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The Most Affordable States In The U.S. To Buy A House

The FHFA house price index is a quarterly index for the U.S. that measures average changes in housing prices based on sales or refinancing of single-family homes whose mortgages have been bought or securitized by Fannie Mae or Freddie Mac. Data are available at the national, regional, divisional, state, metropolitan, metropolitan division, county, and ZIP code levels.

United States: House Price Index


The house-price index is a weighted repeat sales index, which means that it measures the average price changes in repeat sales or refinancings of single-family homes. The house price index is used to measure both conforming and conventional mortgages. Conforming is a term for a mortgage that meets the rules for underwriting set by Fannie Mae or Freddie Mac and doesn’t go over the conforming loan limit.

This limit is set by the Federal Housing Finance Board and is based on an index. In 2007, the most you could borrow on a mortgage that was “conforming” was $417,000. In high-cost areas of the continental United States, a law passed in February 2008 temporarily raised the limit to as much as $729,750. Conventional means that the FHA, VA, or other federal government agencies do not insure or guarantee the mortgages.

Rent-To-Price Ratio

Economists at the San Francisco Federal Reserve wrote in an Economic Letter that the price-rent ratio could be used to measure the real value of a house.

The Federal Reserve Bank of San Francisco took an idea from books about money. The finance paradigm says that an asset’s basic value is equal to the sum of its future payoffs, which are each discounted back to the present by investors using rates that show how they want to spend their money. For stocks, the expected dividends are the payoffs that need to be discounted. This way of thinking can be applied to housing by recognizing that a house gives its owner a return in the form of a roof over their heads. The basic value of a house is the present value of the future housing service flows that it will provide to the marginal buyer. In a well-run market, the rental value of the house should be close to the value of the housing service flow.

In either the stock market or the housing market, a bubble happens when the current price of an asset is not the same as its true value. We can see right away that bubbles are hard to spot because fundamental value is not something that can be seen. No one knows for sure what dividends or discount rates investors will need on assets in the future. Even though this is a problem, analysts still find it useful to make measures of fundamental value to compare with actual valuations. One popular way to measure this is the price-dividend ratio, which is like a house’s price-rent ratio.

The price series is the FHFA-published existing home sales price index. This index is a repeat sales index, which means that changes in the index are based on changes in the prices of individual houses that change hands during the sample period. One of its flaws is that it doesn’t make a clear distinction between pure house price appreciation and price changes caused by things like home improvements or depreciation. The Bureau of Labor Statistics (BLS) publishes the owner’s equivalent rent index, which is part of the rent series. This series is meant to track changes in the service flow value of owner-occupied housing.

California and Hawaii stand out like sore fingers in the American real estate market.

Key Points

The three states with the lowest house costs are Iowa, Indiana, and Ohio. These states’ median house prices are under $150,000, and monthly payments are predicted to be no more than $702.

The most costly housing markets in the US are in Hawaii and California, the only two states where buying a home requires more than 31% of one’s typical salary.

The map illustrates the proportion of the typical resident’s income needed to pay expected monthly mortgage payments.
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