There’s a rule of thumb in real estate that homebuyers should spend roughly 2½ times their annual income on a home purchase. And like a lot of old real estate rules, that one’s gone out the window for most of us — especially in places like Seattle where home values have skyrocketed.
New survey data from the federal government shows that in the Seattle metro area, 4 out of 5 homeowners in 2021 said their home value was at least three times higher than their income — and for many of them, the ratio of home value to earnings was completely out of whack.
The survey shows that for about 23% of Seattle-area homeowners — that’s nearly 210,000 households — the home they own is worth at least 9 times their income.
Seattle ranked sixth highest among the 25 metro areas in the survey for the ratio of home value to income. Four of the five metros with the highest median ratios were in California.
This is sometimes called being “house rich, cash poor.” We’ve seen this situation arise for some older, retired homeowners in the Seattle area who are living on a modest income while their home has appreciated tremendously in value. The term can also describe younger homeowners who are spending a very high percentage of their income on housing.
The data comes from the new 2021 American Housing Survey, or AHS, which is the most comprehensive survey of housing data in the U.S. It is sponsored by the Department of Housing and Urban Development and conducted every other year by the U.S. Census Bureau. About 115,000 households are surveyed in 25 large metropolitan areas, including the 15 largest metropolitan areas. Seattle ranks 15th.
The Seattle metro area includes King, Pierce and Snohomish counties. There were an estimated 924,300 owner-occupied homes here in 2021.
The AHS data shows how sharply home values have risen in relation to income over the past decade in the Seattle area, even as incomes also increased greatly.
The AHS first included data on the ratio of home value to income in Seattle in 2013. At the time, the median ratio was 3.3 (in other words, home values were 3.3 times higher than incomes). In the new 2021 data, the median ratio for Seattle jumped to 4.9.
The median represents the midway point — so half of Seattle-area homeowners fell below a ratio of 4.9 for home value to income, and half were higher.
According to the AHS, the median ratio for the U.S. was 3.3 in 2021, a relatively modest increase from 3.0 in 2011.
While Silicon Valley has some of the highest incomes in the nation, the home prices are even more astronomical. The San Jose, California, metro area ranked No. 1, with a median ratio of 7.1. San Francisco (7.0) and Los Angeles (6.9) rounded out the Top 3.
Miami tied with Riverside, California, for fourth, both with a median ratio of 5.1.
There are still some places where home prices are more in line with what people earn.
Rochester, New York, was at the other end of the spectrum from San Jose — the median ratio of home values to income was 2.2. Most of the other areas with lower median ratios were in the fast-growing Sunbelt, including Birmingham, Alabama; Oklahoma City; and three Texas metros: Dallas, San Antonio and Houston.
