House Price to Median Income

New Data for 2020 Income

The Census Bureau released median income data for 2020 today: Income, Poverty and Health Insurance Coverage in the United States: 2020

Median household income was $67,521 in 2020, a decrease of 2.9% from the 2019 median of $69,560. This is the first statistically significant decline in median household income since 2011.

Between 2019 and 2020, the real median earnings of all workers decreased by 1.2%, while the real median earnings of full-time, year-round workers increased 6.9%.

One of the measures I like to use to evaluate house prices is Case-Shiller House Prices to Median Income. Previously I was using a 5% increase in income for 2020, however median income declined 2.9% last year - and that means house prices compared to income were higher in 2020 than I originally thought.

This graph uses the year end Case-Shiller house price index - and the nominal median household income through 2020 from the Census Bureau.  2021 median income is estimated at a 5% annual gain.

By this measure, house prices are close to the bubble peak.

However, as I noted in The Housing Conundrum:

  • Demographics are very favorable for home buying.

  • Mortgage rates are near record lows.

  • Lending standards have been fairly solid.

  • There hasn’t been a huge increase in equity extraction, meaning that most homeowners have substantial equity in their homes (so even if prices decline, there won't be cascading price declines).

  • And housing inventory is near record lows.

So, by some measures, house prices seem high, but the recent price increases make sense from a supply and demand perspective.