Unexpectedly Intriguing!
June 28, 2018

In February 2018, the ratio of the trailing twelve month averages of median new home sale prices in the United States to median household income reached an all time high value of 5.45, which is to say that the typical new home sold in the U.S. cost nearly 5 and a half times the annual income earned by a typical American household.

Since then, preliminary sales data indicates that the prices being paid for new homes have slightly declined in recent months, while median household income has inched upward, where as of May 2018, the median new home costs 5.41 times the median U.S. household income.

Ratio of Trailing Twelve Month Averages for Median New Home Sale Prices and Median Household Income, Annual: 1967 to 2016 | Monthly: December 2000 to May 2018

Looking at the data a little differently, we find that the growth of new home sale prices is indeed decelerating as incomes continue to grow.

U.S. Median New Home Sale Prices vs Median Household Income,
Annual: 1967-2016 | Monthly: December 2000 - May 2018

That's a small comfort however when we zoom out to look at the data over the entire history for which it is available, where new homes today are selling for somewhere between $90,000 to $100,000 more than what they would cost if homes were as affordable as they were in the years from 1987 to 1999. Or for that matter, from 1967 to 1986....

U.S. Median New Home Sale Prices vs Median Household Income,
Annual: 1999-2016 | Monthly: December 2000 - May 2018

As for how U.S. housing prices got so far out of whack compared to what had been very long term, stable trends, it took a combination of fuel, oxidizer and a spark.

References

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 27 June 2018.

Sentier Research. Household Income Trends: May 2018. [PDF Document]. Accessed 27 June 2018. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars.]

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