National Median Income Estimates for 2021 and 2022

Published by Thomas Stagg on Monday, November 30, 2020 - 12:00am

(This is part one of a three-part series that looks at estimated income limits on a national, state and local level. This post covers national median income.)

The release of the 2019 American Community Survey (ACS) data provides an initial sneak peek at income limits for 2022. Using the ACS and the Congressional Budget Office’s (CBO) consumer price index (CPI) estimate, Novogradac can provide initial estimate area median income and very-low income for 2021 and 2022. While we still need to wait for final CPI figures, these initial estimates provide insight into overall income limit trends.

Initial Analysis–National Median Income

As anticipated, estimates for 2021 are heavily impacted by the slowdown in the U.S. economy. As mentioned above, one of the driving factors in HUD’s calculation of income limits is CPI. Due to the change in the CBO’s estimate of CPI released in July, it is estimated that national median income will increase by less than 1%.

However, using CBO’s July estimate of CPI, it appears that 2022 will be a rebound year for income limits. Currently Novogradac estimates that the national median income will increase by more than 5.75%.

National Median Income

National median income has been on a steady increase. Looking at the ACS data for the past five years shows a steady increase in the underlying ACS data:

Blog Table: ACS National Median Income 2015-2019

Click to Enlarge

HUD uses the ACS data from three years prior to calculate the income limit for the current year. Therefore, for 2020 national median income HUD used the 2017 ACS data. That data is then trended to the current year, using the change in CPI. However, since the change in CPI for the year that the income limits are being published for is unknown as of the date HUD publishes their income limit, it uses the CBO’s estimate of CPI for the year. For the 2020 limits the CPI ratio was as follows:

CBO’s estimate of 2020 CPI (published in January 2020)/2017 Annual CPI

Overlaying the ACS data with its HUD year reveals the impact of the CPI trend.

Blog Table: ACS and HUD National Median Income
Click to Enlarge

 

For HUD FY 2018 and 2019, CPI was growing faster than ACS data, which resulted in the HUD-published national median income increasing faster than the ACS data. However, due to the economic slowdown, the CPI estimate for 2021 is resulting in the estimated national median income to trend slower than the growth in the underlying ACS.

As discussed in a previous blog post, the change in U.S. median income is especially important as increases in low-income housing tax credit (LIHTC) and Section 8 income limits are limited to the greater of 5% or two times the change in U.S. median income.

Based on this formula, the cap for 2021 will be 5% and the cap for 2022 is estimated to be more than 11%.

Conclusion

The next two years will see a lot of volatility in income limits. It is important to understand how income will change for your specific area. Estimates for individual areas can be ordered here.