What exactly is a house-price-to-income ratio?

When venturing into the world of homebuying, it can be tempting to focus solely on the asking price of a property. That said, it's important to take a step back and consider how the cost of purchasing a home fits into your overall financial picture. That's where the housing price to income ratio comes in. 

By evaluating this ratio — which is simply the cost of the home divided by your annual income — you can gain a deeper understanding of whether a particular property is truly within your means. Keeping this ratio top of mind can help you make a smart investment and avoid the pitfalls of taking on too much financial burden. 

Here’s how the ratio of housing price to income stands across the country in 2023, so you can use it to make a smart purchasing decision when you’re ready to buy property.

What is house-price-to-income ratio?

The House Price to Income Ratio — also known as the HPI ratio — is a simple mathematical equation that relates the median house price in a given location to the median household income. It shows how affordable it is to purchase a house in a particular area, and it's a key indicator of the overall housing market’s health. 

A low House Price to Income Ratio means that homes are relatively affordable and accessible to residents while high ratios reveal a property market where housing prices are markedly unaffordable. By closely monitoring this ratio, market players such as real estate agents and buyers can stay informed on the accessibility of a specific area's housing market before making critical financial decisions.

Where can I find data on the income and home prices for specific regions?

Various sources provide data on the house-price-to-income ratio for specific regions, including government statistical agencies, real estate organizations, and research institutions. Additionally, online real estate portals and financial websites often publish reports and data related to housing affordability.

What is a good ratio for home prices to income?

A "good" house-price-to-income ratio? (HPI) is one that is balanced and reflects the reasonable affordability of a property based on an individual's or family's income. The HPI is calculated by dividing the median house price in a particular area by the median household income. 

The ideal HPI may vary depending on local economic factors and housing availability. For instance, in regions with higher housing costs, a ratio of five or more may be common, while a more affordable area may have an HPI of five or less. 

Remember that an HPI should not be used as the sole determinant for the affordability of a property. As a general guideline, a good HPI for most homebuyers is between two and three, but a lot depends on your personal situation. Potential homebuyers are encouraged to consider other factors such as their income stability, monthly expenses, and debt load when making a housing purchase. 

→ Learn how much house you can afford with our mortgage calculator  

Housing prices vs. income chart 

According to recent data, the housing price to income ratio has been on a concerning climb. This ratio has reached a level not seen since the years that led up to the housing crisis in 2008. While this trend is alarming, it's important to keep in mind that it doesn't necessarily indicate an impending economic collapse. That said, the past tells us that a drastic shift in this ratio can lead to devastating consequences for both homeowners and the economy as a whole.

To better understand some of the widespread concern around the HPI, it’s important to take a more granular look. That means delving into regions and cities that are economic indicators for the broader financial health of the country. 

Related: What to know about buying a house during a recession

Top 10 states with the highest house-price-to-income ratio 

Certain regions of the country have markedly higher housing prices than others. Couple that with average annual income rates and you’ve got a recipe for high house price to income ratios that make buying and owning property a pricey endeavor. Here’s a look at the top 10 states with the highest house price to income ratio:

1. California: California has the second highest home values in the country and the second highest house price to income ratio—even despite salaries 22% above the average.
2. New York: With home prices more than double the national average and salaries only about 7% above average, New York as a dismal house price to income ratio.
3. Hawaii: Hawaii is the most expensive place in the country and the least affordable to live. As a result, home price to income ratio is incredibly high in the Aloha State. 
4. Colorado: Colorado household incomes are 118% above the national average; however, home prices are so high that it ranks among the worst in house price to income ratio.
5. New Mexico: New Mexico is in a poor position in that both its home prices and annual incomes are below the national average, setting up a high home price to income ratio.
6. District of Columbia: Washington, D.C. home values are third-highest in the nation. While salaries are also higher than average, D.C has a high house price to income ratio.
7. Florida: Home prices are roughly 15% higher than the national average, while salaries fall below the norm, putting Florida in a bad spot for house price to income ratio.
8. Montana: Montana is trending higher and higher in home price to income ratio due to an influx of wealthy outliers. In reality, home prices are high and incomes are low..
9. Oregon: The Pacific Northwest in General faces high home values and average to below-average incomes. As a result, Oregon’s house price to income ratio is quite high. 
10. Washington: Like Oregon, Washington has average salaries but hugely inflated home prices, leading to an unsustainably high house price to income ratio.

