In this article we are going to take a look at the 25 most expensive cities in America. The headline consumer price index in the US increased by 8.5% in July. That’s among the highest inflation figures that we observed since the early 80s. We observed the effects of the recent jump in inflation rates in the financial markets as well. The stock market declined by about 20% year-to-date, but most importantly the rising inflation rates are forcing the Fed to increase short-term interest rates. This, in turn, has been pushing up the credit card interest rates, car loan interest rates, as well as mortgage rates. There are several investment implications of recent developments in the inflation and interest rates. We are going to focus two of those in this article.
The primary purpose of interest rate hikes is to quash both asset price inflation as well as goods inflation. When the Fed increases its short-term interest rates, we usually see an increase in long-term interest rates. That’s also what we observed this year. Long-term interest rates are used as an anchor to determine the multiples for other assets’ prices. A rise in long-term interest rates usually lower the multiples investors pay for real estate, corporate bonds, and stocks. The 10-year Treasury bond rates increased by about 2 percentage points over the last year. That’s why we have seen such a large correction in the stock market. We believe the decline in the stock market will continue until the long-term interest rates peak.
The second investment implication can be observed in the real estate market. You may find it a bit counterintuitive but a reduction in the headline consumer price inflation doesn’t necessarily mean lower prices or higher quality of living for the consumers. Think about it for a second. The long-term mortgage rates increased from 3% a year ago to nearly 6% today. The immediate effect of this increase is readily observable. According to this story on Yahoo Finance, one in five home sellers reduced their asking price in August and the average home was sold for less than its list price for the first time in 17 months. Is this really good news for home buyers or renters? Not really. The sentiment in the real estate market is shifting because buyers are getting priced out of the market. If you borrowed $400,000 a year ago, you would have paid $12,000 in interest. Today, a home buyer has to pay $24,000 for the same $400,000 home loan. Many potential home buyers can’t afford to buy their starter home and had to keep renting. This, in turn, increases the demand for rentals and pushes up the rents.
most expensive cities in America
It is a lose-lose situation. The rising interest rates will actually lead to higher rents and higher mortgage payments. Housing has around 30% weight in the calculation of the consumer price index. This means a 10% increase in housing expenses will be reflected as a 3 percentage points increase in inflation rate. Overall, the increase in housing expenses will prolong the high inflation period that we are in. As a result, the Fed may be forced to increase interest rates more than necessary or longer than necessary, leading to a bigger slowdown in the economy. This is the second reason why we are short-term bearish on the stock market. You can follow our latest views on the general direction of the stock market on our website.
There is a huge difference between inflation and cost of living. A friend of mine spent a month in Berlin this summer. The headline inflation rate in Germany is identical to the US inflation rate of 8.5%. My friend told me that Germans are outraged because the price of one scoop of ice cream increased from $0.50 to $1 this summer. So, they have to pay $2 to get two scoops of ice cream. My friend was ecstatic because she can’t really buy two scoops of ice cream for less than $8 in New York City. She paid $4.5 for a large German doner sandwich which costs $10.50 in New York City. Germans are experiencing the same level of inflation like we do, but you might argue that they are better off because their cost of living is much lower.
Of course, lower cost of living doesn’t necessarily mean a higher quality of life because income, access to entertainment, education and services as well as other factors determine the quality of life in a given location/country. You can read our article about the 30 Best Places to Live in the US for Quality of Life here.
Large metropolitan cities are undoubtedly the modern-day epicenters of socio-economic growth but what we sometimes fail to realize is that not all that glitters is gold, meaning no matter how attractive living in a city like New York may be, it comes with a hefty price. Evidenced by the fact that the cost of living in Manhattan is 154 % higher than the national average and everything from grocery to transportation is expensive. So, while one might dream of the countless sights and opportunities, a city like New York has to offer, keeping in mind the cost factor is sadly a harsh reality we have to abide by. That being said, there are countless cities in America that may be famous for the multitude of opportunities they offer but in reality, are so expensive that living there might not be everyone’s cup of tea. This, however, might not be the case for every city, as areas with harsher climates or that have a vast difference from the rest of the country are also very expensive because its pricey to get basic necessities till them and often have a low population density coupled with a below-average median household income.
