House costs are actually rising a lot quicker than incomes, research present


During the Covid pandemic, house prices skyrocketed almost across the country while household incomes fell.

This made home ownership for many prospective buyers inaccessible.

However, affordability was a growing concern well before 2020 and the start of the pandemic.

According to a Bankrate analysis of the National Association of Home Builders / Wells Fargo Housing Opportunity Index data, the average home price has increased about 30% and incomes by only 11% over the past decade.

The difference is even clearer over 50 years. After taking inflation into account, home prices have increased 118% since 1965 while incomes have only increased 15%, according to a separate report by online broker Clever Real Estate based on census data.

In fact, the pandemic run on housing has only made the affordability crisis worse for many potential homebuyers, even with record-low mortgage rates.

To buy a home of their own in 2021, Americans will need an average income of $ 144,192 – far more than the average household income of $ 69,178, Clever Real Estate found.

A common rule of thumb for the amount of housing costs is that they must not be more than 30% of your gross monthly income, ie your total income before the deduction of taxes or other deductions.

Some experts – and lenders – say that the selling price of a home shouldn’t exceed 2.5 times your annual salary.

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However, with real estate prices rising exponentially faster than incomes, it becomes increasingly difficult to do so, noted Francesca Ortegren, data scientist at Clever Real Estate.

After the pandemic drove house prices soaring, homes cost, on average, 5.4 times more than a typical buyer’s gross income.

Of America’s 50 most populous cities, only six had a “healthy” price / income ratio of or below 2.6, Clever found: Pittsburgh, Cleveland, Oklahoma City, St. Louis, Cincinnati, and Birmingham, Alabama.

At the other end of the spectrum, the least affordable cities were San Jose, San Francisco, San Diego, New York, and Los Angeles – where the price / income ratio is as high as 9.8.

“In order to be able to afford a home, you have to earn a lot of money or save for a long time,” said Ortegren.

With only two assets – home equity and retirement planning – making up the bulk of household wealth, such historically high home prices make it even more difficult to bridge the intergenerational wealth gap.

Additionally, first-time home buyers are more at a disadvantage as they do not have the funds from a previous home sale to help.

“We’re only increasing the number of people who will have a harder time building wealth by owning a home,” Ortegren said.

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