The Increasing Disconnect Between Home Prices and Income

The home price-to-income ratio, which compares the median price of homes in a particular locale to the area's median annual household income, is commonly used to evaluate housing attainability. Traditionally, financial experts recommend a home price-to-income ratio of 2.6 or less. And as recently as 2000, two-thirds of large U.S. markets had home price-to-income ratios below 3.0. But in 2022, among large U.S. markets, Syracuse, N.Y., was the only metro with a price-to-income ratio below 3.0, according to the Joint Center for Housing Studies of Harvard University.

Low price-to-income ratios may have been the norm across much of the nation during recent decades, but no longer. Home prices in a growing number of metros now far exceed relative incomes, so much so that in 2022, among the 100 largest U.S. markets, 48 had a price-to-income ratio exceeding 5.0—and that includes seven markets where the ratio was above 8.0. 

Elevated home prices are key in price-to-income ratio increases, since incomes simply don't go up at the same rate: Between 2019 and 2022, home prices nationally rose by 43%, compared with incomes, which saw just a 7% increase. 

In 2022, the median sale price for a single-family home in the US was 5.6 times higher than the median household income, higher than at any point on record dating back to the early 1970s. This represents a rapid increase in just a few years, as home prices have risen considerably since the start of the COVID-19 pandemic. As recently as 2019, the national price-to-income ratio was just 4.1. High price-to-income ratios are an especially worrying indicator of deteriorating homebuyer affordability. Record-low mortgage rates during the pandemic cushioned the impact of higher home prices by keeping mortgage payments relatively modest, but interest rates rose significantly throughout 2022 and have remained elevated since. 

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