However, a community’s ability to spend affects the economic structure of a city greatly. It is often said that rich people make a city expensive. Put into easier words when there is a greater expenditure power, the amenities that would be less expensive in some other areas will become pricier, Case in point New York and Los Angeles. As the two cities became major metropolitan cities, the overall price of incomes and property also increased, greatly. When people have money to spend, it not only stimulates the economy but also affects the prices of groceries to real estate in an area. That is why we made a list of the most expensive cities in America based on the cost of living index of every city.
To make it to our list, every city was put against specific criteria. It was made sure that all the cities considered had a population of over 50,000. Furthermore, every city was listed according to the cost of living index, which was taken from Expatistan. The cost-of-living index, or general index, shows the difference in living costs between cities. The cost of living in the base city is always expressed as 100. The cost of living in the destination is then indexed against this number. Cost of living indexes include expenses such as food, shelter, transportation, energy, clothing, healthcare, and childcare.
25. Pittsburgh city, Pennsylvania
Cost Of Living Index: 101
This city is the second-most populous city in Pennsylvania. Located in the southwest, the city is a hub for health care, education, and technological industries. With known medical centers like the University of Pittsburgh Medical Center, the city has 68 colleges and universities. It also is home to known technology firms like Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) which contribute to its annual $20.7 billion annual payrolls. It was also crowned as the second most livable city in the United States in 2018 by The Economists Global Livability Ranking. While the housing prices may be accessible, Pittsburgh’s utility prices are 10% higher than the national average. Transportation expenses like bus fares and gas prices are also 7% higher than the national average, making it a considerably expensive place to live in.
24. Bakersfield, California
Cost Of Living Index:102.6
The largest city of Kern county, Bakersfield is a known stopover between Los Angeles and San Francisco. An agricultural and energy production hub, Kern County is the fourth most productive agricultural county in the United States. With a median household income of $63, 139, Bakersfield is famous for its strong sense of community. Albeit a pricier option, it is considered a great place to settle and raise a family. On top of its historic industries, Bakersfield also has a growing manufacturing and distributing section. Not only this, the residents of this city usually spend more than average Americans on utilities, food, and transportation. Hence, making Bakersfield one of the expensive cities in America.
23. Orlando, Florida
Cost Of Living Index: 103.3
Nicknamed as ‘the city beautiful’, Orlando is among the most visited cities in the world mainly because of its flourishing tourism industry. Home to the two most widely known resorts; the Walt Disney and Universal Orlando Resort, the Orlando International Airport is the13th busiest airport in the United States. Not only this, with an average annual salary of 46,140, the cost of housing in Orlando is higher than the national median sale price. This city is also a major industrial and high-tech center with a 13.4 billion tech industry employing over 53,000 people. It is also home to the parent companies of Olive Garden and Longhorn steakhouse, the largest restaurant chain by revenue in the world. Orlando, with a cost of living index of 103.3 is among the most expensive cities in the US
22. New Haven, Connecticut
Cost Of Living Index: 105.5
Part of the New York metropolitan area, New Haven is a coastal city in the state of Connecticut. With a population of 857,513, New Haven has its own charm. Housing one of the biggest Ivy League universities; Yale, this city has managed to attract artists, students, politicians, and celebrities since the early 1700s. Coupled with the centuries-old architecture, scenic venues, and unique cuisine, New Haven is one of the expensive cities to live in. With a cost of living index of 105.5, New Haven is a pricey place to live, not only in terms of the rent prices but the cost of a home as well, which roughly translates to about 332,600. Hence, looking at these statistics before moving to New Haven is strictly advised.
21. Modesto, California
Cost Of Living Index:113.7
Crowned as the ‘tree city’, this city is home to the largest family-owned winery, The Gallo Family Winery, in the United States. Surrounded by rich farmland, the city has accounted for nearly $3.1 billion of agricultural production in the past. Known for its quiet residential neighborhood along with a culturally rich city, Modesto has a lot to offer. With its thriving agricultural industry and beautiful landscapes, the city has a cost of living index amounting to 113.7. Though it has a lower living cost, as compared to other areas in California, it is still higher than the national average. Coupled with a high cost for utilities and transportation, Modesta is among the most expensive cities to live in America.
