You hear a lot these days how unaffordable housing has become in the US. One way to think about affordability is to look at home prices relative to household incomes. The common rule of thumb in the 20th century was that you should pay around three years of pre-tax income for a home. On that basis, housing has been unaffordable for the last 45 years when comparing median house prices to median household income!
The trouble with this analysis is that households are all lumped into the same group, whether they own a home or rent. The reality is that homeowners are richer than renters, and we don’t expect the median-income household to buy the median-price home. The median home-owning household has 28% more income than the median household. So, when dividing the median home sale price ($425,000 based on July 2023 data) by 128% of the median household income ($93,000 pretax) — you get a ratio of 4.6, which is more than 50% above the 3.0 rule-of-thumb. This version of affordability was the focus of stories in 2021 and 2022, when the ratio was spiking. In 2023, though, house prices are little changed while incomes have risen. The ratio of home prices to income is still quite high by historical standards, but well below the peak.
