1/ Today we look at long term data on U.S. house prices and household income, and the divergence between the two is striking. Since 1985, both have risen steadily, but home prices have accelerated much faster, widening the affordability gap.
2/ Median house prices have increased from roughly 84,000 dollars in 1985 to over 400,000 dollars in 2024. That represents nearly a fivefold increase. Over the same period, median household income rose from about 23,000 dollars to around 83,000 dollars. While income growth has been meaningful, it has not kept pace with housing costs. The ratio of home price to income has expanded from roughly 3.6 times income in the mid 1980s to more than 5 times income today. There is no sign in this long run data of housing prices realigning with wage growth.
3/ One structural shift worth considering is remote work. As flexible work expanded, especially after 2020, demand for housing changed geographically. Workers were no longer tied strictly to urban job centers. Many moved to suburban or lower density areas, increasing demand and pushing prices higher in markets that previously experienced moderate growth.
4/ Normally, rising income would help offset higher prices. I want to be cautious about attributing the widening gap solely to remote work. Low interest rates, supply constraints, and demographic demand also played major roles. We should watch future income releases to see whether wage growth begins to narrow the ratio.
5/ There are alternative explanations. Housing supply shortages and zoning restrictions may be limiting inventory. It is also possible that remote work has permanently altered location preferences, sustaining higher demand across more regions.
Dataset
Data Sources
U.S. Census Bureau & U.S. Department of Housing and Urban Development. Median Sales Price of Houses Sold (MSPUS), retrieved via FRED.
https://fred.stlouisfed.org/series/MSPUS
U.S. Census Bureau. Median Household Income in the United States (MEHOINUSA646N), retrieved via FRED.
https://fred.stlouisfed.org/series/MEHOINUSA646N