Affordability and Multiple of Income

Housing affordability is indicated using three (3) key metrics, home prices, rates, and wages, put into a single number. Although it dipped recently it is still above the 30-year average as family incomes rose 6.8% since 2018. To put the power of income into perspective, there only needs to be a 2.4% rise in income to equal a 12% rise in housing prices if rates stay the same. In fact, with rising incomes, the NAR Affordability index hit 146 in June. On a national level, every housing downturn since 1971 happened when affordability was below 120.


A second indicator called Income to Rent, showed in 2020 that the market is 25% overvalued, but still below the 2007 bubble peak (See Figure 4 below). Incomes are rising, average hourly earnings rose .58% in July, above the trend before the pandemic started showing a trend of increased affordability.

A third indicator called the price to rent ratio shows we are better than in 2007. The graph below shows we are elevated on a price to rent ratio (See Figure 5 below). The elevated level may be at a transitory high because of the now expired eviction moratorium and renters leaving cities to buy. These two events are keeping rents low and lagging in the short term. The eviction moratorium put a temporary price freeze on all rents for a year. As these have expired, we should see rents going back to market price. The rent multiple was turbo charged (high price in relation to rent) beginning in March of 2020, when people reacting to the pandemic moved from large cities (NY, San Francisco, Chicago) causing a temporary drop in rents in major cities, while increasing prices in the suburbs.


Multiple of Income and Rents

The drop in large city rents while home prices shot up, is attributed to the temporary price to rent dispersion. Zillow recently reported that “Typical U.S. rents grew 9.2% year-over-year in July… The ZIllow Observed Rent Index (ZORI) in July was 2.9% ($52) higher than where it would have been if the last roughly 18 months had been more ‘normal’.” Surveys by the New York Fed and Fannie Mae suggest renters are braced for further hikes of 7% to 10% in the coming year. This is due to the expired moratorium, expiring leases and rental inventory decreases. If mortgage rates stay down, and rental inventory continues to decrease, causing rents to increase over the next 1-2 years, home purchases will become more favorable over rents going into 2022. This is reinforced by Goldman Sachs' prediction of low probability of a crash in the next two years (Figure 6). 

Rental occupancy nationally was recorded at 96.9%, (See Figure 3) and according to the National Apartment Association, rents have climbed 10% in 65 of the 150 largest metros, and at least 15% in 22 metros. As current leases expire, rents will go up. To afford higher rent payments, more people are giving up independence to afford more space. There has been a 35% increase in friends, parents, children, siblings and grandparents renting together. Approximately 15% of people who rented or bought homes between April and June of last year planned to have multiple generations living there per WSJ and NAR. That is up from 11% of those who bought between July 2019 and March 2020, and the highest level in survey data going back to mid-2012. To afford the higher rent on larger homes, Millennials are renting with friends and GenXers are creating multi-gen households by putting in-garage apartments and backyard houses for elderly parents. As rents continue to increase and mortgage rates remain low, First American reports that “House-Buying power, how much one can buy based on changes in income and interest rates, increased by 6.8 percent in June compared with a year ago.” Even though nominal house prices are significantly over that of the housing boom peak, real house-buying power adjusted house prices remain 42% below the 2006 market peak. Since the 2006 boom in unadjusted prices, the average 30-year fixed mortgage rate fell by around 3.3 percentage points, from 6.32% to 2.98%. Over the same period, nominal household income increased by 55%, contributing to the 129% higher house-buying power in June, compared to 2006.


Click here for a detailed explanation of the other market drivers which indicate a housing crash is unlikely: 

chart 1

Figure 3


RE_Figure 4

Figure 4 


RE_Figure 5

Figure 5



This is Not the 2007 Housing Bubble” The Retirement Group, 25 April. 2021,
Ackerman, Andrew. “Consumer Agency Seeks to Restrict Foreclosures Through 2021 - WSJ.” WSJ, The Wall Street Journal, 5 Apr. 2021,

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John Jastremski

Written by John Jastremski