Many people dream of taking a step on to the property ladder, but in certain cities it quickly becomes clear the step is rather more of a leap. In order to assess which cities are the most expensive for their residents to purchase a home in, it is necessary to measure not only metropolitan housing prices, but also the typical income of each household and the ACCRA cost of living index.

TUTORIAL: Exploring Real Estate Investments

Taking information from Kiplinger's annual rankings and metropolitan city data from the Census Bureau, homes in these five cities are least affordable when compared to local salaries.

New York, NY
For anyone who has ever looked at the real estate market in New York, it quickly becomes clear that the city's high wages don't stretch too far.

With a median household income of $63,553 and an average home price of $1.14 million, the typical home in New York is approximately 18 times greater than the household median income. According to Trulia's Rent versus Buy index, it is far more affordable to rent than buy in the Big Apple. With a population of approximately 8.2 million according to the most recent U.S. census report, New York's resilient housing market is due to the combination of a shortage of land to build upon and the city's attraction to young people from across the country.

Despite the high cost of living, the city continues to draw talented graduates in the arts and sciences, leading financial institutions and a strong start-up scene. The combination of these provides the economic force behind both higher incomes and higher housing prices. (For related reading, see Mortgages: How Much Can You Afford?)

San Francisco, CA
With a median household income of $74,876 and an average home price of $808,481, San Francisco looks more appealing for home buying than its East Coast rival. However, the City by the Bay is still far from a real estate bargain as the average home is approximately 11 times greater than the median household income there.

Much like New York, the city boasts a density of population combined with little space to fight over. Increasing the supply of housing in the dense metro area of San Francisco is difficult, and much like New York, the land comes at a greater premium. The city remains a quality of life destination and its strong economy is due to a mixture of finance, trade and tourism, as well as the influx of new media and software companies. (For related reading, see To Rent Or Buy? The Financial Issues- Part 1.)

Honolulu, HI
Economic reasons are not the only factors in high cost of living. In much the same way as many people are willing to pay more to be part of the excitement of life in New York city, residents of Honolulu are willing to foot the expense of white sand beaches, stunning views and island culture. With a median household income of $67,066 and an average home price of $689,781, the typical home is approximately 10 times greater than the median household income there.

Well-heeled foreign buyers keep prices high and the remoteness of the island means that many building materials have to be shipped long distances. Sandwiched between ocean and mountains, the picturesque nature of the island also inflates property values and increases construction costs. The terrain is difficult to build upon and useable land is limited as much of the island has been set aside for preservation, military or agricultural usage.

Los Angeles, CA
With a median household income of $58,987 and an average home price of $576,173, the typical home in Los Angeles is just under 10 times greater than the median household income there. According to analysis commissioned by US News and World Report, the median income translates to a real income of just $41,331 when cost of living is taken into account. Compared to the calculated real income of $35,370 in New York and $40,736 in Honolulu, Los Angeles is marginally more affordable.

Home prices have fallen after the recent housing boom and unemployment has increased. Yet the city remains the bastion of the entertainment industry, home of many of the country's wealthiest celebrities and continues to attract dream-seekers, as well as those looking to live in the city's warm climate.

San Jose, CA
Silicon Valley's home prices may have fallen from their peak, but the San Jose metro area remains expensive for those looking to buy. With a median household income of $85,020 and an average home price of $761,867, the typical income may be the highest of our list but the residents need those paychecks in order to afford the area's housing prices. Home prices are about nine times greater than the median household income.

The concentration of the technology industry in the San Jose area and the historical World War II population boom of talented engineers and scientists resulted in an influx of talent flocking to the valley. Combined with the impact of the tech millionaire's mansions, housing prices have remained high due to tight regulations, building codes and challenging terrain for construction. (For related reading, see To Rent Or Buy? There's More To It Than Money.)

TUTORIAL: Buying And Owning Real Estate

The Bottom Line
Surprisingly this top five list only boasts one east coast representative and three of the most expensive cities for property ownership are huddled together in coastal California. The remoteness and picturesque nature of Honolulu cements its place in the top five. The other four cities all hold a certain allure to young people, they are centers of economic power where a clustering of talented workers drive both wages and house prices higher. Land shortage or difficulty of terrain for construction comes into play as well as the influence of the super elite and wealthy foreign investors.

Related Articles
  1. Home & Auto

    6 Neighborhood Red Flags

    There are some qualities you can’t discover about a neighborhood until after you’ve moved in. But there are ways to scout out red flags ahead of time.
  2. Economics

    Understanding Income Inequality

    Income inequality refers to the uneven distribution of income across a single economy.
  3. Investing

    The Top Businesses Nurtured By Y Combinator

    We look at the top startups that were incubated at Y Combinator, one of the world's most popular business incubator firms.
  4. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  5. Personal Finance

    The 6 Most Expensive Apartments in New York City

    A look into the high, high, high end of New York City real estate.
  6. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  7. Home & Auto

    The Most Expensive Neighborhoods in London

    Understand what makes London such a desirable place to live and why it is so expensive. Learn about the top five most expensive neighborhoods in London.
  8. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  9. Investing

    Hetty Green: Invest Like the Richest Woman in the World

    Investors would be wise to emulate the approach to the markets that Hetty Green used to grow her fortune.
  10. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What are some of the drawbacks of industrialization?

    In economic history, industrialization is the social and economic transformation of the human group from an agrarian society ... Read Full Answer >>
  6. How can I increase my standard of living in my retirement years?

    If you're decades away from retirement, the best way to ensure a decent standard of living during your golden years is to ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!