Have you ever wondered what cities would cost the most to own a home in? We examine the National Association of Realtors (NAR) report of the five most expensive metropolitan areas to buy a home as of the first quarter of 2011 and describe some of the factors that drive real estate prices in those areas. (For areas where housing is on the rise, check out 5 Areas Where House Prices Are Increasing.)

TUTORIAL: Buying A Home

The quarterly NAR survey lists the median sales prices for 162 metropolitan areas that are based on the U.S. Census Bureau's 362 metropolitan statistical areas (MSAs). An MSA is a U.S. government-defined geographic area that has a "core urban area" with a population of at least 50,000. The MSA is usually named after the area's largest cities, up to a maximum of three, but is sometimes named after the county that contains the core urban area.

1. Honolulu, Hawaii
Honolulu, Hawaii, had the highest median sales price for existing single-family homes. The price tag? $579,300. This area primarily includes the island of O'ahu and is just one of the five counties of the Hawaiian Islands.

In addition to the climate, natural beauty is obviously a major draw to Hawaii, and the state's overall tax burden is slightly below the national average according to the Tax Foundation.

Honolulu has a very expensive cost of living and not just because of its housing prices. Other major factors include property, sales and income tax rates, energy prices and food prices. ACCRA's cost of living index for the first quarter of 2011 shows that Honolulu has the most expensive food prices in the United States: 155.3% of the average U.S. price. That means that food prices in Honolulu are almost double what they are in Round Rock and are 1.5 times as high as they are in the average U.S. city.

2. San Jose-Santa Clara-Sunnyvale, California
The San Jose-Santa Clara-Sunnyvale area of Northern California was a close second after Honolulu, with a $545,000 median price tag. This area includes San Benito and Santa Clara counties and is more commonly known as the Silicon Valley. Numerous Fortune 500 companies call this area home, including Adobe Systems (San Jose), Apple (Cupertino), Cisco Systems (San Jose), eBay (San Jose), Google (Mountain View), Intel (Santa Clara) and Yahoo! (Sunnyvale). Stanford University is also located here.

With so many successful companies (and therefore, jobs), an atmosphere of innovation and entrepreneurship, proximity to San Francisco and a stunning climate, it's no wonder so many people want to live in this location. The area's residents are also more likely to count themselves among the nation's wealthy. CNNMoney reported that residents of Palo Alto pull in the third-highest incomes in the country, with a median family income of $153,615. (For some real estate to watch, see 5 Sunny Real Estate Markets To Watch In 2011.)

3. Anaheim-Santa Ana-Irvine, California
The third most expensive place to buy a home in the United States is the Anaheim-Santa Ana-Irvine area, where the median home sales price is $511,800. This area encompasses all of Orange County, whose 34 incorporated cities include wealthy communities such as Laguna Beach, Irvine and the community of Coto de Caza popularized by the reality show "The Real Housewives of Orange County." Orange County's government may have gone bankrupt in 1994, but many of the area's residents are affluent, and many of its cities have the Pacific Ocean as their backdrop.

One of the wealthiest cities in this area is Newport Beach, where the median household income is $144,917, according to CNNMoney.

4. San Francisco-Oakland-Fremont, California
In the San Francisco-Oakland-Fremont MSA, you can expect to pay $465,900 for a home. Made up of Alameda, Contra Costa, Marin, San Francisco and San Mateo counties, the area includes San Francisco and surrounding cities and towns such as Berkeley, Oakland, Menlo Park, Sausalito and Half Moon Bay.

The top-ranked University of California at Berkeley belongs to this area, and the wineries and tasting rooms of Napa and Sonoma are not far away. Outdoor enthusiasts have no shortage of hiking and camping options, and foodies enjoy some of the finest and most diverse eating opportunities around. (If you are interested in investing in the fine industry, check out Investing In Fine Wine.)

5. New York-Wayne-White Plains NY-NJ
The NAR report lists the median home sales price in the New York-Wayne-White Plains metropolitan area as $439,300. This MSA's 11 counties include Bronx County, New York County, Queens County and Westchester County. It is also home to two of the U.S. cities with the highest median incomes: Greenburgh, NY ($127,376; Westchester County) and Wayne, NJ ($120,295; Passaic County).

Along with these high incomes and high real estate prices come sky-high living expenses. A June 2011 Kiplinger article by Andrea N. Browne ranks New York City as having the highest cost of living in the country, at 212% of the national average, and states that its average (not median) home price is $1.14 million.

Residents are attracted to the area for its unique neighborhoods, interesting architecture, tasty eats, top-tier universities, numerous job opportunities and endless cultural activities.

Another Perspective
Coldwell Banker issues a report comparable to the NAR's, but the former's rankings are based on the average listing prices of four-bedroom, two-bathroom homes rather than on median sales prices. By Coldwell Banker's methodology, Newport Beach, Calif., was the country's most expensive real estate market in its 2011 Home Listing Report with an average listing price exceeding $2.5 million. The runner up, Pacific Palisades, Calif., doesn't even come close, with an average listing price of $1.6 million.

Of the 50 most expensive cities in this report, 46 are in California or the Northeast. In the NAR report, 36 of the 50 most expensive cities are in California or the Northeast. Both reports list Boulder, Colo., as one of the most expensive places to live outside of these regions. It has a median sales price of $353,400 and an average listing price of $860,671. Honolulu also appears on Coldwell Banker's list, with an average listing price of $797,675.

The Bottom Line
If you needed further proof that location is the primary driver of real estate prices, now you have it. (If you are thinking about investing in real estate, see Real Estate Vs. Stocks: Which One's Right For You?)

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