How home price and income growth gaps put a nation in crisis

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Over time, buying a house became less attainable for consumers throughout the country.

In a reality that sounds more like a nightmare and less like the American dream, home prices skyrocketed 121% while the nation's median household income grew a mere 29% in the period spanning from 1960 to 2017, according to a Clever Real Estate analysis of Census Bureau data. Clever adjusted its figures for inflation over time.

And affording a place to live hasn't gotten any easier for renters; between 1960 and 2017, median gross rent surged 72% — more than double the pace of income growth.

Lower mortgage rates came as a welcome sign for consumers, but house value and rent increases made it more challenging to save for a down payment or monthly mortgage payments. Coupling that with high demand for a small supply of affordable homes continues putting upward pressure on housing costs.

Price-to-income ratios help gauge how much house one can afford and suggest around how long it'll take for an aspiring homeowner to save up for a down payment. But the ratios haven't been healthy since the 1990s, according to Clever.

A price-to-income ratio of 2.6 is a healthy measure of how much a homebuyer should spend on a house purchase. The 2.6 ratio is a general rule-of-thumb used by real estate agents, which suggests a consumer can afford a house worth roughly 2.6 years in income. The analysis is based on Zillow data of historical nationwide averages under good economic conditions.

The ratio helps illustrate the conditions in a given housing market, and determines if a typical resident is able to save for a down payment within a reasonable time frame, according to Clever. The bad news for buyers is that by 2017, the national price-to-income ratio hit 3.6, since the difference between home prices and income has nearly doubled since 1960.

Conditions by region paint a more vivid picture. Consumers looking to buy a house in the West face the most challenging affordability hurdles. Real estate values for Western states leaped 195% in 2017 from 1960, while income only rose 26%. The Midwest is perhaps the only affordable region left, as the gap between property value and income growth is relatively nonexistent.

Southern property values rose pretty consistently with income until the 2000s when the market became less stable, but increased 75% from 2000 to 2017. The Northeast had seen the most extensive gap between income and home price appreciation, but narrowed following the 2008 crash, with house values continuing to drop.

When looking at the nation's 100 most populated cities, only 16 have a price-to-income ratio below 2.6.

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Housing affordability Housing market Purchase Housing inventory Real estate Down payments Census Bureau