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Welcome to the FREEandCLEAR Mortgage Expert Blog! The FREEandCLEAR Mortgage Expert possesses over 40 years of mortgage industry experience and uses this blog to bring you insights on the latest mortgage market news and developments. We also use the FREEandCLEAR Mortgage Expert Blog to launch and highlight features, functionality and content offerings on FREEEandCLEAR.com so sign up below to receive blog updates via email or check back frequently.

 
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POSTED: Monday September 24, 2018

Gender and racial inequality has emerged as one of the most important issues of our time.  Disparities between women and men as well as between different racial groups exist within multiple areas of society including pay, employment opportunities and housing.  While significant attention has been paid to income gaps, it is also vital to examine… Read More

POSTED: Monday September 24, 2018

Gender and racial inequality has emerged as one of the most important issues of our time.  Disparities between women and men as well as between different racial groups exist within multiple areas of society including pay, employment opportunities and housing.  While significant attention has been paid to income gaps, it is also vital to examine the impact of gender and race in the housing market.

 

The recent release of the Census Bureau household income report for 2017 provides a new framework for examining these crucial social subjects.  The report contains a tremendous amount of interesting information on incomes including breakdowns by gender, race, geography and other factors.  The report was generally viewed positively as median household income increased 1.8% and hit an all time high of $61,372.

 

While the headline income figures are relatively positive, a deeper dive into the data reveals a more complicated story.  When viewed on a more granular level and applied to housing, the household income report reflects a housing market that is fractured along gender and racial lines and becoming less affordable.

 

The Relationship Between Household Income and Housing

Income and the housing market are inextricably linked.  Simply put, how much money you make is the most important factor in determining what size mortgage you qualify for which ultimately determines how much home you can afford.  Other inputs such as your down payment, monthly debt expenses, credit score and mortgage rate also play a significant role but housing affordability starts with your income. The more money you earn, the higher price home you can afford.  The less you make, the less home you can afford. So while the Census Bureau report addresses household income, we can use the data to learn a lot about the housing market.

 

The Housing Gender Gap Widens

While housing affordability affects everyone, its impact is magnified when the issue is analyzed by gender.  Specifically, the housing gender gap widened based on the latest census bureau data. Reported median male household income of $60,843 was approximately 46% higher than median female household income of $41,703.  The report analyzes different types of households and these figures are for family households with only one spouse present, such as a household with a single mom or dad whose children live with them. No matter what definition you use, the gender household income gap is striking and the implications for housing affordability are equally significant.  

 

The chart below shows how much house you can afford based on median female household income, median male household income and the median income for all households.  For the purpose of this example we used our mortgage qualification calculator to determine what size loan a household could afford and assumed people spend on average 6% of their gross income on non-housing debt expenses such as credit cards, auto and student loans.  We also assumed the average home buyer makes a down payment of 10%.

 

Based on our analysis, the median female household can afford to buy a $282,356 home as compared to a $412,127 home for the median male household and a $415,673 home for all households. Put differently, based on median income, a female household can afford almost a third less home than a male household.

 

Gender housing gap

Source: FREEandCLEAR, based on 2017 median household income for female and male family households

 

The graph illustrates how the gender pay gap manifests itself in the housing market.  Female households, a significant portion of which are also single mother households, can afford significantly less home than male households.  This dynamic takes on even more significance when you consider that there are approximately 15.4 million female family households as compared to only 6.4 million male family households, according to Census Bureau data.

 

The trend is even more acute because the Census Bureau data suggest that the housing gender gap is expanding.  While median male household income grew 2.6% in 2017, median female household income declined 0.5%, for a net difference of 3.1%.  So not only do male households make more money but their earnings are growing faster.  Both the difference and dip in earnings, when combined with increased home prices, reinforce that housing became significantly less affordable for female households.

 

Race and Housing Affordability

The report also enables us to better understand the relationship between race and housing.  A wide disparity in household income exists among the four racial groups used by the Census Bureau — Asian, Black, Hispanic and White — and these differences certainly influence housing affordability.

 

Reported Asian median household income of $81,331 compares to $68,145 for White households, $50,486 for Hispanic households and $40,258 for Black households. This is a significant range with the highest earning racial group making more than twice the household income of the lowest earning group.

 

The graph below shows how housing affordability breaks down by race.  Using the same methodology that we applied above, the median Asian household can afford to buy a $550,858 home, the median White household can afford a $461,541 home, the median Hispanic household can afford a $342,023 home and the median Black household can afford a $272,750 home.  We also compare these figures to the home price based on the median income for all households.

