Why You Should Buy the Cheapest Home on the Best Block

I bet you think buying an affordable city home requires a sacrifice: the neighborhood will have a low Walk Score and the highly rated schools will be out of reach.

 

Not necessarily. Some affordable homes are in city neighborhoods near highly rated schools and within walking distance to everyday amenities. But there’s a catch. To find them, you’ll need to search in neighborhoods that have plenty of expensive homes in them, too.

 

Here’s why: neighborhoods with a mix of home prices are three times more likely to be walkable and have highly rated schools than are purely affordable neighborhoods.

 

Even when compared with purely high-end neighborhoods, home to the highest-rated schools, neighborhoods with a mix of home prices are the most likely to have it all: a high Walk Score and schools with above-average ratings.

 

Median Walk Score, GreatSchools Ranking for Different Types of Neighborhoods

Neighborhood Home Price Mix	Median Walk Score	Median GreatSchools Rating
Affordable	54	4.1
Balanced-Mix	70	5.1
High-End	57	6.9

 

The problem is that areas with a balanced mix of home prices cover just 13 percent of major U.S. cities. We looked at the 20 most populous cities Redfin serves and identified these neighborhoods in the fall because communities with a wide range of incomes, and by association, home prices, give families a better shot at getting ahead.

But are these actually the kinds of places where most people would want to live? After affordability, homebuyers’ top two demands are good schools and walkability. So we ranked the 170 balanced-mix and affordable neighborhoods by their Walk Scores and GreatSchools school ratings and found that only 24, or 14 percent, actually meet those common demands. Here they are:

 

Top 24 Affordable and Balanced Mix Neighborhoods Ranked by Walk Score and GreatSchools Score

Rank	Neighborhood	Home Price Mix	Walk Score	GreatSchools Rating
1	University District, Seattle	Balanced	91	7.8
2	West End, Washington, DC	Balanced	95	6.5
3	Adams Morgan / Kalorama Heights / Lanier Heights, Washington, DC	Balanced	94	6.5
4	Queen Anne, Seattle	Balanced	80	7.4
5	Ravenna, Seattle	Balanced	74	7.7
6	Rosedale, Austin	Balanced	69	8.1
7	International District, Seattle	Affordable	97	5.2
8	Columbia Heights, Washington, DC	Balanced	93	5.5
9	Fulton River District, Chicago	Balanced	92	5.2
10	Hillcrest, San Diego	Balanced	80	6.3
11	Banker’s Hill San Diego	Balanced	84	5.8
12	Zilker, Austin	Balanced	64	7.6
13	Westmoreland / Montrose, Houston	Balanced	83	5.6
14	Platt Park, Denver	Balanced	75	6.3
15	Eastlake, Seattle	Balanced	69	6.8
16	Windsor Square, Phoenix	Balanced	74	6.2
17	Victory Heights, Seattle	Affordable	64	7.0
18	Rolando / SDSU, San Diego	Affordable	74	5.9
19	Columbia City, Seattle	Affordable	80	5.2
20	Bouldin Creek, Austin	Balanced	75	5.4
21	West Highland, Denver	Balanced	74	5.1
22	Highland, Austin	Affordable	63	6.1
23	El Cerrito, San Diego	Affordable	65	5.8
24	Schorsch Village, Chicago	Affordable	68	5.2

 

Only eight of the original 20 cities from our last report have a neighborhood on the list. Not a single neighborhood in Boston made the cut, even though Boston topped the list in our last report for having the most area covered by a balanced mix of home prices. These neighborhoods are walkable, but the schools have below-average ratings.

So, what’s going on here? There just aren’t enough of these kinds of neighborhoods for everyone who’s looking for an affordable home. It’s one reason we’re asking policymakers to loosen restrictions on building in Seattle and other cities so that more integrated housing can be developed and more people can live in these types of neighborhoods.

Take Los Angeles, for example.

“Homebuyers have to pay a significant premium to live in a neighborhood with highly rated schools and amenities,” said Redfin agent Nikki Kilmer. “Although there are technically some neighborhoods in L.A. that could be considered affordable, there’s not much demand to live in those areas.”

If you are looking for an affordable home, your instinct might be to search in affordable neighborhoods. But if you also want highly rated schools and a high Walk Score, look for the least-expensive home in one of the mixed-priced neighborhoods on this list. This is a lot like grandpa’s strategy to make a safe real estate investment, “buy the cheapest home on the best block.”

Check out the table below to see how the affordable and mixed-price neighborhoods in your city stack up in terms of walkability and school scores. Click here to download a spreadsheet complete with the Walk Score, average GreatSchools rating and median sale price for each neighborhood analyzed in this report series.

Method and Data

We used home sale price data from Redfin from July 2013 through June 2015. City-specific median family income came from the 2014 one-year American Community Survey.

To define affordability in each city, we kept it simple: A home was considered affordable if 28 percent of the local median family income could cover the monthly mortgage and principal payment, assuming the buyer put 20 percent down and took out a 30-year loan with a four percent interest rate. Homes with sale prices 20 percent above that threshold were considered expensive.

To get the price mix of different areas, we summarized the price of recently sold homes in a 500-meter grid. Affordable areas had at least three affordable homes for every expensive home. Areas with a balanced mix of home prices had a ratio of affordable to expensive homes between 0.33 and 3.0. High-end areas had at least three expensive homes for every affordable home.

We considered a neighborhood “walkable” if it had a Walk Score of 60 or higher. Read more about the Walk Score methodology here. An above average GreatSchools score meant 5 or above. Read more about the GreatSchools methodology here.

Original article.