Want To Buy Your First Home But Prices Are Insane? Stop Complaining And Consider Moving

There’s nothing more tied to the ethos of the American Dream than home ownership. Moving into one’s own home has become the ultimate guidepost on the journey to “adulting.” It arguably has more importance in the imagination of most people than other markers in a typical life: graduating from college, getting married, and having children.

Part of the elevated status of home ownership comes from the fact that, in many ways, it’s more difficult to achieve than those other milestones. Home buying, unless you are independently wealthy, requires you to get a lender to agree to give you big chunks of change to finance your purchase. And the amount they lend you (if they’re willing to lend to you at all) and under what terms is not completely under your control. At the macro level, the rate you pay will be driven by the economic and monetary policy of the time. Your cost of borrowing will vary depending on your credit rating. Finally, if a mortgage lender is willing to write you a check, that check may not be big enough to allow you to purchase what you want in the area you’d prefer to live. Home-buying, then, is special because it’s hard, and that means the sense of accomplishment is unique.

But if you read the popular press today, you probably think the dream of home ownership for young professionals is dead. Analysts point out that some factors have made it harder for the younger generations to purchase homes, especially when compared to those that came before them. Often, student debt and the value of real estate are cited as the primary drivers of this increased difficulty. Data does support this. (Although contrary to the prevailing narrative, individuals do have a lot of control over student debt, but that’s a topic for another article.)

One of the things that I find surprising, though, is how rarely anybody points out an obvious way for some people to overcome the difficulties home buying presents: changing geography.

Stories in more prominent newspapers lamenting the plight of Millennials and Gen Zs focus, not surprisingly, on the metropolitan areas they serve. The New York Times, Boston Globe, Los Angeles Times, and their sister papers around the country care most about, surprise, New York, Boston, and L.A. And surprise again, all these cities have seen significant increases in property values over the past 20 years. Stories about the topic of insane property prices therefore prevail in the national media. But this narrative is misleading; many metropolitan areas have either matched or underperformed inflation when it comes to home value.

From 2000 to 2020, the increase in the cost of goods and services, as calculated by the Bureau of Labor Statistics CPI Inflation Calculator, was about 53%, meaning $100 in 2000 had the same buying power as $153 in 2020. The average increase in home prices across the U.S. during that same period was about 97% according to a wonderful visualization at visualcapitalist.com. Clearly average home value outstripped inflation (although the “felt” increase for most wasn’t quite as high – very expensive regions skew the average). But the visualization at visualcapitalist.com shows something interesting. There are many, many metropolitan areas below the national average and, more to the point, at or below the rate of inflation.

Take, for example, Cincinnati, Ohio. Over our 20-year reference period, home prices increased 54%, essentially matching inflation. The current median price of a home in Cincinnati is $220,000, according to Redfin. Compare that to the Boston market. The average price from 2000 to 2020 increased by 123%, resulting in a staggering median home price of $747,000. Keep in mind this is a median. It’s not an average. Half of homes in Boston are below that price and half are above. It’s not skewed by a small portion of very expensive homes.

“Yeah,” you may say, “but you get paid a lot less in Cincinnati than you do in Boston.” That’s true (although for reasons I’ll explain in a moment that may be less true than it used to be). Information at datausa.io, which uses census data to help compare economic measures between cities, shows that the median household income in Cincinnati was $43,000 in 2020. In Boston, it was $76,000. But compare the relative differences in home price and income. Boston home prices are 3.4 times higher than those in Cincinnati. But Boston household income is “only” 2.2 times higher. This presents what finance folks call an arbitrage opportunity – you can take advantage of price differences for the same product in different markets. And, by the way, costs other than housing are lower in Cincinnati too. According to nerdwallet.com, transportation and food costs are 12% lower in Cincinnati, entertainment costs are 16% lower, and healthcare costs are 15% lower.

There’s another very important factor to consider. The percent of households in Cincinnati that are dual income households is meaningfully lower than Boston. A wonderful collection of data at magnifymoney.com shows this. Cincinnati is ranked among the top ten cities with the lowest percentage of dual income households at 22.7%. Dual-income homes comprise 29.2% of Boston households. This would imply that the lower median household income in Cincinnati is partly due to fewer people in the home working. This is an important consideration if, for example, one person in a couple wants to be able to stay home when children are born.

Finally, I want to get back to a point I alluded to earlier. I suspect the pay gap that exists between some cities in the U.S. will close. Not completely. But in a world where remote work is more prevalent, and employers will continue to compete for the best employees, some highly skilled employees will be able to demand big-city and coastal pay rates no matter where they live.

I’m not trying to push Cincinnati on you. I don’t work for their Chamber of Commerce. But the town is an example of many where home values haven’t outstripped inflation and offer a wonderful quality of life. Others include my parents’ hometown of Albuquerque, New Mexico; Champaign-Urbana, Illinois; and Columbia, South Carolina.

I can hear the snobbery now from many of you. New Mexico? Illinois? Yes, New Mexico and Illinois. There are wonderful places to work, live, and raise a family outside of whatever area you currently live in. Consider spreading your wings. Not only can you improve your prospects when it comes to home buying, but exploring new opportunities in new locations has a way of making you a more well-rounded person. Getting out of your comfort zone always does.