Homes in metro cost five times typical family income; region is 12th most expensive housing market on that measure.
The typical home in metro Denver now costs five times the average family income, or nearly double the ratio that a market where incomes are aligned with housing supply would suggest, according to an affordability study from Clever Real Estate.
“We are seeing really inflated home prices. Part of that is because there is not a lot of inventory and there is high demand in places like Denver and the West Coast,” said Francesca Ortegren, a data scientist with Clever Real Estate.
As high as Denver’s ratio is, it is below the national average of 5.4, which is being skewed higher by the sky-high levels seen in California cities like Los Angeles, where home prices are 9.8 times income; San Jose where the multiple is 9.1 and San Francisco where it is 8.3. High housing costs relative to income offer one explanation for why so many Californians are moving to more affordable metro areas across the West.
Overall Denver ranks as the 12th least affordable city on the home price-to-income ratio of the 50 metro areas studied. Salt Lake City has the highest ratio of any interior metro area at 5.2, which hasn’t been the case in the past. Working in Denver’s favor for affordability is a family income of $104,800, which is higher than Salt Lake City’s family income of $92,900.
Holding to the 2.6 mark would suggest a family earning average family income of $104,000 in metro Denver not go much higher than $270,400. Even going up to 3 times income would only put a home worth $312,000 in reach, more depending on the size of the down payment. Good luck in finding properties priced that low in a market where the average home price is $523,841, according to Clever.
So where do households have the greatest chance of finding a home that stays within their budgets? Pittsburgh had the lowest ratio in the study at 2.2, followed by Cleveland at 2.4 and Oklahoma City and St. Louis at 2.5.
Clever Real Estate used family income rather than household income because it excludes income from government transfer payments and provides a higher number more likely to represent a potential homebuyer.
What rising home-to-price ratios indicate is that home purchasing is increasingly limited to those with the highest incomes, not to those with typical incomes or below, said Ortegren. Given that home equity is the primary way families acquire wealth and pass it on in the United States, it could exacerbate the wealth gap going forward unless the economy finds a way to once again create average homes affordable to average families, she said.
It also means younger buyers, who increasingly carry heavy debts from college, will have a harder time breaking into ownership and recent buyers could be at risk if home prices readjust to align with incomes. It will be nothing like the housing crash, but it could prove difficult for those who have bought at the top, Ortegren warns.
Those who scrimped and saved and stretched to buy their first home homes decades ago may have an urge to tell young buyers to suck it up and stop whining and wait for those pay increases to roll in. That’s the way everyone did it. Clever’s study offered an interesting rebuttal.
Putting everything into inflation-adjusted 2021 dollars, average home values in the U.S. have risen from $171,942 in 1965 to $374,900 in 2021 — an increase of 118%. So how did the rise in average household income compare over that same period? It rose just 15%, from $59,920 to $69,178.
Related Links
Poor landscaping can decrease property value by as much as 30%
What Is a Patio Home? (Hint: It Has Nothing to Do With a Porch)
If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.
