to cover services for a much larger city by area. “It was a bit of a sticker shock to realize that Detroit has huge insurance rates,” he says. The property taxes are also among the highest in Michigan.
Geoarbitrage: Is Moving Cities to Save Money a Good Idea?
Getting out of an expensive place might make sense financially, but Hepp says there are more factors to look at than just how much you’re spending on a home. “It depends on what you’re looking for in life. Is it warm weather? Is it doing a lot of outside things? Is it not paying taxes?”
When searching for a cheaper place to live, Richmond says they first looked at other areas in the Bay Area, then at cities across the northern US — “We were looking for seasons,” Richmond says — like Seattle, Portland, Minneapolis, and Chicago . Then Randy returned from a work conference in Detroit impressed with the city and its architecture.
Before you get too deep into browsing home listings in an unfamiliar city, Hepp suggests you do a trial run, if your budget and circumstances allow. “Maybe move there for a few months first, renting or doing an AirBnb or something before buying a home.”
“Sometimes people are blinded with this idea that it’s going to be better, that the pasture is greener on the other side,” Hepp says. For those considering a transition, Hepp says to make sure the new home provides for the lifestyle they wanted. “They go there and then they realize I’m missing all these cultural amenities, I’m missing unplanned social interaction or things that you do get in a more urban environment.”
A move that saves a lot of money could be done for the short term, White says. But it’s important to move where you can be satisfied. “I think it hinges on what they want to do with their quality of life more than anything,” he says.
Moving to save money can open up other financial possibilities. That was a goal for Weinstein when they moved from Boston to Chicago. “I wanted to be able to max out my retirement accounts and still have a life and pursue hobbies. I definitely want to be on the financial independence track. Moving here has been a huge part of it.”
Richmond says moving from San Francisco to Detroit meant some cultural changes. The geography and the people were different, and that took some getting used to. “It just took a while to find the beauty here. There’s tons of it, you just have to look.”