This Texas city has the lowest cost of living in the U.S.: There is ‘investment in the area keeps home prices low,’ expert says

This month, Realtor.com released its ranking of the top 10 cities with the lowest cost of living based on the latest regional price parities data from the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA).

The regional price parities measure the differences in price levels of goods and services across states and metropolitan areas and are shown as a percentage of the overall national price level, the BEA states.

Hannah Jones, senior economic research analyst at Realtor.com, tells CNBC Make It that it’s no coincidence that most of the cities on the list are in the South and the Midwest.

“A big piece of that is housing. Home prices tend to be lower in the South and the Midwest,” Jones says.

“Markets in the South and the Midwest can expand as demand picks up, which helps keep housing costs low. The price of housing is relatively affordable because of their ability to adapt to demand.”

McAllen, Texas is the U.S. city with the lowest cost of living

McAllen, Texas ranked as the city with the lowest cost of living. It had a 86.92% RPP and the cost of living is 13% lower than the average. For $100 of necessities, residents pay $86.82 and the median home price is $275,000.

The driving force behind McAllen’s No. 1 ranking is the low housing costs in the city, according to Realtor.com. In McAllen, the home price-to-income ratio in McAllen is 4.8, meaning home prices are 4.8 times the median household income.

“McAllen has a lot of space to spread and it has been. There’s been a good amount of investment in the area and that keeps home prices relatively low,” Jones says.

The supply of homes was up 41% year over year in September, she added.

“That says to me that there is ample supply given the demand in McAllen, which keeps the cost of living relatively affordable, especially when it comes to housing.”

McAllen, Texas

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McAllen is located on the border between Mexico and the United States and serves as a major hub for tourism and international trade. The area is a haven for people crossing the border and is known for its bicultural community.

The Texas city is famous for its many shopping districts. Many Mexicans cross the border to McAllen just to shop before heading back south, according to the city’s website.

The top 10 U.S. cities with the lowest cost of living

  1. McAllen, Texas
  2. Wichita, Kan.
  3. Little Rock, Ark.
  4. Toledo, Ohio
  5. Scranton, Pa.
  6. Dayton, Ohio
  7. Tulsa, Okla.
  8. Akron, Ohio
  9. Birmingham, Ala.
  10. El Paso, Texas

Wichita, Kansas, is the No. 2 city with the lowest cost of living. It had a RPP of 89.16% and the median home price is $292,700.

Jones says the cost of living necessities is also 11% less than the national standard.

“That means that buyers or just residents of the area see both low home prices and low necessity prices,” she added.

Wichita, Kansas

John Coletti | Photolibrary | Getty Images

Once known as “The Air Capital of the World,” Wichita is the largest city in the state. The Kansas city is the birthplace of White Castle, Pizza Hut, and Koch Industries, the private conglomerate of Charles and David Koch.

Spirit AeroSystems, one of the world’s largest aerostructure manufacturers, is also based in Wichita.

The city also has three universities, including Wichita State University.

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