Mapped: average hourly wage by state and how much house you can afford
Homebuyers’ earning power plays a major role in what they can afford – and depending on the region of the country they live in, the amount they earn will determine how many homes they can buy.
The U.S. Bureau of Labor Statistics compiled the report average hourly wage by state–numbers that directly impact housing markets across the country.
“Affordability is supported by salaries, which are driven by demand,” Ben Mizesbroker and co-founder of Smart offerstells Realtor.com®. “When average incomes are high, more people can afford to qualify for a mortgage, and that increases competition.”
This in turn drives up housing costs.
“Real estate prices and rental prices are directly correlated with an area’s income,” says Bruce Ailionattorney and real estate professional at Re/Max Town & Country in Atlanta. “The higher the income, the higher the price.”
Conversely, lower wages limit the number of people who can buy, preventing prices from rising.
Higher income gives you more choices
If someone has more income to spend, this can work to his or her advantage in several ways.
“Depending on where they buy, they could get more space, mountain or coastal views, or a better location,” Cara Ameera Coldwell Banker broker licensed in Florida and California, explains to Realtor.com.
If you earn a higher salary, you usually have more options, but not always.
“You could have a situation in a high-income area where your salary is above the national average but still not enough to afford local housing,” says Martin Oreficefounder of Rental to own laboratories in Orlando, FL.
That’s because high-income countries face serious affordability gaps Hannah Jonessenior economic research analyst at Realtor.com.
“In high-income states, rising housing costs are outpacing wage growth, dampening affordability and contributing to lower homeownership rates,” Jones says.
Lower average wages give investors an advantage
In places where people earn less, houses usually cost less.
“Despite lower incomes, many of the nation’s lowest-earning states offer better housing-wage matching than the highest-earning states,” Jones says.
However, in the current climate it can still be difficult for local buyers to enter the market, which is when investors step in.
“We buy homes in these areas because they are cheaper and there is still a need for affordable housing,” says real estate agent and investor Ron Myers. “Many of us believe that as wages slowly rise, home values will rise as well.”
States with the highest average wages
“On average, the nation’s highest-earning states do worse on housing affordability than the lowest-earning states,” Jones says.
Minnesota stands out as an exception, combining one of the highest average hourly wages with home prices below the maximum affordable level.
“California and Massachusetts, by contrast, are performing much worse, with typical home prices roughly 70% higher than what local wages can comfortably support,” says Jones.
Here’s a look at the five states that lead the country in average wages, along with how much homebuyers can afford there using the “30% rule,” which recommends that they spend no more than 30% of their income on a home.
1. Washington, Dc
Average hourly wage: $54.23
Median home price: $584,975
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $574,314
Price difference: 1.9%
2. Washington
Average hourly wage: $42.30
Median home price: $639,975
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $447,971
Price difference: 42.9%
3. Massachusetts
Average hourly wage: $41.74
Median home price: $749,450
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $442,040
Price difference: 69.5%
4. California
Average hourly wage: $41.09
Median home price: $740,368
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $435,157
Price difference: 70.1%
5. Minnesota
Average hourly wage: $39.53
Median home price: $379,950
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $418,636
Price difference: -9.2%
States with the lowest average wages
Of the lowest-earning states, almost all, with the exception of New Mexico, have home prices at or below affordable levels based on local incomes.
“Generally speaking, states with higher wages also have significantly higher home prices, while states with lower wages see home values more in line with local earning power,” Jones says.
This is where average wages are the lowest, along with how much homebuyers could afford under the 30% rule.
1. Mississippi
Average hourly wage: $28.10
Median home price: $299,000
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $297,588
Price difference: 0.5%
2. New Mexico
Average hourly wage: $29.14
Median home price: $399,900
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $308,602
Price difference: 29.6%
3. Arkansas
Average hourly wage: $29.62
Median home price: $305,750
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $313,686
Price difference: -2.5%
4. Louisiana
Average hourly wage: $29.71
Median home price: $275,750
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $314,639
Price difference: -12.4%
5. West Virginia
Average hourly wage: $29.88
Median home price: $257,000
Maximum home price a worker with an average hourly wage could afford (with a 20% discount): $316,439
Price difference: -18.8%
