A Smarter Way to Compare Housing Markets: The Price-to-Income Ratio
- Rich Arzaga
- 5 days ago
- 3 min read
By Rich Arzaga, CFP®, CCIM, The Real Estate Whisperer®
The map and data referenced in this article were compiled and visualized by Visual Capitalist, using housing affordability data from the Globe and Mail.
The Metric That Explains Housing Affordability
Rather than focusing on headline home prices, this analysis relies on a simple but powerful measure:
Price-to-Income Ratio
The Price-to-Income Ratio compares the median home price in a metro area to the gross median household income.
In plain language:
The price-to-income ratio puts home prices into human terms—income, not speculation.
A Practical Example: Charlotte, North Carolina
Charlotte offers a useful baseline because it sits near the middle of major U.S. markets.
Price-to-Income Ratio: 4.9
Median Home Price: $429,900 (Realtor.com Economic Research, January 2026)
Using the formula:
$429,900 ÷ Household Income = 4.9
This implies a median household income of approximately $87,700:
$429,900 ÷ 4.9 ≈ $87,735
What This Tells Us
Charlotte remains relatively affordable compared to large, coastal markets
Income and home prices are still reasonably aligned
Ownership requires less extreme leverage than higher-ratio cities
A price-to-income ratio near 5.0 suggests balance; above 9.0 suggests strain.
When Ratios Double, Income Must Follow
Now compare Charlotte to San Diego, where the price-to-income ratio is 9.2.
This does not mean homes are twice as desirable. It means a household must earn nearly twice the income to afford the purchase of a similar property.
That difference matters because:
Higher ratios increase reliance on debt
Small changes in interest rates have outsized effects
Buyers and investors carry more financial risk
Higher home prices matter less than how expensive those prices are relative to income.
Clearing Up a Common Confusion: Los Angeles vs. San Francisco
At first glance:
Los Angeles: 10.7
San Francisco: 9.1
This can seem backwards, since San Francisco households earn more. Here’s the explanation: San Francisco incomes are higher, but home prices are even higher still.
So while Los Angeles shows a higher ratio, San Francisco homes often cost more in absolute dollars, which explains why affordability can feel worse despite higher incomes.
Higher income does not guarantee affordability if prices rise faster.
Important Context To This Map: These Are Major Cities Only
If these numbers feel alarming, perspective helps. This chart focuses on large metropolitan markets. Many:
Smaller cities
Secondary metros
Suburban areas
…have price-to-income ratios below 4.0, which materially improves affordability and financing flexibility.
We all know instinctively that it costs more to live within a major city's limits. This metric simply puts numbers to that reality.
Who Benefits Most From The Price-To-Income Metric?
Homebuyers:
For buyers, the price-to-income ratio:
Sets realistic expectations
Helps compare regions objectively
Explains why wages are higher in large metros
Higher wages often allow larger loans, which helps explain how households tolerate higher ratios—though not without added risk.
Investors:
This metric matters more than rent because
Collecting rents in markets where tenants pay more do not necessarily translate to better good cash flow.
In high price-to-income markets, investors often face:
Disproportionately high acquisition costs
Stretched price-to-rent relationships
Larger equity requirements
Greater sensitivity to vacancies and rate changes
As a result, cash-flow efficiency is often lower, not higher.
This is why many experienced investors operate outside major city cores, where:
Prices are better aligned with income
Rent supports debt more efficiently
Cash flow is easier to engineer
Exit options remain flexible
High rents usually reflect high ownership costs—not superior returns.
What This Analysis Does Not Cover
This data does not reflect:
Neighborhood-level variation
Financing structure or interest rates
Tax strategy or operating efficiency
Many middle-America markets with stronger cash-flow dynamics
Those omissions matter—especially for investors evaluating real-world performance, not just headline numbers.
The Bigger Takeaway
The price-to-income ratio isn’t about declaring markets “good” or “bad.”
It’s about context.
For buyers: affordability pressure
For planners: informed tradeoffs
For investors: alignment between price, income, and return
Understanding what kind of property you’re buying, where it’s located, and what it costs to own is far more important than chasing the highest rent on paper.
Authored by Rich Arzaga, CFP®, CCIM, Founder, The Real Estate Whisperer® Financial Planning. Helping clients and advisors integrate real estate into holistic financial plans.
Comments