America's most overpriced cities

Vexed by gang wars and rising real estate prices, late rapper Tupac Shakur mused in 1996 that the overall cost of living in Los Angeles was so high he would almost rather "live life in the pen[itentiary]."

Though East Coast-West Coast gang violence has since subsided, life in the City of Angels remains far from affordable. Thanks to bloated housing prices, lofty living costs and unemployment rates among the highest in the nation, the Los Angeles metro area tops our list of America's Most Overpriced Cities.

At least residents of Los Angeles and the third-ranked Miami metro get to enjoy balmy evenings and sunny days at the beach. Residents of the second-most overpriced metro area, Chicago, get sweltering summers and near-Siberian winters on top of a 9.4% metro area unemployment rate and a cost of living trailing only Los Angeles and New York.

The Big Apple ranks fourth on our list; it's weighed down by high costs and an 8.8% unemployment rate. Those factors overwhelmed the considerable earning power of New Yorkers with bachelor's degrees--$69,200 per year, on average, according to PayScale.com--a figure rivaled only by those in Washington, D.C., and Bay Area locales, including San Francisco. Still, it's not enough to bridge the price gap.

"For the average professional, New York's premium is not as high as you'd expect, given the cost of living," says Al Lee, director of Quantitative Analysis at PayScale. "The premium for a software developer in New York is actually less than it is in Seattle, and about the same as it is in Atlanta."

Even those in less-sprawling cities have it tough. Along with fifth-ranked Providence, R.I., Cleveland (No. 8) is one of the smallest metro areas among the 10 most overpriced cities. Though both boast low home prices and living expenses, they're dragged down by high unemployment and relatively stingy salaries of $56,000, on average.

Behind the Numbers

To compile our list, we looked at earnings potential and living expenses in the 50 largest continental U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget for use by federal agencies in collecting, tabulating and publishing federal statistics.

We ranked these metros using four measures: average salary for workers with a bachelor's degree or higher, with data from PayScale.com; annual unemployment statistics from the Bureau of Labor Statistics; cost of living, according to Moody's Economy.com; and the Housing Opportunity Index from the National Association of Homebuilders and Wells Fargo, which measures the number of homes sold in a given area that would be affordable to a family earning the local median income, based on standard mortgage underwriting criteria.

Far from Heaven

Los Angeles' troubles can be tied to many of the systemic problems currently plaguing the nation. With a whopping unemployment rate of 10.3%, the City of Angels and nearby Riverside, Calif., are among five of the country's 50 largest metro areas with double-digit unemployment.

Both have suffered as a result of the housing bust. Though neither ranks among America's emptiest cities, L.A. and Riverside have seen new residential building permit rates plummet 82% and 80%, respectively, over the last two years. The national unemployment rate for construction workers is now 21.1%, up from 12% a year ago, according to the Bureau of Labor Statistics.

"The unemployment [in Southern California] is definitely driven by the housing bust," says Lee. "Prices are collapsing, but if you're looking at buying a house, it's still expensive."

Indeed, though the median home price in the Los Angeles metro area has dipped from $525,000 to $319,000 over the last two years, Angelinos still face one of the least affordable housing markets in the country. According to the NAHB/Wells Fargo's Housing Opportunity Index, only New York, Long Island, N.Y., and San Francisco are more expensive.

Of course, living well in Los Angeles isn't impossible, as long as you have the funds. The aforementioned Shakur probably wouldn't have any trouble making ends meet in L.A., or anywhere else, for that matter. The rapper makes about $15 million per year in residuals--despite the fact he's been dead for 12 years.

Zack O'Malley Greenburg, Forbes.com