US Home prices are Surging 13 times Faster than Wages

3 Replies

"U.S. Home Prices Are Surging 13 Times Faster Than Wages
Source: Bloomberg

In yet another troubling sign regarding the affordability of homeownership, new data shows that the growth in U.S. home prices is beating wage increases 13 to 1. RealtyTrac found that home price appreciation has outpaced wage growth in 76 percent of U.S. housing markets during the past two years."

In some areas the ratio is even worse. My area of Norcal is 17-1. Yet homes are lasting just a few days on the market and it appears as if 2006-07 is here again with runaway prices  exceeding incomes.  This cannot continue.  

Why has it in this area?  Not much is available and people are buying for fear that they will never be able to afford them if they don't buy now.  Much too much exuberance. It appears people are likely paying much more than they will for the same house a year from now.

In 2006 a starter home here was nearly $500,000.  By 2009 the same home would have cost you 199,000.  Condos which were selling 240,000 were selling at 130 -140,000.  Now they are again 225,000.  Bull dozer bait is selling for $275-300,000.

Personally I think now would be a good time to watch your money very closely and rethink your exit strategies.  I don't think any long term projects are a good idea unless you plan to keep them for quite awhile; years.

AND do not believe the "this time is different" proponents.

Just my two cents.

@Martin Scherer

I see the kind of exuberance you are talking about in urban and coastal areas. I haven't seen that kind of growth in less fashionable suburbs and sprawl markets.

As a resident of the most hyped urban region, I see people trying to hold onto a dream of ownership that encompasses their love for an area. It's true that NYC and San Francisco are vibrant places to live. Former suburban dwelling millenials and empty nesters alike are finding the lifestyle in these areas very fun and desirable.

Furthermore, the housing policies in these regions necessarily constrain stock (article from The Atlantic), so real estate is traded more like a precious metal than something manufactured. 

Eventually the economic realities catch up and this market deflates, but there are still steady, consistent medium/suburban markets where the hype is not too crazy. Make sure you own a few places in these markets when couples living a $1m two-bedroom units in San Francisco decide to have their second+ child. 

Numbers are just two easy to manipulate. 

I read the article the other day. The research chose the period from 2012 - 2014 if I remember right and the conclusion is housing market is beating wage increase 13: 1.

But before that, we have the market dropped by as much as 50%, and I believe most people's wages didn't drop or by that much.

It does make sense that the valuation is getting higher, which means investors need to be more careful and distinguish investing vs. speculating.

"U.S. Home Prices Are Surging 13 Times Faster Than Wages"

Source: Bloomberg

I always get a kick when I read headlines like that. I think sometimes these journalists tend to forget how big the US of A is. If we were to reimpose the map across Europe, it's like sitting in Paris worrying about what real estate prices are doing in Lithuania. Makes no sense. 

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