Wage Versus Home Price Growth

Wage Versus Home Price Growth

By metro area

Based on the headlines, home prices outpace wage growth. Indeed, in the last six years home prices increased 47 percent while wages rose 16 percent. What do these percentage changes actually mean for a typical homebuyer? How much did the typical salary increase in dollars? How much more do buyers need to pay for their monthly payment because of the price increase?

NAR calculated the monthly earnings for a typical employee in both 2018 and 2012. Respectively, using the median home prices in 2018 and 2012, we also computed the monthly payment for a typical home for both years[1]. Then, we compared the change of the average monthly wages in dollars with the change of the monthly payment in the last 6 years.

Nationwide, the monthly earnings of a typical employee rose by $530 to $3,784 in the fourth quarter of 2018 from $3,256 six years earlier. In the meantime, the monthly payment increased by $354 to $1,114 in 2018 from $760 in 2012. Thus, although home prices increased nearly three times more than wages (in percentage points), homebuyers needed to spend less than their salary increase for the higher mortgage payment. Noticeably, homebuyers needed to spend nearly two thirds of their salary increase (above the 30% rule) for the higher mortgage payment[2].

Since all real estate is local, we calculated how much both the monthly wage and mortgage payment changed during 2012 and 2018 for the 100 largest metro areas.

In the last six years, the Seattle, WA and San Francisco, CA metro areas experienced the highest gains in wages. In both metro areas, the average monthly salary increased by $1,150 between 2012 and 2018. In the Seattle, WA metro area, the average monthly salary increased to $5,632 in the last quarter of 2018 from $4,479 six years earlier. However, in some metro areas, wages dropped. In the Tucson, AZ metro area, the average monthly earnings declined by $189. Similarly, in the Palm Bay, FL metro area the average monthly wages dropped by $172. Overall, the average monthly wages increased by $433 in the 100 largest metro areas.

In the meantime, home prices increased in all of the 100 largest metro areas except for the Bridgeport, CT metro area. As a result, current homebuyers need to pay a higher monthly mortgage payment for the same home compared to 2012. Among the 100 largest metro areas, San Jose, CA and San Francisco, CA metro areas experienced the highest increase in the monthly mortgage payment because of price appreciation. Specifically, in the San Jose, CA metro area, current homebuyers need to pay $2,428 per month more than in 2012 for the same home. However, overall, the monthly mortgage payment increased by $340 on average in the 100 largest metro areas.

Comparing the amount of the wage increase with the higher monthly mortgage payment, in 70 percent of the 100 largest metro areas, wages in dollars increased more than the mortgage payment. Moreover, in most of these metro areas, the increase of the mortgage payment accounted for less than 30 percent of the wage increase. For instance, in the Chicago, IL metro area the average monthly wage increased by $572 while the monthly mortgage payment rose by $326. Another example is the Dallas, TX metro area. In this area, homebuyers in 2018 earned $558 more every month than homebuyers in 2012 while the monthly mortgage payment increased $420 since 2012 because of the price appreciation.

See below the top 5 metro areas with the highest monthly income gains compared to the extra housing cost:

Nevertheless, the extra monthly housing cost exceeds the income gains in 30 percent of the 100 largest metro areas. For instance, in the San Jose, CA metro area, homebuyers in 2018 earned $549 more every month compared to the homebuyers in 2012. However, the monthly mortgage payment increased $2,428 since 2012 because of the price appreciation. This means that homebuyers will need to attribute a higher percentage of their monthly earnings to housing cost since their income gains are not enough to cover the extra housing cost.

Here are the top 5 metro areas where the extra housing cost exceeds income gains:

See below how much both the monthly wage and mortgage payment changed during 2012 and 2018 for each of the 100 largest metro areas.

View the Data here


[1] Assuming the same mortgage rate at 4% for a 30-year fixed rate mortgage.

[2] Based on the rule of thumb, 30% of the gross income should be spent for housing.

REALTORS® Expect Prices to Increase to Nearly 4% in Next 12 Months

REALTORS® Expect Prices to Increase to Nearly 4% in Next 12 Months

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”

Among the REALTOR® respondents who responded to the January 2018 survey, the median expected price change for the next 12 months was 3.6 percent, according to the  January 2018 REALTORS® Confidence Index Survey.[1] In December 2017, the median expected price change was 3.1 percent. Strong buyer traffic amid low supply of homes coming into the market continues to push up home prices. In January 2018, the median price of existing homes sold rose to $240,500, up six percent from one year ago.

The map below shows the median expected price change of the respondents in the next 12 months at the state level based on surveys conducted during November 2017—January 2018. The highest median expected price growth of more than five to seven percent was in Washington, Nevada, and Wyoming.

In Oregon, Idaho, Utah, Arizona, Colorado, and Florida, the median expected price growth was four to five percent. REALTORS® reported stronger buyer traffic in these states compared to one year ago, based on the RCI Buyer Traffic Index, while the number of homes for sale has remained essentially unchanged, based on the RCI Seller Traffic Index.

In states with high property tax rates or property prices, such as New York, New Jersey, Connecticut, and California—states which are the most affected by the Tax Cuts and Jobs Act that put a cap on total itemized deductions property and state and local taxes — the median expected price change among respondents was two to three percent.[2]

expected

Lack of supply amid strong buyer interest continues to push prices up. At the metro area level, data on the number of active listings on Realtor.com indicates how serious the lack of supply is. Of the 500 metro areas tracked by Realtor.com, active listings are lower compared to one year ago in 395 out of 500 metro/micro areas, 80 percent. Areas in red show active listings are lower compared to one year ago, while areas in blue have more active listings.

exp prices


[1] To increase the number of observations for each state, NAR uses data from the last three surveys.

[2] To note, the median expected price change is based on data collected from October—December 2017, while the Trump administration released its proposed tax measures only in November 2017, and the Tax Cuts and Jobs Act was signed by President Trump on December 22, 2017, so October survey responses may not factor in the effect of tax reform measures on price expectations.