Methodology
Core Metric
The Affordability Index uses a simple ratio to measure home affordability:
Affordability Ratio = Home Value / Median Household Income
A higher ratio indicates lower affordability (homes are more expensive relative to income).
Interpreting the Ratio
What do different ratio values mean in practice? Here's a practical guide:
Very Affordable
Homes cost 1-2× annual income. Rare in most markets today.
Highly Affordable
Homes cost 2-3× annual income. Buyers can comfortably afford payments.
Moderate Affordability
Homes cost 3-4× annual income. Manageable for many households.
Stretching Budgets
Homes cost 4-5× annual income. Many households will be cost-burdened.
Expensive
Homes cost 5-7× annual income. Significant financial stretch required.
Very Challenging
Homes cost 7×+ annual income. Severe housing affordability crisis.
Concrete Examples
Real-world examples help illustrate what different ratios look like:
$1,250,000 median home ÷ $125,000 median income = 10.0. Severe affordability challenge.
$520,000 median home ÷ $100,000 median income = 5.2. Expensive market.
$150,000 median home ÷ $50,000 median income = 3.0. Moderate affordability.
$75,000 median home ÷ $50,000 median income = 1.5. Very affordable.
Urban vs. Rural Differences
It's normal to see significant variation between city types:
- Major cities often have ratios of 4-7+ due to job concentration, limited housing, and high demand
- Suburban areas typically range from 3-5
- Rural areas often have ratios of 2-3 due to lower home prices
Important: Compare your area to similar geographies. A 5.0 ratio in a major city might be typical, while 5.0 in a rural area would be unusually high.
Household Type Considerations
The ratio uses median household income, which includes all earners in a household. This has important implications:
- Single-earner households will find the ratio more challenging than dual-earner households
- Household size affects affordability needs (larger families need larger homes)
- Your situation matters: If you earn less than the median, your personal ratio is higher than what's shown
Example: If your area has a 4.0 ratio (based on $100k median income), but you earn $60k, your personal ratio is effectively 6.7 — significantly less affordable.
Historical Context
Understanding how ratios have changed over time provides important context:
- Historically normal (1970s-1990s): Ratios of 2-3 were common in most areas
- Early 2000s: Many markets saw ratios climb to 3-4
- Post-2008: Brief decline, then steady increase
- 2020s: Many areas now exceed 4-6+ ratios, reflecting the housing affordability crisis
A 5.0 ratio today might be "typical" for a city, but it represents a significant decline in affordability compared to previous decades. This historical context helps you understand whether high ratios are a recent phenomenon or long-standing pattern in your area.
Affordability Score (Primary Metric)
The Affordability Score (0-100) is our primary headline metric for comparing locations. Higher scores indicate better affordability.
How the Score Works
- Score = housing affordability percentile (0-100)
- 100 = most affordable (homes cheapest relative to income)
- 0 = least affordable (homes most expensive relative to income)
- Percentile computed within peer group (cities, small cities, towns)
Letter Grades
Scores are translated into letter grades for easy interpretation:
Excellent affordability
Excellent
Good to solid
Mixed/moderate
Challenging
Very difficult
Current Score: Housing Affordability
The affordability score (0-100) reflects housing affordability based on the home value-to-income ratio percentile. Higher scores indicate more affordable housing (lower home values relative to income).
Calculation: The score is the percentile rank of the affordability ratio (home value ÷ income) compared to all other geographies nationally. A score of 85 means this location is more affordable than 85% of US locations.
Why this metric? The home value-to-income ratio is the core measure of housing affordability. It directly shows whether local incomes can support local home prices, making it the most relevant indicator for potential homebuyers and those assessing long-term housing costs.
Historical Context: Composite Score Approach
Previously, we explored calculating composite affordability scores that included housing costs and essential living expenses (food, healthcare, transportation, taxes). This approach provided a comprehensive view but added complexity.
We've since simplified to focus on the core housing affordability metric, which is what most users care about when evaluating locations. The composite calculation methodology remains documented here for transparency.
Composite Methodology (Historical Reference):
- Housing Affordability (60%): Home value ÷ income percentile
- Essentials Affordability (40%): Disposable income after living costs
- Overall Score: Weighted blend of housing and essentials scores
This composite approach was developed to capture total cost of living, but user feedback indicated that housing affordability was the primary decision factor. We continue to track cost-of-living data for future enhancements and transparency.
Data Sources
Home Values: Zillow Home Value Index (ZHVI)
- Source:
- Zillow Research zillow.com/research/data/
- What it measures:
- ZHVI represents the typical home value for a given geography. It is a smoothed, seasonally adjusted measure that reflects the middle tier of the housing market.
- Update frequency:
- Monthly (typically released mid-month for the prior month)
- Coverage:
- Cities/towns (Census Places) and ZIP Code Tabulation Areas (ZCTAs). Not all areas have coverage—rural and small towns may lack data.
- Limitations:
- ZHVI may not be available for all geographies, particularly rural areas or ZIPs with limited housing transactions. Commercial and industrial areas may also lack coverage.
Income: US Census American Community Survey (ACS)
- Source:
- US Census Bureau census.gov/programs-surveys/acs
- What it measures:
- Table B19013: Median Household Income in the Past 12 Months. This is the midpoint of all household incomes in an area—half earn more, half earn less.
- Dataset:
- ACS 5-Year Estimates (most stable for small geographies)
- Update frequency:
- Annual (5-year estimates released in December, typically lag 1-2 years behind current conditions)
- Coverage:
- All Census Places and ZCTAs with sufficient sample sizes. Very small areas may have suppressed data for privacy.
