Home Price to Income Ratio (US & UK)

Home Price to Median Household Income Ratio (US)

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Interpretation

Historically, an average house in the U.S. cost around 5 times the yearly household income. During the housing bubble of 2006 the ratio exceeded 7 - in other words, an average single family house in the United States cost more than 7 times the U.S. median annual household income.
The Case-Shiller Home Price Index seeks to measure the price level of existing single family homes in the United States. Based on the pioneering research of Robert J. Shiller and Karl E. Case the index is generally considered the leading measure of U.S. residential real estate prices. The index has a base of Jan 2000=100 and is multiplied by 1800 in order approximate the Average Sales Price of Houses Sold for the United States.
According to Mike Maloney this ratio is heavily influenced by interest rates. When interest rates go down the affordability of a house goes up, so people spend more money on a house. Interest rates have now been falling since 1981 when they peaked at 15.32% (for a 10-year US treasury bond).

Data Sources

Home Price vs. Median Household Income (US)

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Interpretation

This chart gives a different view of the data from the chart above, comparing the percentage change between Case-Shiller Home Price Index (multiplied by 1800, as explained above) and Median Household Income in the United States over time.

Average House Price to Average Income Ratio (UK)

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Interpretation

This chart shows the ratio of the average UK house price to average annual income. The ratio declined steadily throughout the late 19th and early 20th centuries until the first world war. This was at a time when the vast majority of British people still rented from private landlords. The ratio fluctuated mostly between 4 and 7.5 through the rest of the 20th century and increased in economic booms and financial bubbles.

Data Sources

Further Information

House Prices vs. Average Income (UK)

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Interpretation

This chart gives a different view of the data from the chart above, comparing the percentage change between UK house prices and average incomes over time.



Page extended with data for the UK, by Will Beaufoy


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