Home Prices and Income

Home prices are high, but how much more expensive than in the past?  Are all homes more expensive, or just homes for rich people?

Home Ownership Rates Roughly Similar

The table below describe changes in home ownership rates across the income scale. Although it looks like home ownership widely fell, these differences are generally insignificant at the bottom of the income scale. Below the 90th income percentile, home ownership rates in 1989 and 2013 are indistinguishable. At the top of the income scale, ownership rates seem to have fallen slightly, but these changes are at the border of statistical significance.

Income Class % Own Homes (1989) % Own Homes (2013)
Bottom 20% 29% 29%
Second-Lowest 20% 49% 45%
Middle 20% 56% 57%
Second-Highest 20% 73% 78%
80% – 90% 82% 86%
90% – 95% 92% 90%
Top 5% 92% 95%

Any difference in home values across the income scale are likely not the product of changes in home ownership rates.

Prices Have Risen Faster at the Lower and Middle End of the Market

The table below compares the median home value among owned homes in each income category. All values are in 2013 inflation-adjusted dollars.

Income Class Median Value of Owned Home (1989) Median Value of Owned Home (2013) Change 1989 – 2013
Bottom 20% $33,200 $100,000 +201%
Second-Lowest 20% $51,200 $125,000 +144%
Middle 20% $63,000 $133,000 +111%
Second-Highest 20% $75,000 $175,000 +133%
80% – 90% $112,800 $250,000 +121%
90% – 95% $167,600 $335,800 +100%
Top 5% $224,000 $646,000 +188%

Home prices rose fastest for those at the bottom of the income scale. On one hand, this means that poorer home owners got the proportionally greatest returns, relative to those higher on the scale. On the other hand, this means that poorer young people have to bear proportionally higher costs to buy a home. Overall, home values doubled to tripled between 1989 and 2013. Of course, incomes did not rise commensurately.

The table below shows how the ratio of home values to income changes during this period. In 1989, most households’ homes cost the equivalent of one year’s salary. Near the bottom end of the income scale, owned homes were two to three times annual salaries. By 2013, home values were double to triple annual salaries, and even higher at the bottom end of the income scale.

Income Class Median Income (1989) Median Home Value:Income (1989) Median Income (2013) Median Home Value:Income (2013)
Bottom 20% $11,313 2.9 $14,203 7.0
Second-Lowest 20% $26,398 1.9 $28,407 4.4
Middle 20% $47,139 1.3 $45,654 2.9
Second-Highest 20% $74,290 1.0 $76,090 2.9
80% – 90% $111,248 1.0 $121,945 2.1
90% – 95% $158,764 1.1 $183,021 1.8
Top 5% $285,473 0.8 $361,579 1.8

Homes have certainly gotten more expensive, relative to incomes.  In relation to incomes, housing costs have roughly doubled, and in some cases tripled.  The rise in home values seems to have been greatest for the middle of the income scale.