Financial

Making More From Your House Than From Your Salary Makes Life Easier

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.

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?

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Source
Making More From Your House Than From Your Salary Makes Life Easier is written by Financial Samurai for www.financialsamurai.com

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