Median home sale prices in the United States have nearly doubled in the past decade to $422,000 in July 2023. That’s up from $220,000 in July 2013. Although prices are trending higher nationwide, affordability is significantly different by state.
An analysis of recent data provided by Redfin, a national real estate brokerage firm, shows the Midwest and South have the lowest median house prices in the United States, making these regions the most affordable relative to income.
Because of rising real estate prices, housing on the west and east coasts is the least affordable, along with certain Rocky Mountain states and Hawaii. However, many states across the Midwest and South have housing prices below $350,000, with some counties seeing prices below $150,000.
Housing Prices Increasing
Homes everywhere are increasingly unaffordable relative to income because median sale prices climbed quickly during the COVID-19 pandemic. In March 2020, the national median home price was $304,000, and continued to escalate because of low rates, demand, and availability.
Before the lockdown, low mortgage rates made new and used homes more affordable for many people in America. A $500,000 house with a 20% down payment and a 30-year fixed rate mortgage of 4% has a monthly cost of $2,005. The same home bought with a 7% rate has a $2,794 monthly payment — a $789 difference.
Because rates were below 4% from early 2019 to mid-2022, Americans invested in real estate, causing prices to rise.
At the same time, housing inventory declined. After peaking in 2006, home construction was below average for many years, causing demand to outstrip supply, putting upward pressure on house prices.
Least Expensive State in The Midwest and South
The Midwest and South contain the top five low-housing cost states, which lead the country in affordability.
Iowa The Most Affordable State
Iowa has the lowest median sale price of $239,000 in 2022. The state is primarily rural but has smaller cities like Des Moines, Cedar Rapids, and Iowa City. Additionally, the population is relatively small and growing at only 0.3% annually, keeping demand and, thus, housing prices low. According to the Federal Reserve, the state’s median income was $76,320, making housing relatively cheap for families.
Ohio’s Declining Population Limits Home Price Gains
Ohio is the second most affordable state, with a median sale price of $249,000. The state is more industrialized than Iowa but still has a significant agricultural industry. In addition, Ohio has three large cities: Cincinnati, Cleveland, and Columbus. Based on the state’s median income of $67,520, housing is less affordable than in other Midwestern states. Also, Ohio’s population is declining, suggesting home prices will gain little.
Oklahoma Most Affordable State Outside The Midwest
Oklahoma has the third-lowest median sale price of $256,000. The state is largely rural, with two main cities: Oklahoma City and Tulsa. Oklahoma’s median household income is below Iowa’s and Ohio’s at $63,440. As a result, its residents pay a higher percentage of their income for housing costs. Oklahoma’s population is gaining 1.5% annually, so real estate prices should continue to rise.
Most Expensive States on The West and East Coasts
On the other end of the scale, California was unsurprisingly the most expensive state to buy a home. In fact, the most expensive states are concentrated on the West Coast, Northeast, and a few Rocky Mountain states, attracting people from other parts of the United States, like Utah and Colorado. The three least affordable states are California, Hawaii, and Massachusetts.
High Demand Makes California Expensive
Housing in California is costly. Prices continue to rise because of demand, insufficient construction, and labor costs. In 2022, the median house price was $799,000 — more than three times the price of Iowa. Median household incomes are higher at $85,300, but are generally not enough to account for the sale price differences. After years of growth, California’s population has declined in the past couple of years, but not enough to impact affordability.
Homes in Hawaii Are Expensive
Hawaii is next on the list, with a median home price of $713,000. The state has strict permitting requirements, and as a result, construction cannot meet demand. Therefore, housing prices have risen. Besides expensive housing, Hawaii also has the highest cost of living, making it challenging to make a simple 50/30/20 budget strategy work and purchase a home, too. Household incomes are high, too, at $91,010, but the extraordinary cost of living expenses reduces buying power. One advantage, though, is the state has the lowest property tax rate in the country.
Massachusetts Home Prices Are Rising Fast
Massachusetts is third, with a median house price of $640,000. The state is building more luxury, high-end residences, and not enough affordable housing. Demand is also high because the population grows in most years, drawn by high-paying jobs in healthcare, information technology, and education. In fact, the median household income of $93,550 is among the highest in the country. The combination of forces driving prices higher is unlikely to subside.
The Bottom Line About Real Estate Affordability
Real estate prices have risen faster than incomes. Consequently, already expensive markets are now pricier than ever. Based on median home prices, the Midwest and South lead the country in affordability, especially after considering household incomes.
That said, rising mortgage rates mean it may be prudent to wait until they change direction. High mortgage rates hinder selling and buying.
Arnie Nicola of Pregnancy and Motherhood says, “We had planned to buy a house and the high interest rates pushed up monthly payments and brought down our home value below our expected selling price, so ultimately we decided to just hold.”