One of the great benefits of being an investor is that you can sometimes make more from your investments than from your day job. After several years of doing so, you might even start wondering what's the point of working so much!
According to Zillow, home value appreciation in 2021 was higher than median wages in 25 of 38 major metropolitan areas. In 11 areas, home price appreciation was greater than $100,000.
With millions of homeowners making more from their houses than from their salaries during the pandemic, maybe we'll avert a recession after all.
Metropolitan Areas With The Greatest Increases In Home Prices Over Wages
The greatest home price appreciation in absolute dollars came from the San Jose-Sunnyvale-Santa Clara area: $229,277. Not bad compared to the median pre-tax income of $93,000 based on data from the Current Population Survey Annual Social and Economic Supplement.
It is unclear whether the median pre-tax income is per individual or per household unit. Probably the latter. According to the US Census Bureau, as of 2020, the median household income in San Jose was $117,000. Meanwhile, 23-year-old college graduates are receiving $150,000 compensation packages working at big tech.
Even though many folks think San Francisco is dead or dying, the San Francisco-Oakland-Hayward area did just fine in 2021, showing a $204,914 home price appreciation. The median pre-tax income in 2021 was supposedly only $75,000, which also seems very light. If the data had only focused on properties in San Francisco, the absolute dollar amount appreciation would have been higher because the median price point is much greater than in Oakland and Hayward.
It is good for San Francisco to be in second place because nobody pays attention to second place, only first place. The city gets to be more stealth. If you're an existing homeowner, you don't want national publicity. Otherwise, politicians will be pressured to do more to improve affordability, e.g. raise property taxes, streamline permits, boost construction, etc.
As a homeowner, you want your politicians and the people who work in the building department to be inefficient. You might even want some corruption to occur to really slow down the permitting and building process.
The harder it is to pull a permit for your remodel or new construction, the less housing supply there will be. Politicians and city building officials have done a great job of suppressing supply.
Metro Area Home Value Growth Chart
Overall, the median home value in the United States grew by $52,667, or $2,667 more than the supposed median pre-tax income in 2021. Meanwhile, the median rent grew by ~16% or $3,072 in 2021. Therefore, if you are a rental property owner or investor, you were able to benefit both ways.
Below provides more details by metro area. Tampa-St. Petersburg-Clearwater showed the highest absolute dollar rent increase of $5,292. That's impressive since the median home price in Tampa, Florida is only about $375,000 in 2022.
Therefore, if you follow the BURL real estate investing rule, you should put the Tampa area on your places to invest list.
|Metro Area||Home Value Growth December 2020 – December 2021||Median Pretax Income, 2021||Home Value Growth Minus Median Income||2021 Rise in Full-Year Rent Payments||U.S. Profession That Made an Income Closest to 2021 Home Value Growth|
|United States||$52,667||$50,000||$2,667||$3,072||Directors, religious activities and education|
|New York– Newark— Jersey City||$63,928||$60,000||$3,928||$4,656||Judicial law clerks|
|Los Angeles– Long Beach– Anaheim||$131,979||$50,000||$81,979||$3,924||Judges, magistrates|
|Chicago– Naperville– Elgin||$34,918||$57,000||-$22,082||$2,028||Other protective service workers|
|Dallas–Fort Worth– Arlington||$69,488||$50,000||$19,488||$3,156||Human resource specialists|
|Houston– The Woodlands– Sugar Land||$45,250||$50,000||-$4,750||$2,004||Dental laboratory technicians|
|Washington, D.C.– Arlington-Alexandria||$56,163||$75,000||-$18,837||$2,700||Loading machine operators, underground mining|
|Miami– Fort Lauderdale– West Palm Beach||$72,053||$40,000||$32,053||$7,104||Public relations specialists|
|Philadelphia– Camden– Wilmington||$39,994||$60,000||-$20,006||$2,160||Supervisors of food preparation and serving workers|
|Atlanta– Sandy Springs– Roswell||$73,036||$50,000||$23,036||$4,008||Soil and plant scientists|
|Phoenix– Mesa– Scottsdale||$103,470||$52,000||$51,470||$4,644||Education administrators, K–2|
|Boston– Cambridge– Newton||$76,616||$66,852||$9,764||$3,948||Arbitrators, mediators|
|San Francisco–-Oakland-Hayward, CA||$204,914||$75,000||$129,914||$3,540||General internal medicine physicians|
|Riverside–-San Bernardino–-Ontario, CA||$111,014||$45,000||$66,014||$4,560||Air transportation workers|
|Detroit-Warren-Dearborn, MI||$29,675||$57,000||-$27,325||$1,644||Gambling cage workers|
|Seattle-Tacoma-Bellevue, WA||$131,129||$65,000||$66,129||$3,816||Computer and information research scientists|
|Minneapolis–-St. Paul–-Bloomington, MN-WI||$39,942||$60,000||-$20,058||$1,020||Gambling surveillance officers|
|San Diego–-Carlsbad, CA||$160,493||$54,703||$105,790||$4,932||Computer and information systems managers|
|Tampa–-St. Petersburg–-Clearwater, FL||$74,754||$46,000||$28,754||$5,292||Criminal justice teachers, postsecondary|
|Denver-Aurora-Lakewood, CO||$108,922||$65,000||$43,922||$2,928||Electrical engineers|
|St. Louis, MO-IL||$27,741||$50,000||-$22,259||$1,428||Cooks and food preparation workers|
|Baltimore-Columbia-Towson, MD||$36,984||$60,000||-$23,016||$2,316||Medical assistants|
|Charlotte-Concord-Gastonia, NC-SC||$71,804||$57,000||$14,804||$3,384||Commercial divers|
|Orlando-Kissimmee-Sanford, FL||$64,638||$44,384||$20,254||$4,380||Set and exhibit designers|
