When Houses Outrun Paychecks: The Lost Decades of Housing Affordability

Over the last two decades, housing affordability has become one of the most pressing economic issues for many Americans. It shapes where workers can live relative to jobs, how easily young households can build wealth, and how sensitive local economies are to changes in the cost of borrowing. Moreover, this challenge is evolving into a global phenomenon driven by increasing urbanization.

As housing costs grow faster than incomes, we see distorted labor mobility, increased financial fragility, and a stark wealth divide between owners and renters. By effectively eroding the American dream of upward mobility, these factors position housing affordability as a primary economic issue.

In this blog post, we analyze how housing affordability has evolved over the past 20 years. For most U.S. counties, the story is remarkably similar: Home values have risen much faster than the incomes of the people living in them. From 2000 to 2024, median per-capita income has grown steadily but modestly, at around 155% in nominal terms. Over the same period, median home prices—when measured carefully and adjusted for local composition—have increased at a much faster pace, at around 207% in nominal terms. This divergence helps explain why younger households struggle to buy their first home, while longtime owners increasingly view housing as their primary source of wealth.

In what follows, we document this gap systematically across the U.S.—in particular, across counties—and show how it varies with local economic conditions. But how we measure house prices matters a lot. A naïve look at simple medians can give a very distorted picture of what is happening to the “typical” home, as the composition of sales can change over time. That’s where repeat-sales measures come in.

Why Simple Medians Can Mislead

It’s tempting to summarize the market with the median or average sale price each year. The problem is that this statistic is extremely sensitive to what is selling, not just to how much prices are changing:

• Mix shifts: In a given year, if a larger share of transactions are high-end homes, the median price will jump—even if the underlying value of a standard three-bedroom house hasn’t moved.
• New construction bias: New homes tend to be larger and more expensive. As more new construction enters the sample, median prices rise simply because the product changes.
• Changing geography: As sales shift toward fast-growing, high-cost counties, the national median can increase even if prices within each county are flat.

Why Repeated Sales Are Better

Repeat-sales indexes, like those built by S&P Global and Cotality, tackle this problem by following the same property across multiple transactions. Instead of comparing one year’s set of houses with a completely different set the following year, we compare each home with its own past sale. This design strips out many “compositional effects”—mix shifts, new construction and regional weighting changes—and yields a cleaner measure of true price appreciation.

In our analysis, we rely on repeat-sales style measures at the county level for exactly this reason. When we track the same homes over time, the pattern is unambiguous: In most places, underlying home values have risen far faster than local incomes, reinforcing the affordability squeeze documented above.

The map below plots the cumulative growth of the Cotality home price index between December 2000 and December 2024 for 1,492 U.S. counties for which data are available. Each county is shaded by its nominal price growth:

• White indicates either missing data or growth close to the national mean of 171% (103 counties were between 165% and 175%).
• Cooler purples mark weaker appreciation (down to roughly 22%).
• Deeper shades of orange highlight extreme run-ups of over 450%.

The main takeaway is straightforward: Wherever we had data, home prices went up—often by a lot—with especially large increases in parts of the West, the Mountain West, Texas and Florida, and more moderate but still positive growth in much of the Midwest and Southeast.

Cumulative Growth in House Prices, 2000-24

SOURCES: Cotality and authors’ calculations.

NOTE: White indicates either missing data or growth close to the national mean of 171% (103 counties were between 165% and 175%).

Factors Driving Up House Prices

Why have house prices outpaced incomes so persistently? The core mechanism is straightforward: Demand shifted outward against a relatively inelastic supply curve. Zoning rules, land-use regulations, and capacity constraints in construction limited new supply, especially in high-productivity metro areas, so shocks to demand translated primarily into higher prices rather than more units.

There were several factors that shifted housing demand outward. From 2000 to 2021, a sustained decline in mortgage rates lowered the user cost of housing and relaxed borrowing constraints, effectively raising households’ housing “budget” even when wages grew slowly. Credit expansions in the 2000s further amplified this effect, and in the post-2008 environment, institutional investors and global capital increasingly treated U.S. housing as a quasi-safe asset, adding an investment-demand component on top of local fundamentals.In their 2023 article in Real Estate Economics, “The Economic Effects of Real Estate Investors,” Carlos Garriga, Pedro Gete and Athena Tsouderou documented the impact of small- and medium-sized real estate investors (SMREI) and showed that these investors increased house price growth and the price-to-income ratio. They also changed the composition of the housing stock in favor of multifamily units.

At the same time, amenity and productivity premiums were capitalized into land values: Counties with strong job growth, high-quality schools and attractive amenities saw disproportionate appreciation. Finally, the widening gap in household incomes meant that much of the aggregate income growth accrued to higher-income households, who could bid up prices for a fixed or slowly growing housing stock, thereby pushing equilibrium prices away from what median earners can afford.

Measuring Affordability with the House-Price-to-Income Ratio

To make this divergence concrete, we relate prices and incomes side by side. For each county, we compare the cumulative growth in median home values with the cumulative growth in median incomes, providing a simple, transparent gauge of how far housing has outpaced local earning power.

The next figure compares each county’s house-price-to-income ratio in 2000 (horizontal axis) with the same ratio in 2023 (vertical axis). Each circle is a county, and the 45-degree dashed line marks “no change” in affordability.

The cloud of points sits mostly above that line, indicating that for the vast majority of counties, housing has become more expensive relative to local incomes over the past two decades. Some places that were already pricey in 2000 have moved even further up, while many mid-range counties have shifted from roughly three to five times income toward much higher ratios. Only a small set of counties falls below the line, where housing has become relatively more affordable. Overall, the scatterplot makes clear that rising house prices have outpaced income growth almost everywhere, not just in a few coastal hotspots.

Change in Housing Affordability in Select Counties: 2000 vs. 2023

SOURCES: Cotality, Bureau of Economic Analysis and authors’ calculations.

NOTE: Values above the diagonal indicate increased housing cost burden over time.

Taken together, the evidence points to a simple but sobering conclusion: In most U.S. counties, the cost of buying a home has pulled decisively away from what local incomes can support. Repeat-sales data show home values more than doubling since 2000 on average, with many places experiencing price growth well above 200%. Over the same period, real per-capita incomes rose only modestly, and the house-price-to-income scatterplot makes clear that most counties have moved above the 45-degree line—into a regime where housing is structurally less affordable than it was a generation ago.

This is not just a story about a few “superstar” coastal cities. Tight land-use rules, inelastic supply, falling mortgage rates, credit cycles, amenity premiums and widening income differences have all interacted to push prices up relative to earnings across a broad swath of the country.

For first-time homebuyers, the bar for homeownership is now substantially higher, and this is why the average age to purchase a first house has increased around 10 years. For existing owners, housing has become an increasingly central store of wealth. Any serious discussion of housing policy, local land-use reform, or the distributional effects of monetary and credit policy should consider this basic fact: In much of the United States, the typical home has simply outrun the typical paycheck.

Note

1. In their 2023 article in Real Estate Economics, “The Economic Effects of Real Estate Investors,” Carlos Garriga, Pedro Gete and Athena Tsouderou documented the impact of small- and medium-sized real estate investors (SMREI) and showed that these investors increased house price growth and the price-to-income ratio. They also changed the composition of the housing stock in favor of multifamily units.