Median Household Income: Definition and Calculations

The term “median household income” refers to the income level earned by a given household where half of the homes in a demographic area earn more and half earn less. It's used instead of the average, or mean, household income because it can give a more accurate picture of an area's actual economic status. Median household incomes are frequently used to determine housing affordability.

The median income is the income level in the middle of a list of ranked incomes. The median income would be $40,000 for an area that has five households with incomes of $10,000, $35,000, $40,000, $47,000 and $250,000. In calculating median income, the U.S. Census Bureau looks at the incomes of only those people who are 15 or older, and it disregards ethnicity, such as whether the household is Hispanic or of other origin.

Household medians include everyone over 15 years of age who lives in the household, regardless of whether they're related. Median household income is distinct from the poverty rate, which is measured differently.

Median household income is used in real estate to calculate the affordability of housing and in government to calculate the affordability of other significant costs, such as healthcare.

The Housing Affordability Index calculates the cost of the median home price relative to median incomes. When it goes up, this means that more people can afford to buy homes, either because their incomes are higher or because the cost of home ownership is relatively lower. When it dips below 100, home ownership is becoming relatively more expensive, and the median-earning family can't afford the median-priced house.

Affordable housing is also defined relative to median household income. Generally speaking, a home is affordable if its monthly payment is 30 percent or less of its resident's income. If you make $70,000 a year, a house with a monthly payment of $1,750 or less would be affordable for you, because this is 30 percent of your monthly income of $5,833. Typically, affordable housing programs are set up to help lower-income earners afford homes.

The National Association of Realtors indicates that the Housing Affordability Index gauges whether the average American family has sufficient income to qualify for a mortgage. This was not the case in ‌September 2022‌.

The median family income at that time was ‌$88,693‌, but the qualifying income for a median-priced existing family home was ‌$91,776‌. Further, qualifying income requirements in the northeast areas of the country, such as Massachusetts, Connecticut and New Jersey were almost ‌$9,000 more‌. It was more than ‌$51,000 more‌ in western states.

According to the U.S. Census Bureau, a household refers to a single housing unit and all of the people who live in it. A studio apartment, half of a duplex and a mansion are all considered a single household. Family households may have related residents, such as a husband, wife and children, but people who aren't related who live together, such as roommates or unmarried couples, also constitute a household.

The Manitoba Collaborative Detail Portal makes a distinction between median household income and average household income: Half of all households earn more than the median income and half earn less, whereas average income would be the result of taking the total income of all households added together, then dividing and distributing that equally among all households.

Median incomes are used as measures because they tend to more accurately represent what people earn in a given area. Given the list of the five-household area with money incomes ranging from $10,000 to $250,000, the average would be $76,400, calculated by adding up all five incomes and dividing by five.

The average is higher because the highest number on the list is much farther from the middle numbers than the lowest one is. This can skew perceptions of an area's income. The median, which comes from looking at the middle number, gives a better impression of the dataset as a whole.

As for families and households, the National Association of Realtors provides this explanation from the Census Bureau: “A family consists of two or more people (one of whom is the householder) related by birth, marriage or adoption residing in the same housing unit. A household consists of all people who occupy a housing unit regardless of relationship. A household may consist of a person living alone or multiple unrelated individuals or families living together.”

"Median" means that one-half of all households earn less and one-half earns more, according to the U.S. Census Bureau. It's based on the total number of families, including those that earn no income at all, those who work full-time or just part-time, whether they work seasonally or year-round, and whether their personal income derives from employment or benefits such as Social Security. The median income for individuals is based on all income-earning persons who are at least 15 years old.

The Pew Research Center reports that income data indicate that middle-class households earned double to two-thirds of the previous year's national median income in 2021. This worked out to an annual household income ranging from ‌$52,000 to $156,000‌ in 2020 dollars.

Median incomes and income distribution can vary a great deal by state, and income inequality is rampant. For example, the national median income of a two-person household was ‌$92,669‌ in ‌2022‌, according to the U.S. Department of Justice.

Compare this to a married couple in Tennessee. They lived on a median income of ‌$66,989‌ in ‌2022‌, while married couples in New Mexico survived on just ‌$60,728‌. Mississippi came in even lower at ‌$57,148‌.

Meanwhile, the District of Columbia enjoyed a median income of ‌$138,342‌ in the same year. It had the highest median household income in the country. But the cost of living in areas such as Washington D.C. is higher as well. The median income in outlying areas, such as Maryland, was also higher than the national figure at ‌$98,840‌, and states in the northeast came in high as well.