20. Portland, Oregan
Cost Of Living Index: 132.4
Called the ‘city of roses’ because of its favorable climate, Portland is known to be a bastion of counterculture. Operating on a commission-based government, the city saw a boost after the 1960s. It is the third-largest export port on the west coast and is a business hub for companies majoring in athletic and outdoor gear. With a median household income of $71,005, the cost of living in this city is 29 percent higher than the national average.
19. Baltimore, Maryland
Cost Of Living:156
Home to the world-famous John Hopkins University and Hospital, Baltimore is 53% more expensive than the national average with a cost of living index of 156. The city might be more expensive for some people partly because of the amount of tax that the residents have to pay as Baltimore has the highest tax rates in the country.
18. San Diego, California
Cost of Living Index: 160.1
Referred to as the ‘birthplace of California’, San Diego has a long living association with the US navy and marine corps. Not only this, but it has also recently emerged as an epicenter for health care and biotechnology. Furthermore, the median household income of $120,446, allows the residents of this city to spend on a multitude of pricey activities. Having a strong industrial base, and a flourishing transportation and healthcare industry. While San Diego offers many job opportunities and a thriving social life, it is still 60% more expensive than the national average making it hard for single-income families to survive.
17. Dallas, Texas
Cost Of Living: 161
62% more expensive than the national average, Dallas is among the fastest-growing cities in America. Known for its hospitality, southern charm, strong community life, and growing employment opportunities, Dallas has a cost of living index amounting to 161.
16. Philadelphia, Pennsylvania
Cost Of Living Index:162
The second most populous city in the northeast, just behind New York, Philadelphia is the economic and cultural center of the greater Delaware Valley. With a rich, the Philadelphia metropolitan area is said to have a $490 billion GMP. It is also home to 5 Fortune five hundred companies and has an ever-increasing skyline. Known for its parks, cuisine, culture, and colonial history, the city has emerged as a biotechnology hub. Having a high quality of life index of 141.48, the city’s living cost is 60% more expensive than the national average.
15. Sacramento, California
Cost Of Living Index: 175
The capital state of the state of California, Sacramento, is just a few hours away from San Francisco and Lake Tahoe. The ninth-largest capital in the United States, Sacramento is a major political hub with a number of lobbying and think tanks. Not only this, with more than 200 public parks, Sacramento has a cost of living index of 175 and has a median home sale price that is significantly higher than the national median. Famous for its farmer markets, concerts, and local gathering, Sacramento is considered an ideal place to live in, far from the hustle-bustle of major metropolitan cities like Los Angeles and San Francisco.
14. Miami, Florida
Cost Of Living Index: 185
A coastal city, in the state of Florida, Miami is considered a hub for finance, commerce, culture, arts, and international trade. Classified as a Beta + level global city by the GaWC in 2020, Miami is nicknamed the ‘capital of Latin America’. Home to countless international banks and companies, Miami is also considered a major center for biotechnology and the healthcare industry. Apart from this, the city also has a strong media industry and is a favorite tourist spot. It is also home to the largest ports in the US and has a cost of living index amounting to 185.
13. Chicago, Illinois
Cost Of Living Index:194
The third most populous city in the United States, Chicago is known for its high tax burden. Not only this, the city has a cost of living index of 194 and is 78% more expensive than the national average.
12. Honolulu, Hawaii
Cost Of Living Index: 196
Hawaii’s main gateway to the rest of the world, Honolulu is a major hub for international business, hospitality, and defense. Known to the world because of the Pearl Harbour attack, Honolulu to date has hosted the largest naval command. Not only this, but it is also a favorite vacation spot for people around the world and while the cost of living is high due to the relative isolation from the rest of the country, Honolulu enjoys high rankings in healthcare safety and education. With the cost of living index of 196, the median sale price for a home exceeds $500,00. It is also considered the most expensive place to rent in the country.
11. Seattle, Washington
Cost Of Living Index: 197
With a cost of living index amounting to 197, Seattle is famous for its coffee, fairy boats, and rainy weather. Home to the technology hub of the northwest, the city has a cost of living index amounting to 197, making it 115% more expensive than the average. Even a cup of coffee is more expensive when compared to the other city, and coupled with the ever-increasing housing and rent rates, one can undoubtedly deem Seattle as one of the most expensive cities in America.
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Disclosure: None. This article is originally published at Insider Monkey.