 

racial housing gap

Source: FREEandCLEAR, based on median household income by racial group

 

While issues of race and housing are complex, there should be no debate that the income differential has a profound impact on how much home people can afford.  Income disparities also affect neighborhood access and housing mobility for lower-earning racial groups.

 

It is also important to highlight that while Hispanic and White median household income grew 3.7% and 2.6%, respectively, Asian and Black household income decreased 2.2% and 0.2%, respectively. As incomes shift along racial lines, so does housing affordability.

 

Housing is Becoming Less Affordable

While it is good news that people are making more money, the growth in household income is decelerating.  Median household income grew 1.8% in 2017 as compared to growth rates of 3.1% and 5.1% in the two prior years.

 

Slowing income growth is not necessarily a bad trend as long as the items you want to buy, such as housing, grow at a similar rate. If prices for the goods you want to buy increase at a faster pace, your dollars do not go as far and the item effectively becomes more expensive.  Unfortunately, housing prices increased at a much higher rate than median household income in 2017, which means that people could afford less home for their money, despite earning a higher income.

 

As illustrated in the graph below, the median existing home sales price increased 6.0%, or more than triple the growth rate for household income, and the median new home sales price increased 4.9%, or more than two and a half times income growth.

 

Growth rates for household income, median new home sales price and median existing home sales price

Source: US Census Bureau, National Association of Realtors, 2017 growth rates

 

The chart confirms what most people who shopped for a home over the past several years already knew on a more personal level — buying a home is becoming more expensive and your housing dollars do not buy as much home as they used to.

 

This dynamic manifests itself in the housing market in several ways. First, people may not be able to afford the house they want to buy.  They may settle for a two bedroom home instead of the three bedroom home that is more suitable for their family. Other people may be priced out of certain neighborhoods.  In short, as homes become more expensive, your housing options become more limited, especially if you find it challenging to qualify for the mortgage you need to buy the home you want.

 

But Housing is Still Affordable (At Least on a National Level)

Although the household income data reveal significant gender and racial housing affordability gaps and that buying a home is becoming more expensive, one positive take away from the report is that housing remains affordable, at least at the highest, most macro level.

 

One way to assess overall housing affordability on a national level is to compare how much home you can buy based on the median household income to home sales prices.  If you can afford to buy the median priced home with median household income, then housing is relatively affordable. If you cannot afford to buy the median priced home with median household income, this reveals an imbalance in the market and home prices are likely not sustainable.

 

The graph below compares what price home you can buy based on median household income to the median existing home sales price and median new home sales price.  We apply the same assumptions as above — 10% down payment and 6% of gross income spent on monthly debt — to determine what price home a household can afford.

 

As the chart shows, even with these relatively conservative assumptions, the $415,637 home price you can afford based on median household income is greater than both the median existing and new home sales prices.

 

Source: FREEandCLEAR, US Census Bureau, National Association of Realtors

Source: FREEandCLEAR, US Census Bureau, National Association of Realtors

 

It is important to emphasize that the above analysis is based on national data and that incomes and housing prices vary greatly by city and neighborhood.  While housing may be affordable on a national basis, your area may have a very different dynamic. Plus we have already shown how gender and race factor into housing affordability.

 

Closing Thoughts

Although the link between income and housing affordability is clear, there are several caveats regarding the Census Bureau data.  Although the report was released recently, the median household income data are for 2017. So while this is the most updated information available, it is somewhat dated.  Despite this, housing prices have continued to rise over the course of this year, albeit at a slower pace, while home sales have moderated, suggesting that the crux of the analysis remains applicable.

 

Additionally, while the primary purpose of the Census Bureau report is to examine trends in household income, it can be used to explore and analyze other important socioeconomic topics.  In this case, we used the report and its valuable data to better understand the complex relationship between income, housing affordability, gender and race. We shine a light on these important issues with goal of creating a more fair, affordable and accessible housing market.

 

About FREEandCLEAR

FREEandCLEAR is a leading mortgage website that offers free tools and resources that empower people to find the mortgage that is right for them.  FREEandCLEAR was developed by a father and son team who are on a mission to help people make better decisions and save money when they get a mortgage.  Our valuable resources and mortgage rate tables put borrowers in control of the mortgage process and enable them to easily shop for a mortgage.

 
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