New Data Reveals How Home Prices Are Rising Much Faster Than Income

Home prices have risen over time, putting buyers at a major disadvantage.

It's hardly a secret that home prices have been up since the start of 2021. Low mortgage rates have pushed buyers to pursue homeownership at a time when the housing market has been starved for inventory. The result? Buyers keep duking it out over the same properties, driving home prices upward on a national level.

It's not just that home prices have exploded this year. They've also risen over time.

That's natural, as homes are a type of asset that can gain value through the years. What's problematic is that data from Real Estate Witch reveals that home prices have risen faster than income, putting buyers at a supreme disadvantage.

U.S. salaries can't keep up with home prices

Since 1965, average U.S. home values rose from $171,942 to $374,900, representing a 118% increase. During that time, median household income rose from $59,920 to $69,178 in inflation-adjusted dollars. That represents just a 15% increase.

In fact, home prices have increased 7.6 times faster than income since 1965 and 3.1 times faster than income since 2008. Both of those measures account for 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 we think about home affordability, it's easy to confuse one's ability to purchase a home with one's ability to keep up with a home. Buying a home means bringing a down payment to the table and qualifying for a mortgage (in most cases, though some buyers can purchase a home outright).

Then comes the tricky part -- keeping up with homeowner expenses through the years. As homes age, more maintenance and repairs can become necessary. Homes can also get more expensive to insure, and property taxes have a sneaky way of rising over time, too. The more a home costs to begin with, the more a buyer with an average income might struggle.

If you're not sure whether you earn enough to own a home, you'll need to run some numbers. First, calculate what your monthly housing costs might look like in terms of a mortgage payment, property tax bill, insurance premiums, and any other predictable expenses that might apply to you, like HOA fees. Next, compare that total to your take-home pay. If that figure comes in at or below 30%, then you're in pretty good shape to buy. But generally speaking, your housing costs should not exceed 30% of your income.

Of course, all of this assumes you have enough money for a down payment on a home. Given today's home values, that's a tougher thing to do.

Will things get better or worse for home buyers?

While it may be possible to buy a home on an average income, it's clearly gotten harder through the years. And if this trend continues, there's the risk homeownership will shift to become something only the wealthy can afford.

The record-high home prices we've seen this year should start to come down when more inventory hits the real estate market and buyer demand begins to wane. But even so, we could be in for several more decades where home prices outpace wage growth, leaving more and more prospective buyers out in the cold.