The high numbers of two-income households, Baby Boomers in their peak earning years, and rising wages at the top end of the income scale are also fueling a growing rate of income inequality in the region — and driving up housing prices.   Dual-income households have been able to increase their incomes and standard of living more easily than single-earner households.  For example, in the 1990s, married women’s earnings accounted for 32% of the family’s total earnings, up from 13% in 1979.  The total hours worked per household also has increased (The State of the American Dream in Massachusetts).

The failure of the housing supply to keep up with demand is a major factor behind the escalation of housing prices (see 6.3).  Declining mortgage interest rates make housing ownership more affordable — but also contribute to higher prices by increasing the level of loans banks are willing to make to households with certain income levels.

How are we doing?

The gap between income and housing prices has grown substantially over the past decade.  Between 1996 and 2003, median housing prices in the Boston region grew 131%.  Because interest rates dropped by 28%, the amount of income needed to purchase the median-priced house grew by 87%.  Median income grew 52% during this period — not enough to catch up to rising prices.  The most recent (2003) data show slightly increasing affordability, because interest rates dropped faster than housing prices increased.  Mortgage interest rates held steady in 2004 while prices increased. Therefore affordability decreased between 2003 and 2004.

HUD estimates that household income should equal or exceed 40% of the purchase price of a home.  Using this measure, the affordability gap between median income and median home prices grew from $2,000 in 1970 to $84,000 in 2002.