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Red beach house in Hawaii.

5 Places That Are Very Difficult To Afford But Surprisingly Easy To Love

Kevin Graham7-Minute Read
September 17, 2020

Most people are taught from a young age that they should only buy or lease something they can afford. This is especially true when it comes to housing. However, there’s some evidence that the best places to live come at a premium.

In this article, we’ll look at five places where home affordability is on the expensive side. What you’ll see is that these states have qualities that make them among some of the more desirable areas to live.

Before we get there, there are many ways to judge home affordability, but one of the easiest to work out in your head (or on the back of a napkin) is something called the Rule of Three.

What Is ‘The Rule of 3’ In Housing And Property Values?

The Rule of 3 is simply this: You can get a good general estimate of your property affordability by multiplying your gross household income by three. So, for example, if your household income is $150,000, the Rule of 3 states that an affordable property for you would cap at about $450,000 value.

And for most Americans, it appears to be true. Based on averages from the Infutor nationwide dataset, approximately 77.39% of Americans live in a property that’s three times their gross household incomes or less.

Home Affordability Rule Breakers

You've heard that there are always exceptions to the rule or that rules are meant to be broken. Whichever cliché you use, it’s a fact of life that not everywhere is the same. After all, real estate is about “location, location, location.”

In fact, there are some areas of the U.S. where property values have soared well out of range of the Rule of 3. Property values have soared so high that five U.S. areas now have a large percentage of population living in property that’s valued higher than three times their gross income. They are:

Percent of Population Above Rule of 3
  • Hawaii: 73.32% of the population lives in property with an estimated value higher than three times their estimated annual income
  • Washington, D.C.: 59.95% of the population lives in property with an estimated value higher than three times their estimated annual income
  • Oregon: 57.9% of the population lives in property with an estimated value higher than three times their estimated annual income
  • Washington State: 49.95% of the population lives in property with an estimated value higher than three times their estimated annual income
  • Colorado: 48.92% of the population lives in property with an estimated value higher than three times their estimated annual income
  • U.S. Overall: 22.61% of the population lives in property with an estimated value higher than three times their estimated annual income

With a large percentage of the population living in such expensive property in the context of their household income, an assumption could be made that these are difficult places to live. Certainly, if such a large percentage of a population lives in property above the Rule of Three, quality of life must suffer. Not so fast. Based on information gleaned from several public data sources, these five locations have some of the strongest indicators of a very high quality of life.

Hawaii

Hawaii Average Income, Property Value, Rule of 3

We briefly considered just writing the name “Hawaii” here and moving on to the nation’s capital. Many of the reasons to live in Hawaii are self-evident. To begin with, you have year-round sun, sand and surf. However, Hawaii’s natural beauty isn’t the only thing it has going for it. In addition, it’s probably best to mention at least one special factor that makes prices higher in Hawaii than they are in other areas of the country. Let’s start there.

Because Hawaii is a uniquely situated Pacific archipelago thousands of miles from the U.S. mainland, all materials have to be flown in or brought by ship, which means it costs more to build homes on the islands. In fact, the median property value is more than six times the median income in the state.

But the story of Hawaii’s residents isn’t all bleak. To find out why, we turned to quality-of-life rankings from U.S. News & World Report. The beaches do help, but there’s much more to the story. Out of the 50 U.S. states, Hawaii ranks 16th in terms of natural environment (no surprise there) and 12th in infrastructure. Most impressively, Hawaii ranks fifth in terms of (low) crime and first in healthcare.

In addition, in U.S. News’s Best U.S. Cities rankings (based on the largest 125 U.S. metropolitan areas), Honolulu checks in at number 60 (as well as scoring a perfect 10 out of 10 on the U.S. News & World Report Real Estate Desirability Index), in large part because of the weather. The high temperature never dips below 80 during any month of the year.

Hawaii Positive Scores

  • #1 for Health Care (U.S. News & World Report)
  • #5 for Public Safety (U.S. News & World Report)
  • #12 for Infrastructure (U.S. News & World Report)
  • #16 for Natural Environment (U.S. News & World Report)
  • #24 for Quality of Life (U.S. News & World Report)

Washington, D.C.

Washington DC Average Income, Property Value, Rule of 3

Being the nation’s capital, Washington, D.C. enjoys a constant demand for housing as people move in and out, whether as elected officials or people shuffling between civil service and the private sector. This demand clearly influences property values in the District of Columbia – such a demand that the median average property value is a staggering five times more than the median average income of those who live and work in the city. And values in D.C. seem to go nowhere but up. In the last 10 years, property values in our capital have grown at nearly twice the U.S. average.

