The Steep Affordability Decline Since the 1960s
July 15, 2019
Purchasing real estate has become an increasingly costly endeavor over the last half-century. Median home prices have surged 121% nationwide since 1960, but median household income has only increased 29%, according to a new study by Clever Real Estate. Renters have faced escalating prices, too. Median gross rent has risen 72% since 1960, more than double the growth in adjusted incomes.
“Rising rents and increasing home prices make it harder than ever to save for a down payment and afford monthly mortgage payments,” researchers note in the study. They gathered Census data from 1960 to 2017 to evaluate the change in home prices, rents, and household income.
Overall, median home prices have risen four times the rate of household incomes since 1960, which has triggered an imbalance between price-to-income ratios in most major metros, according to the study. Financial experts consider a healthy price-to-income ratio to be about 2.6. (The price-to-income ratio is the median home price divided by families' median disposable income in an area.) However, only 16 out of the 100 largest metros were below a 2.6 price-to-income ratio in 2019. Nationwide, the price-to-income ratio was 3.6 in 2017, which indicates that more than 3.5 years of household income is needed to purchase a house. “Homes are increasingly unaffordable, leading to unstable housing markets where demand can’t meet supply,” researchers note.
Overall, real estate in the West is seeing the most disparities between home prices and what people can actually afford. Median home prices have jumped 195% since the 1960s, while the median household income in the West has increased only by 26%, according to the study.
“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,” the study notes. “This pattern is especially visible for the Western metros. 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.”
On the other hand, the Midwest appears to be the only remaining region where purchasing a house has stayed mostly affordable. The study notes that there’s almost no gap between rental and household income growth rates in the Midwest. Therefore, Midwesterners can save for a down payment and still afford the median mortgage payment in the region.
“Timeline of Affordability: How Have Home Prices and Household Incomes Changed Since 1960?” Clever Real Estate (July 10, 2019)
Updated: August 21, 2019