New data shows house prices are rising much faster than incomes

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It’s no secret that home prices have risen since the start of 2021. Low mortgage rates have pushed home buyers to become homeowners at a time when the housing market was running low on inventory. The result? Buyers continue to compete for the same properties, driving home prices nationwide.

It’s not just that house prices have exploded this year. They have also increased over time.

This is natural, as homes are one type of asset that can rise in value over the years. What is problematic is that data from Real Estate Witch shows that home prices have increased faster than incomes, putting buyers at a huge disadvantage.

U.S. wages can’t keep up with house prices

Since 1965, the average home value in the United States has increased from $ 171,942 to $ 374,900, which is an increase of 118%. During this period, the median household income fell from $ 59,920 to $ 69,178 in inflation-adjusted dollars. This only represents a 15% increase.

In fact, house prices have increased 7.6 times faster than income since 1965 and 3.1 times faster than income since 2008. These two measures explain inflation.

Real Estate Witch also says that to afford a home in 2021, buyers need an average income of $ 144,192. But the current median household income is much lower – $ 69,178.

Can you afford to buy and own a home?

When thinking about the affordability of a home, it’s easy to confuse a person’s ability to buy a home with their ability to maintain a home. Buying a home means making a down payment and qualifying for a mortgage (in most cases, although some buyers may buy a home directly).

Then comes the tricky part: tracking the owner’s spending over the years. As homes age, more maintenance and repairs may become necessary. Homes can also become more expensive to insure, and property taxes also have a devious way to increase over time. The more expensive a home starts up, the more difficult it can be for a buyer with an average income.

If you are not sure if you are earning enough to own a house, you will need to do some math. First, calculate what your monthly housing costs might look like in terms of your mortgage payment, property tax bill, insurance premiums, and any other predictable expenses that might apply to you, such as fees. HOA. Then compare this total to your take-home pay. If this number is 30% or less, then you are in good enough shape to buy. But in general, your housing costs should not exceed 30% of your income.

Of course, all of this assumes that you have enough money for a down payment on a house. Given today’s house values, this is a more difficult thing to do.

Will things get better or worse for homebuyers?

While it is possible to buy a house with an average income, it has clearly become more difficult over the years. And if this trend continues, there is the risk that homeownership will become something only the rich can afford.

The record home prices we’ve seen this year are expected to start falling as more inventory hits the real estate market and buyer demand begins to decline. But even so, we could still live several decades where house prices outpace wage growth, leaving more and more potential buyers out in the cold.


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