Table of Content
- Price-to-Income Ratios are Nearing Historic Highs
- Get the latest real estate news and tips with our free weekly newsletter.
- Minimum Annual Income Needed to Afford a Typical Home in 88 of the Most Populous U.S. metros
- Historical US Home Prices: Monthly Median from 1953-2022
- If you have been waiting for the right time to sell your home, it's NOW! ... the real question is, are you ready?
- Home Price to Income Ratio (US & UK)
For this reason, 91% of Americans indicate that they would like to own a home in their lifetime. Across the nation, the pandemic accelerated a major divide between home values and income. Though conventional wisdom suggests most home buyers offer 1% to 3% over asking price in competitive markets, low inventory and high demand drove some home buyers to desperate measures. Today, it’s not uncommon to hear of people offering far more than the seller’s asking price — with some even offering $1 million more than the listing price. The recent 5.5% year-over-year gain for home prices has put the FHFA House Price Index about 3% above its April 2007 level.
The average house-price-to-income ratio is 5.4, more than double the maximum of 2.6 experts recommend. If you’re interested in making directional bets on interest rates, you could consider the iShares 20+ Year Treasury Bond ETF . Investors interested in trading the real estate sector as a whole could look at the iShares Mortgage Real Estate Capped ETF .
Price-to-Income Ratios are Nearing Historic Highs
Home prices in the West are increasingly out of line with household income, while only 16 out of the 100 most populated areas in the U.S. are below the healthy 2.6 price-to-income ratio. Median gross rent increased by 72% since the 1960s, more than twice the growth seen by adjusted incomes, making renting costlier than ever and saving for a future home difficult. The homeownership rate is also among the highest in the nation, at 74.8%. However, Mississippi also has the nation's highest poverty rate, with a fifth of its inhabitants living below the poverty line. To calculate house-price-to-income ratios for the 50 most populous U.S. metro areas, we used Zillow’s Home Value Index to estimate home values and estimated family income sourced from the Department of Housing and Urban Development. In the 10 most expensive cities, the average house-price-to-income ratio leapt to 6.9 in 2021 — a 61% increase since 2000.
To investigate whether the observed discrepancy increase between growth rates holds true for some metropolitan areas, we looked at Charlotte, NC, Columbia, SC, and Oklahoma City, OK. From 1960 to 2000, price-to-income ratios were around 2.6, making homeownership attainable during these years. Home prices jumped during the 2000s and kept steam through the housing crisis. Overall, the inland metros represent more affordable conditions and even for the major coastal metros like New York City, there might be hope. In 2000, the average home value was $271,707 in the 50 most populated cities. By the 2008 housing crisis, average home values had jumped to $304,589 — a 24% increase.
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Perhaps in part due to these high costs, California also has the nation's highest level of homelessness. The typical home in the state costs $760,800 and is 1,625 square feet. The typical sale price of an existing single-family home in 2017 was 4.2 times greater than the median household income, according to our latest State of the Nation’s Housing report. That’s a significant increase from 2011, when the price-to-income ratio was 3.3, and 1988, when it was 3.2. The consequences of these things together result in the decoupling of median household sale prices from median household income, as the increased demand for new homes is paired with falling incomes. Since the 1960s, however, the difference between home prices and income has nearly doubled.
House prices varied widely across different provinces in the Netherlands, with Utrecht, North Holland, and South Holland being the most expensive provinces for a home purchase. In Utrecht, the average house price was double the price of a comparable property in the most affordable province, Drenthe. Homebuyers across the country need to earn substantially more money than they did a year ago to buy a home, due to high mortgage rates and persistently high home prices.
Minimum Annual Income Needed to Afford a Typical Home in 88 of the Most Populous U.S. metros
The Harvard Joint Center for Housing Studies advances understanding of housing issues and informs policy. Through its research, education, and public outreach programs, the Center helps leaders in government, business, and the civic sectors make decisions that effectively address the needs of cities and communities. Through graduate and executive courses, as well as fellowships and internship opportunities, the Center also trains and inspires the next generation of housing leaders. This chart gives a different view of the data from the chart above, comparing the percentage change between Case-Shiller Home Price Index and Median Household Income in the United States over time. It remains to be seen whether that will translate to outsized price declines. It’s followed by Miami, where homebuyers need to earn $128,892, up 63.7% year over year.
For this particular study, we’re using the median sales price compared to the median family income. The rise in home prices relative to incomes has fueled growing concerns about housing affordability, especially for low- and moderate-income households in markets where the ratios are high and rising. Moreover, the long, secular decline in interest rates that has kept monthly mortgage costs relatively affordable appears to be ending. Consequently, future price increases could lead more directly to increases in mortgage payments. In the West and Northeast, especially in the coastal metros, household income could not keep up with the growth of the housing market over the years. In the South, homeownership is still affordable; however, if the growth rate gap between home prices and household income continues to widen, home buyers might struggle.
The West: Where the American Dream goes to die
Compared to the Western and Northeastern regions, the South does not show as much of a discrepancy between home prices and household income. This is a gauge of how long it will take home buyers to save for a down payment, and whether they’ll be able to afford their monthly mortgage payments. Overall, high home prices put homeowners at risk of going underwater on their mortgages in the next housing crash. Additionally, pricey home values are locking many prospective home buyers out of finding affordable property.
After the pandemic caused housing prices to spike, homes now cost 5.4 times more, on average, than a typical buyer's gross income. To afford a home in 2021, Americans need an average income of $144,192 — far more than the median household income of $69,178, Clever Real Estate found. Median new home prices in the U.S. have decoupled from median household income. Since May 2020, new home prices have risen sharply, while median household income has largely stagnated. Median household income increased by 50% since 1960, which is higher than the national average. The gap between household income and home prices was pronounced in the Northeast, but following the 2008 crash, the gap has narrowed as household incomes rise and home prices have dropped throughout the region.
The report also notes that price-to-income ratios vary considerably across the country. As our interactive map shows, the median sale price in 2017 was more than eight times greater than incomes in 12 metropolitan areas, all of them in the West . Price-to-income ratios topped 10.0 in both the Santa Cruz and San Jose metro areas and neared 10 in Los Angeles. On the other hand, ratios were well below 3.0 in much of the Midwest and Northeast, including Youngstown, Syracuse, Toledo, and Pittsburgh.
For metropolitan level, median household income values from 1960 to 2000 are from the Decennial Census. In the 1960s, owning a house was affordable in the Northeast, with a price-to-income of 2.1. However, home values started to outscale household income in the 1980s, with a price-to-income ratio of 3.7 by 1990. The price-to-income ratio reached its peak around the 2008 financial crisis with 4.6 and dropped to 4.0 in 2017. Home prices in the South were consistent with household income increases until the 2000s when the market became unstable. Average annual real wages steadily rose until 2014 but have since remained stagnant.
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