- Limitations:
- Margin of Error (MOE): All ACS estimates include uncertainty. Smaller geographies have higher MOEs due to smaller sample sizes.
- Temporal lag: 5-year averages represent data from 2018-2022 (or similar vintage), not current income levels.
- Sample size: Cities under 25,000 people have higher MOEs and should be used as general guides, not precise measures.
Understanding the Temporal Mismatch
Our affordability ratio combines data from different time periods:
- Zillow ZHVI: Current monthly data (updated monthly)
- Census ACS: 5-year average (updated annually, lags 1-2 years)
This means when we calculate the affordability ratio, we're comparing current home values to income from 1-2 years ago. This temporal mismatch is a necessary trade-off for using reliable, stable income estimates at the city and ZIP level.
Why this matters: If incomes in your area have changed significantly (up or down) in the past 1-2 years, the affordability ratio may not reflect current conditions. We update income data annually when new ACS estimates are released.
Important Caveats
1. Temporal Mismatch
Zillow ZHVI data is current monthly, while ACS income data is a 5-year average lagging 1-2 years. The ratio combines different time periods.
2. ZIP ≠ ZCTA
We use ZIP Code Tabulation Areas (ZCTAs), which are Census-created approximations of USPS ZIP codes. Boundaries may differ, and some rural ZIPs may not have corresponding ZCTAs.
3. Coverage Gaps
Not all geographies have complete data. Small towns and rural areas may lack Zillow ZHVI coverage, and some areas have insufficient Census sample sizes.
4. Interpretation Limits
This is a relative metric for geographic comparison, not a mortgage affordability calculator.
What's NOT included:
- Mortgage interest rates (which vary daily)
- Down payment requirements
- Property tax rates (vary by county)
- Homeowners insurance costs
- Debt-to-income ratios
- Closing costs and fees
- Personal financial situation
This index is for geographic comparison only. Not intended for mortgage qualification, financial planning, or investment decisions. Consult a financial professional for personal advice.
Secondary Metrics
Earning Power
The inverse of the affordability ratio: Income / Home Value. Represents what portion of a home's value is covered by annual income.
Affordability Profile (Future)
Quadrant classification using income percentile vs home value percentile to identify patterns like "High income, Low cost" or "Low income, High cost."
Glossary of Technical Terms
Understanding these key terms will help you interpret our data:
ZCTA (ZIP Code Tabulation Area)
What it is: A generalized geographic area created by the Census Bureau to approximate USPS ZIP code boundaries.
Why it matters: The Census Bureau doesn't use actual ZIP codes (those are USPS territories). ZCTAs are the closest statistical approximation.
Important: ZCTA boundaries may differ from USPS ZIP code boundaries. Some rural ZIP codes don't have corresponding ZCTAs.
ACS (American Community Survey)
What it is: An ongoing survey by the US Census Bureau that collects data on a rolling basis, rather than once every 10 years like the decennial census.
Why it matters: Provides more current data about communities' social and economic characteristics.
Update frequency: Data is released annually, but different "vintages" cover different time periods (see "5-Year Estimates" below).
5-Year Estimates
What it is: ACS data averaged over 5 years to provide reliable estimates for small geographies.
Why it matters: Small areas (cities, ZIP codes) don't have enough population for accurate 1-year estimates. The 5-year average increases sample size and reliability.
Trade-off: More reliable for small areas, but represents an average that lags current conditions by 1-2 years.
Percentile
What it is: A measure that shows what percentage of values fall below a given point.
In context: An affordability score (percentile) of 85 means the location is more affordable than 85% of US geographies.
Range: Percentiles range from 0 to 100. Higher percentiles = better affordability in our scoring system.
Margin of Error (MOE)
What it is: A range that reflects the uncertainty in survey estimates. ACS data comes from samples, not complete counts.
Example: If median income is $50,000 with a MOE of ±$2,000, the true value likely falls between $48,000 and $52,000.
Why it varies: Smaller geographies have larger MOEs due to smaller sample sizes. We use 5-year estimates to minimize this uncertainty.
Census Place
What it is: A concentration of population identified by the Census Bureau, including cities, towns, villages, and census-designated places (CDPs).
Types: Incorporated places (official municipalities) and CDPs (unincorporated communities with identifiable populations).
Identifier: 7-digit GEOID combining state FIPS code and place code.
Median
What it is: The middle value in a dataset — half of values are above, half are below.
Why we use it: Unlike average (mean), median isn't skewed by extremely high or low values. It better represents "typical" households.
Example: In a city with one billionaire and 10,000 regular residents, the average income would be misleading, but the median income would represent the typical resident.
Frequently Asked Questions
Can I use this to qualify for a mortgage?
No. This index is for geographic comparison and educational purposes only. Mortgage qualification involves many factors not included here:
- Credit score and history
- Debt-to-income ratio
- Employment stability and income verification
- Current interest rates
- Down payment amount and source
- Assets and reserves
To determine if you qualify for a mortgage, consult a licensed mortgage lender or financial advisor. They can review your complete financial situation and provide pre-approval.
What does the percentile mean?
The percentile shows how affordable a location is compared to others. For example:
- 90th percentile = More affordable than 90% of US cities (very affordable)
- 50th percentile = About average affordability
- 10th percentile = Less affordable than 90% of US cities (expensive)
Higher percentiles = more affordable (lower home prices relative to income).
Why is my ZIP code different from my city?
ZIP Codes and cities have different boundaries. We use ZCTAs (ZIP Code Tabulation Areas), which are Census Bureau approximations of ZIP codes. A city may contain multiple ZIP/ZCTA areas, and some ZIP codes cross city lines.