ST. LOUIS–A new analysis shows just how sharply home prices have increased, and not just recently, but since 1965. The findings also offer a look at the most affordable cities in the U.S., as well as the lease affordable.
According to Real Estate Witch, accounting for inflation, house prices have soared by 118% since 1965, despite the fact that income has only increased by 15%.
Moreover, as residential real estate enters the winter downseason, the average 30-year fixed-rate mortgage interest rate has ticked back up to 3.18% — signaling a shift from the historically low rates and sky-high demand that defined an unpredictable market during the pandemic, according to the new analysis.
“Across the nation, the pandemic accelerated a major divide between home values and income,” Real Estate Witch stated in releasing its newest findings. “Though conventional wisdom suggests most home buyers offer 1% to 3% over asking price in competitive markets, low inventory and high demand drove some home buyers to desperate measures. Today, it’s not uncommon to hear of people offering far more than the seller’s asking price — with some even offering $1 million more than the listing price.”
A Big Increase
From 2019 to 2021, the average house-price-to-income ratio increased from 4.7 to 5.4 — a 14.9% increase that’s more than double the recommended ratio of 2.6, according to Real Estate Witch. “In other words, homes cost 5.4x what the average person earns in one year.”
To discover how these shifts are affecting homeowners, Real Estate Witch said it analyzed publicly available data from the U.S. Census, including national household income data and median new residential sales values. All dollar values are adjusted for 2021 inflation, unless otherwise noted.
“We found that since 1965, average home values have skyrocketed from $171,942 to $374,900 — a 118% increase,” the company said. “Meanwhile, median household income crept up just 15%, from $59,920 to $69,178 in 2021-inflation-adjusted dollars.
“High, inflated home values mean that fewer Americans are underwater on mortgages,” the analysis continued. “But these same homeowners could be poised for disaster in the next housing crash. This is especially troubling for people who bought homes during the pandemic because they’ve had the least amount of time to pay back their mortgage.”
Key Findings
Among the other findings:
· Home prices have increased 7.6x faster than income since 1965 and 3.1x faster than income since 2008, accounting for inflation.
· To afford a home in 2021, Americans need an average income of $144,192 — but the current median household income is actually $69,178.
· The average house-price-to-income ratio is 5.4, more than double the maximum of 2.6 experts recommend.
· Nearly 90% of major metros have a house-price-to-income ratio that exceeds the maximum recommended ratio of 2.6.
· Just six of the 50 biggest major metro areas have a house-price-to-income ratio lower than or equal to the maximum recommended ratio of 2.6: Pittsburgh (2.2); Cleveland (2.4); Oklahoma City (2.5), St. Louis (2.5); Birmingham, Ala. (2.5); and Cincinnati (2.6).
· The least affordable metro areas for housing are concentrated in California: Los Angeles (9.8); San Jose (9.1); San Francisco (8.3); and San Diego (7.8).
· From 2015 to 2020, the percentage of homes with underwater mortgages decreased by 54% in the most populous metro areas (from an average of 12.2% to 5.6%) — likely because rising home prices increased homeowners’ equity.
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Underwater Mortgages
According to Real Estate Witch, from 2015 to 2020, the percentage of homes with underwater mortgages decreased by 54% in the most populous metro areas (from an average of 12.2% to 5.6%).
The cities with the biggest decrease in underwater mortgages include:
· Salt Lake City (1081% decrease from 18.5% to 1.6%)
· Las Vegas (513% decrease from 21% to 3.4%)
· Phoenix (471% decrease from 16% to 2.8%)
· Seattle (467% decrease from 10.3% to 1.2%)
· Tampa, Fla. (315% decrease from 16% to 3.9%)
The cities that have the lowest percentages of underwater mortgages:
· Salt Lake City (1.6%)
· Seattle (1.8%)
· Portland, Ore. (2%)
· San Jose, Calif. (2.1%)
· Denver (2.6%)
Still Struggling
Though rising home values have helped most homeowners, Real Estate Witch said some cities still struggle with high percentages of underwater mortgages, including:
· St. Louis (12.4%)
· New Orleans (10.5%)
· Memphis, Tenn. (10.1%)
· Cleveland (9.5%)
· Cincinnati (9.4%)
The full analysis can be found here.