Home Value Growth vs. Income: A Year in Review

The increase in home value exceeded median worker income for the first time.

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Key points

• The average home increased by $67,000 last year, the first time that the surge in home prices has exceeded median income.
• The increase in home value was fueled by low interest rates, low supply of homes, and an increase in demand.
• Certain areas such as coastal cities in California saw the greatest increase in home values. 

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According to Zillow, the typical home value in the U.S. is $331,533, a 20.3% increase in one year. This increase equates to just over $67,000 from 2021 to 2022. According to the U.S. Department of Labor, the median household income was about $50,000 in 2021. This is the first time the skyrocketing increase in home values has exceeded the median earnings of the average U.S. worker.

Booming housing demand

The increase in home prices was due to the low interest rates, surging demand, and dwindling supply. The National Association of Realtors estimates that nearly 1 million renter households were priced out of the housing market. As a result, the share of first-time home buyers has fallen to 26%, an eight-year low. 

In addition, the number of entry-level homes is at a five-decade low. Starter homes -- properties of 1,400 square feet or less -- accounted for 40% of new construction in 1980. In 2020, starter homes accounted for only 7% of new construction. With the number of homes unusually low, affordability is becoming a substantial issue for home buyers. 

Difference in home value and median salary differs by region

Certain markets saw a greater difference between home value and incomes. According to a Zillow report, the greatest differences were in the coastal cities of California. Homes in San Jose increased by about $230,000 while the median income was $93,000, a difference of close to $136,000. 

San Francisco closely followed, with homes earning about $130,000 more than the median salary. In addition to the homes in California and Hawaii, significant increases were also seen in Boise, Salt Lake City, Seattle, and Phoenix.

The home market is expected to remain competitive. Even with home values surging, it's important not to rush into purchasing a home you can’t afford. According to the Zillow report, down payments increased by more than $10,000 in 2021 for a typical 30-year fixed mortgage.

Down payments are often the biggest hurdle for first-time home buyers. Buying a home should be based on your personal financial situation. Prospective homeowners need to consider property taxes, maintenance fees, homeowners insurance, and other expenses of home ownership before deciding to take the leap.