But those surging values come with a lot of perks and amenities for residents. For starters, Washington, D.C. is U.S. News & World Report’s 19th best city to live in, and that’s just the beginning. It may be a given that D.C. ranks as America’s best city to work for the federal government, but it’s also the number two city for parks and recreation in the U.S.

Continuing, the New York Times ranked the nation’s capital as the top place to travel in 2020. It also made the top five on a reader-ranked list from Condé Nast Traveler. In addition to touring all the monuments and buildings, it also makes a list of best cities for museums. Smithsonian, anyone?

Washington, D.C. Rankings

  • #2 City in the U.S. for Parks (US New & World Report)
  • #5 Reader’s Choice Best City in the U.S. (Conde Nast Traveler)
  • #1 Top Place to Visit (New York Times 52 Places to Go in 2020)
  • #1 City in America to Work for the Federal Government (Military.com)
  • #2 Place in the World for Best Museums (Frommers.com)

Oregon

Oregon Average Income, Property Value, Rule of 3

In Oregon, the median estimated property value is roughly four times the median estimated average income, and 57.9% of residents live in properties that violate the Rule of 3. With almost 60% of Oregon residents residing in homes that are more expensive than three times their gross income, Oregon might be a place people seek to leave more often than to arrive. Not so.

Oregon has its pluses, the top one being its impeccably maintained roads and bridges. Oregon came in as No. 1 in the country for infrastructure in U.S. News & World Report rankings. Oregon also offers many opportunities for business and ranks No. 5 in the U.S. for economy. Last, Oregon ranks in the top side of the country’s healthcare by state, coming in at number 17. As we’ll see throughout this list, healthcare, infrastructure and local economic conditions have an outsized role when it comes to determining quality of life and satisfaction among residents.

Oregon Positive Scores

  • #1 for Infrastructure (US News & World Report)
  • #5 for Economy (US News & World Report)
  • #17 for Health Care (US News & World Report)
  • #27 for Quality of Life (US News & World Report)

Washington State

Washington Average Income, Property Value, Rule of 3

The other Washington. Far from the nation’s capital on the West Coast, residents of the Apple State are split 50/50, with half living in housing withing the Rule of 3 and half living in property above it. As a result, the median ratio is three times household income in terms of home value.

The cost of property in Washington shouldn’t be a surprise, as the state hits it home when it comes to offering its residents a great place to live. The numbers speak for themselves:

Washington State Positive Scores

  • #1 for Quality of Life (US News & World Report)
  • #4 for Health Care (US News & World Report)
  • #4 for Education (US News & World Report)
  • #3 for Economy (US News & World Report)
  • #2 for Infrastructure (US News & World Report)
  • #15 for Public Safety (US News & World Report)
  • #14 for Environment (US News & World Report)

Colorado

Colorado Average Income, Property Value, Rule of 3

Colorado is known for its natural beauty. It’s also known for high property values. As a result, 48.92% of Coloradans live in homes that are more expensive than the norm of the Rule of 3.

With some of the nation’s best skiing and beautiful metropolitan areas such as Colorado Springs and Denver, Colorado is a great place to live.

Colorado Positive Scores

  • #1 for Economy (US News & World Report)
  • #8 for Infrastructure (US News & World Report)
  • #11 for Education (US News & World Report)
  • #12 for Health Care (US News & World Report)

Conclusion

The Rule of 3 has been a general guideline for helping Americans determine affordable housing for decades. Most Americans live in property that has an average value of three times or less their average household incomes, but not all Americans do. In fact, in some areas, the majority (or a large percentage) of people live in housing that greatly exceeds three times their annual income. One might assume that the people in these areas would face a decreased quality of life – but the opposite appears to be true.

The five areas in the U.S. with the highest percentage of population living in property that is greater than three times their estimated annual incomes all appear to have greater than average quality of life indicators. It appears that another rule applies to these five areas. It’s a rule most of us are very familiar with: “You get what you pay for.”

Methodology

We examined the ratio between estimated property values and estimated income from the Infutor dataset for every U.S. state and the District of Columbia. We split the dataset into two sections:

     1. Where the ratio of someone’s income to mortgage is greater than three

     2. Where the ratio of someone’s income to mortgage is less than three

Once we identified the top five U.S. states/areas with the highest percentage of residents above the Rule of 3, we then used public databases and surveys from various sources (U.S. News & World Report, Frommer’s, Conde Nast Traveler, military.com, New York Times) to compare the areas with the highest percentage of residents living in properties greater than three times their income with quality of life indicators and rankings. This study does not compare quality of life attributes of states with a high percentage of residents above the three times income to property ratio and states with low a low percentage of residents below the three times income ratio. It only contains information on the five areas listed in the article.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Companies, he freelanced for various newspapers in the Metro Detroit area.