California homeowners spend about 29% of their income on their homes. A recent study showed the average homeowner in that state pays $24,252 in yearly housing costs.
Housing prices across the United States have been rising. According to a 2022 report from media company The Hill, housing prices were $428,700 in the first quarter of 2021, an increase from $329,000 in 2020. Rental prices also increased, indicating people who might have previously considered buying a home decided to rent instead.
Prices have dropped since then. Motley Fool’s The Ascent reports the average home price in the second quarter of 2023 is holding steady at $416,100. Even so, that’s a 26% increase from 2020.
Paying More on The Coasts
The New Jersey Real Estate Network used census data analysis to gather information on mortgage payments, property taxes, home insurance, utility costs, and other fees associated with owning a home.
The study showed California residents spend the highest percentage of their income on home ownership.
But homeowners on each coast pay more for their homes. New York is second on this list, with residents paying 24.8% of their income or $18,636 yearly for housing.
New Jersey comes in third. Their homeowners pay 24.75% of their incomes for housing, which adds up to $22,200 annually.
Hawaii ranks fourth on this list. A homeowner in Hawaii will pay about $21,732 per year, or 24.69% of their income. According to a study by Martin Real Estate, Hawaiian homeowners also pay the most per square foot for their homes.
Connecticut rounds out the top five on this list with an average annual housing cost of $20,460. That’s 24.48% of residents’ income.
Other coastal states in the top 10 include Oregon, in eighth place, with 22.84% of residents’ incomes going to housing costs. Washington places ninth by a narrow margin. About 22.9% of their homeowners’ income pays for housing.
Housing Is Less in West Virginia
If California and New York are the most expensive states for housing, where do homeowners pay less?
West Virginia is at the top of the least expensive list. Their residents pay only $6,996 in housing costs yearly, accounting for 13.75% of residents’ income.
North Dakota is second on the list for the least expensive housing costs. Homeowners there pay $10,608 in housing costs. That’s 15.57% of residents’ yearly income.
South Dakota, North Dakota’s southern neighbor, places third for least expensive housing. Their residents spend $10,536 for their housing per year, which is about 16.48% of their homeowners’ annual income.
The Southeast is the least expensive region of the U.S. overall, with most of those states in the bottom half of the list. Arkansas is the fourth least expensive state, with residents paying $8,616 for housing yearly — or 16.53% of their income.
Mississippi is the fifth least expensive state for housing costs. Magnolia State homeowners spend about 16.64% of their annual income on their housing. That translates to paying $8,172 in housing costs annually.
Higher Housing Prices Better for The Economy?
Some assume higher prices mean the economy is struggling, but this doesn’t always hold true.
The Congressional Research Service reports higher housing costs accounted for 16.7% of the Gross Domestic Product (GDP) in 2021. Since consumer spending is responsible for about 70% of the U.S. economy, even rising home prices can result in big changes that help grow the economy.
Higher home prices likely lead to more construction, increasing economic growth. A rise in housing prices also prompts more confidence in the economy.
The Housing Inventory Report compiled by the Economic Research division of the Federal Reserve Bank reveals about 646,698 single-family homes and townhouses were for sale in July 2023 in the United States.
According to CNN, although the housing construction market cooled in June 2023, May saw a 21.3% increase over April’s new home construction numbers.
Robert Dietz, chief economist at the National Association of Home Builders/Wells Fargo Housing Market (NAHB), explained that building more houses is also good for combating high inflation levels.
“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing — for-sale, for-rent, multifamily, and single-family,” he said. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”
Reuters reports May’s rate of single-family dwelling growth was the highest in 30 years. The downside of that growth is that builders and developers are finding it more challenging to get loans, which may lead to lower levels of building supplies, slowing down construction.
Bill Adams, chief economist at Comerica Bank, had good news, though. He told Reuters that home construction should increase U.S. economic growth in the next six months. Residential construction has held back the U.S. GDP growth for eight quarters in a row.
Whether the rise in housing costs is hurting homeowners or helping the economy, online insurance advisor The Zebra reports the percentage of Americans who own their homes has remained stable at about 64% from the 1960s through 2020.
However, the same study estimates that currently only 43 out of every 100 Americans can now afford a home, as opposed to 68 out of 100 in 1960.
That number will continue to drop as long as home prices continue to rise beyond the average person’s ability or willingness to pay.
Andrew Herrig is the founder of Wealthy Nickel, where he writes about personal finance, side hustles, and entrepreneurship. As an avid real estate investor and owner of multiple businesses, he has a passion for helping others pursue financial independence and shares his own family’s journey on his blog. Andrew’s expert advice has been featured on CNBC, Entrepreneur, Fox News, MSN, and more.