|San Antonio–-New Braunfels, TX||$54,769||$46,966||$7,803||$2,292||Counselors|
|Portland-Hillsboro-Vancouver-Hillsboro, OR-WA||$83,283||$60,000||$23,283||$2,520||Speech-language pathologists|
|Las Vegas–-Henderson-Paradise, NV||$83,894||$46,000||$37,894||$4,380||Nuclear technicians|
|Kansas City, MO-KS||$40,846||$50,000||-$9,154||$1,368||Mixing and blending machine setters, operators|
|San Jose–-Sunnyvale–-Santa Clara, CA||$229,277||$93,000||$136,277||$3,108||Oral and maxillofacial surgeons|
|Nashville-Davidson-–-Murfreesboro–Franklin, TN||$84,395||$50,000||$34,395||$3,372||Emergency management directors|
|Providence-Warwick, RI-MA||$66,657||$55,000||$11,657||$2,364||Court reporters and simultaneous captioners|
|Oklahoma City, OK||$26,866||$44,044||-$17,178||$1,584||Food preparation workers|
|New Orleans–-Metairie, LA||$31,945||$47,000||-$15,055||$2,628||Textile machine setters, operators, and tenders|
|Salt Lake City, UT||$119,539||$53,638||$65,901||$3,156||Computer network architects|
|Birmingham-Hoover, AL||$31,968||$50,000||-$18,032||$1,476||Helpers – production workers|
|Urban Honolulu, HI||$138,254||$51,000||$87,254||$2,820||Operations specialties managers|
|Omaha–-Council Bluffs, NE-IA||$31,114||$50,000||-$18,886||$1,236||Funeral attendants|
|Albuquerque, NM||$47,215||$45,000||$2,215||$2,736||Educational instruction and Library workers, all others|
|Boise City, ID||$124,979||$50,000||$74,979||$3,240||Health specialties teachers, postsecondary|
Percentage Of Individuals And Households Earning More Than $100,000
Despite inflation, making six figures a year is still a good accomplishment. Back in 2014, a $100,000 income as an individual meant that you were earning more than 92% of the population.
According to IBISWorld, a data industry research group, roughly 34% of U.S. households will earn more than $100,000 in 2022. Either way, in America only a minority of individuals or households earn more than $100,000.
Therefore, to be able to earn $100,000 or more from your primary residence alone is quite an accomplishment! So let's rank the metro areas that saw house prices appreciate by more than $100,000.
Metro Areas That Saw More Than $100,000 In Home Price Appreciation In 2021
Here are the 11 metro areas that saw home prices increase by over $100,000 in 2021.
1) San Jose-Sunnyvale-Santa Clara: $229,277
2) San Francisco-Oakland-Hayward: $204,914
3) San Diego–-Carlsbad, CA: $160,493
4 Los Angeles– Long Beach– Anaheim: $131,979
5) Seattle-Tacoma-Bellevue, WA: $131,129
6) Honolulu, HI: $138,254
7) Boise, ID: $124,979 (+24% YoY)
8) Salt Lake City, UT: $119,539 (+24% YoY)
9) Riverside–-San Bernardino–-Ontario, CA: $111,014
10) Denver-Aurora-Lakewood, CO: $108,922
11) Phoenix– Mesa– Scottsdale: $103,470 (+30% YoY)
Of these metro areas, the home price growth in Phoenix, Boise, Salt Lake City looks to be the most unsustainable. Annualized home price growth over the past 10 years has been closer to 5%. Further, there seems to be plenty of land for new supply growth.
The San Francisco-Oakland-Hayward metro may have seen a $204,914 increase in the median real estate price, but the median home price in San Francisco is between $1.55 – $1.9 million, depending on which source you use. In addition, income levels are also much higher. As a result, its real estate price increase is much more healthy.
The attraction of living in the Sunbelt may be going down with rent appreciation of 20% in Jacksonville, Florida and 40% in Austin, Texas. Meanwhile, the allure of living in a big coastal city may be going up again. Working in offices is returning.
Median Home Prices Are Going To Keep Going Up
If my 2022 housing price forecast proves correct, the median home price will grow by another $35,000 – $40,000. This price increase will be a deceleration from 2021.
To calculate how your metro area may perform in 2022, take your metro area's 2021's home price increase and multiply it by 70% – 80%.
Given roughly 68% of Americans own homes in 2022, the majority of Americans should feel richer a year from now. Therefore, maybe we can believe the Federal Reserve Board of Governors when they say we won't go into a recession after all. Even if we do, it probably won't be that long or painful.
Of the ~32% people in America who rent, some rent by choice. Other renters may have parents who own one or more properties they will pass on to their children. As a result, home price appreciation will continue to be a top contributor to American wealth creation for generations to come.
Saving And Investing The Difference Is A Must
If you cannot buy or don't want to buy, then you must continue to save and invest the difference in stocks and other assets. It may be a challenge to keep up, given the median home price is much higher than the median salary. However, you must try. Otherwise, you may eventually get priced out.
If you are a parent to young children, you may want to build a rental property portfolio today. 20+ years from now, when your children are in their family formation years, they will likely appreciate the foresight you had today.
Also consider investing in real estate through private real estate funds like the ones offered by Fundrise. Fundrise invests in single-family and multi-family rental properties, mostly in the Sunbelt, where valuations are lower and rental yields are higher. If you don't have enough money to buy a single-family home yet, investing in Fundrise is a good solution.
Readers, for 2021, how did your metro area do in terms of home price appreciation? Do you think it's unfair to compare median home price appreciation to median pre-tax income given the median income-earner is usually not the one buying the median-priced home anymore? What are some negatives of such home price appreciation?