For the second year in a row, Carmel, Indiana has been rated the best small city in America.

That's according to WalletHub, which this month released its annual report on the country's best small cities. The report graded the nation's more than 1,300 cities with populations between 25,000 and 100,000 on five categories:

1. Affordability
2. Economic Health
3. Education and health
4. Quality of life
5. Safety

Each city was scored from one to 100, based on data from several sources, including the U.S. Census Bureau, Federal Bureau of Investigation and the Bureau of Labor Statistics.

The Indianapolis suburb held onto the No. 1 spot thanks in part to its median annual household income of nearly $133,000 and median credit score of 775. Its 3% unemployment rate is one of the lowest in the country. Residents of Carmel spend only about 14% of their income on rent, the 33rd-lowest in the country.

"As a suburb of Indianapolis, Carmel offers an affordable place to live near the city," WalletHub analyst Chip Lupo tells CNBC Make It. "You get all the amenities of the big city without facing the big city living."

WalletHub's report found that 31% of Americans prefer to live in the suburbs, while 16% preferred urban areas and 24% like rural communities.

The majority of the top 10 small cities are located in the Midwest, with most of them being suburbs of larger metropolitan areas.

"[The data] shows that people are just looking for a balance. Not everyone craves bright lights and crowded space in big cities but some people want that outlet nearby too," Lupo says.

With the exception of Lexington, Massachusetts, most of the small cities ranked are more affordable than their neighboring big cities.

These are the10 best small cities to live in America

1. Carmel, Ind. (70.99/100)
2. Brookfield, Wis. (70.4/100)
3. Lexington, Mass. (70.23/100)
4. Fishers, Ind. (70.21/100)
5. Appleton, Wis. (70.5/100)
6. Apex, N.C. (69.72/100)
7. Brentwood, Tenn. (69.54/100)
8. Lancaster, Pa. (69.5/100)
9. Bozeman, Mon. (69.18/100)
10. Westfield, Ind. (69.14/100)

Brookfield, Wisconsin, was ranked the second-best small city to live in America. According to the report, only 3% of the city's population lives in poverty — the 10th-lowest percentage among all the places ranked.

In addition to providing a stable economy for residents, over 98% of the Milwaukee suburb's population has health insurance, the 11th-highest percentage in the nation, and the city has a 96% homeownership rate.

"Its high ownership rate is key because if you're moving to a community, you want to have a sense of stability," Lupo says, "which you don't always get if you're in an area where houses are being flipped and rented constantly."

The average Brookfield home value is $475,810, up 5.1% over the past year, according to Zillow. The median rent for all bedroom counts and property types in Brookfield is $1,734 as of October 2024, according to Zumper.

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