Top 10 regions with the lowest house-price-to-income ratio

There are pockets of the country where home prices haven’t appreciated as fast as the national average. Moreover, in some of these areas, salaries are just below or on-par with the national average, creating low house price to income ratios. If affordability is top of mind, here are some of the states to look for real estate in:

1. Iowa: Iowa enjoys the second best household price to income ratio. The typical home is 60% of the national price and the median household income is only 6% below average.
2. Arkansas: Despite the median income that’s 75% of the U.S. average, Arkansas has one of the lowest house price to income ratios due to lower home prices. 
3. Kansas: Homes in Kansas are 63% of the typical U.S. price and among the most affordable in the country. This equates to a very low house price to income ratio..
4. Kentucky. Kentucky homes are 43% cheaper than the national average, while median household income is 83% of the average, making for a low home price to income ratio.
5. Louisiana: Louisiana has some of the lowest home prices in the country. Despite income that’s 25% lower than the national average, house price to income ratio is still low.
6. Mississippi: Mississippi home prices are the second lowest in the country, which means house price to income ratios are much lower—even despite lower-than-average salaries. 
7. Missouri: Missouri homes are valued at 68% of the national average. Salaries are 11% lower than the average, making for a low house price to income ratio.
8. Nebraska: Nebraska typically has a high home price to income ratio due to lower home prices and a median salary that’s roughly on-par with the national average. 
9. North Dakota: North Dakota boasts a low house price to income ratio thanks to some of the lowest home prices in the country.
10. Ohio: Ohio home prices are among the lowest in the country, while salaries remain on-par with the average. It adds up to a low home price to income ratio.

Top 10 major cities with the highest house-price-to-income ratio 

Planning on moving to a major city? Some are more affordable than others. If cost considerations are top-of-mind for you, there are some cities that you can cross off your list right away, simply due to high home to income ratios. Here are the top 10 most unaffordable major cities in the country as of 2023:

1. New York City, NY, 10.2
2. San Francisco, CA, 9.2
3. Honolulu, HI, 8.7
4. Boston, MA, 8.1
5. San Jose, CA, 7.9
6. San Diego, CA, 7.8
7. Los Angeles, CA, 7.3
8. Columbus, OH, 6.7
9. Reno, NV, 6.2
10. Raleigh, NC, 6.1

Top 10 major cities with the lowest house-price-to-income ratio

Areas with a low home price to income ratio typically mean that homes are more affordable, and you'll need a smaller portion of your income to purchase a property. This can lead to significant savings and make homeownership more accessible for many people. The top 10 major cities with the best house price to income ratio include:

1. Houston, TX, 2.4
2. Phoenix, AZ, 2.4
3. Dallas, TX, 2.6
4. Jacksonville, FL, 2.9
5. Orlando, FL, 2.9
6. Atlanta, GA, 3.3
7. Charlotte, NC, 3.4
8. Chicago, IL, 3.4
9. Las Vegas, NV, 3.4
10. Denver, CO, 3.5

Always consider house-price-to income ratio

When looking to purchase a new home, there are many factors to consider—but one of the most important is the home price to income ratio. By considering this ratio during your home search, you can ensure that you are making a smart investment and can avoid getting in over your head financially. Ultimately, keeping the home price to income ratio in mind can help you find the perfect home that fits your budget and lifestyle.

FAQs

The house-price-to-income ratio is a measure used to evaluate housing affordability. It compares the median price of homes to the median household income in a particular area or country.

Q: How is the house-price-to-income ratio calculated?

The house-price-to-income ratio is calculated by dividing the median home price by the median household income. The result is a ratio that helps gauge the affordability of housing in a specific region.

Q: What does a high house-price-to-income ratio indicate?

A high house-price-to-income ratio suggests that housing prices are relatively expensive compared to the income levels of residents. It can indicate housing affordability challenges and may imply that residents have to allocate a larger portion of their income towards housing costs.

Q: How can the house-price-to-income ratio impact the overall economy?

The house-price-to-income ratio can impact the overall economy in various ways. A high ratio may lead to reduced homeownership rates, increased rental demand, and potential negative impacts on consumer spending and economic growth. Conversely, a favorable ratio can contribute to a healthier housing market and positive economic outcomes.

Q: How can you use the house-price-to-income ratio for decision-making?

Individuals can use the house-price-to-income ratio as a helpful tool for decision-making regarding homeownership or rental choices. It allows potential buyers or renters to evaluate whether housing costs are affordable based on their income level and helps make informed decisions about housing investments.