Home Prices Are Outpacing Income

The cost of buying a home in the US continues to rise, shutting out millions of Americans from this part of the American Dream.

Before Covid-19, houses typically cost roughly three times a buyer's annual income. This ratio has sharply skewed upward since the pandemic, with some home prices up over 40%. Median home prices across the country were almost 5 times the median household income, according to a recently released report from the Harvard Joint Center for Housing.

And the upward trend is forecast to continue.

In the report, researchers conclude that home buyers must make more than $100,000 in over 50% of metro areas to afford a median-priced home. In 2021, this income was needed in only 11% of metro markets.

When you add in rising property taxes and soaring insurance rates, it is no surprise that U.S. homeownership rose just 0.1 percentage points in 2023 - the smallest increase since 2016.

Why The Increase

The spike in housing costs is due to a massive housing shortage, which will take years to remedy. High interest rates and inflated land and labor costs mean single-family construction will be delayed, forcing people to rent for longer periods of time.

Those looking to purchase a new home are not the only ones struggling. The Harvard report also says that nearly one in four households that own a home "are now stretched worryingly thin."

The cost burden for renters is even more challenging. Rents have been rising faster than incomes for decades. The number of renters spending more than half of their income on housing and utilities rose 1.5 million to a record high of 12.1 million.

To afford the typical U.S. apartment, renters must earn $66,120, which is $11,000 more than their average income now.

What's Going on in Virginia

While home prices in most of the U.S. are rising at the slowest pace in nearly 1.5 years, buyers are gaining power as stale listings pile up and prices drop slightly. The same can't be said for Virginia.

The median sale price for all home types in Virginia is currently $465,600, a 5.2% increase year over year. The median price in January 2024, however, was $399,000, which illustrates a 16.67% increase in just six months across the Commonwealth.

The following chart taken from the Harvard Report shows the cost of a median home in Virginia since 1990 in 10 metro areas across Virginia. All show an over 40% increase in home prices since 1990.

Ratio of the Median Home Price for Existing Home Sales

to the Median Household Income

Rising Home Prices Mean Rising Home Insurance Rates

Nationally, home insurance rates have increased an average of 6% in 2024 (following an average 11% increase in 2023), with states like California, Louisiana, and Florida seeing rate increases as high as 23%. In Virginia, home insurance rates

In Virginia, the average cost per $100,000 home value is $600. This means the average median home insurance in Virginia is currently $2,796. Typically, 80% of all insured homes are underinsured, so this figure would skew higher if you protect your home with a company that covers the home's full replacement value, like Mutual Assurance.

Norada Real Estate Investments predicts home prices will continue to rise for at least five more years. While inventory will increase enough to slow down the price increases, a reprieve will not occur anytime soon.

Sources: NPR, Harvard Joint Center for Housing, CNN, Redfin, Bankrate, CNBC, Norada