As of August 2019, the average prices of new homes sold in the US have dropped 2.2%, from $323,125 in 2018 to just $316,075 today. Incomes have also risen. We estimate the median household income to be $65,074 in 2019, up 3.0% from $63,179 in 2018 and up 6.44% from $61,136 in 2019. As a result, the house price to income ratio now stands at an affordable 4.86 times income, down from its recent peak of 5.26 times income in 2017.
But house prices are still a long way from affordable. The current house price to income ratio is more than one standard deviation above the long-term mean of 4.23. The same holds true for existing homes and all homes both new and existing.
| Home Type | 2019 Median Sales Price | 2019 Median Household Income (Estimated) | 2019 House Price to Income Ratio (HPI) | Mean House Price to Income Ratio (Mean HPI) |
| New Homes | $316,075 | $65,074 | 4.86 | 4.23 |
| Existing Homes | $268,513 | $65,074 | 4.13 | 3.73 |
| New and Existing Homes (Weighted Average) | $273,859 | $65,074 | 4.21 | 3.81 |
So how much further do home prices have to fall to become affordable at current incomes? About 9.4% for all homes, from the current price of $273,859 to $248,160. The drop in new home prices will have to be even steeper: almost 13%.
Conversely, if home prices remain flat, how much further do incomes have to rise to reach their long-term affordability? For all homes, this is around 10.4%. To afford a new home, incomes have to rise 14.9%.
If incomes rise by the current rate of 3.0% a year, it will take 3-5 years before home prices hit their long-term affordability ratios. If prices continue to drop at the current rate of just 2.0% a year, it will take much longer: 5-7 years.
We could be in for a long wait.
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