Society

US Housing Costs Are Increasing Faster Than Wages

| by Shani Shahmoon

The United States economy is defying all norms as unemployment goes down and home prices increase, yet hourly wages won't budge.

On May 30, the Standard & Poor's CoreLogic Case-Shiller releases their 20-city home price index and the results reflect the odd economic pattern that the U.S. has been experiencing. The cost of houses has increased 5.9 percent over the past year, hitting the highest since July 2014, KSL reported. These newly exposed statistics show that home prices are increasing twice as fast as the average hourly wage.

So if you're looking to buy your first home or to make a real estate investment now that you've reclaimed stability since the recession, you might be in for a nasty surprise.

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, provided an explanation for the phenomenon.

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"Over the last year, analysts suggested that one factor pushing prices higher was the unusually low inventory of homes for sale. People are staying in their homes longer rather than selling and trading up," Blitzer explained.

The amount of listed homes has dramatically decreased over the past year -- by 9 percent -- resulting in only 1.93 million homes up for sale.

CNBC reported that December 2016 marked the lowest number of listings since 1999, at only 1.65 million homes.

Some economists and real estate experts claim that this amount can last only 3.5 months before clearing out, while a healthy market holds a six-month supply.

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Nela Richardson, chief economist at Redfin, is calling buyer demand in 2017 a "titanic."

"We are in a real estate black hole until those listings show up again," Richardson explains.

Other sources suggest that unless new, reasonably prices homes are built, we won't get out of this strange anomaly, National Mortgage Professional Magazine reports.

Construction is moving below normal levels, and the homes that are built are outside of a reasonable price range considering current wage figures.

The reported average price of a home is $272,000.

Washington state, as well as the cities of Seattle and San Jose, have seen over 2 percent appreciation in housing costs since February.

But these increases in cost don’t match up with the stagnant wages.

Two years after the start of the recession in 2007, unemployment stood at 10 percent, nearly double what it is in May 2017, yet wage growth for both time periods remains the same at 2.5 percent, the Chicago Tribune reported.

Tara Sinclair, an economist at George Washington University and a senior fellow at Indeed, a jobs website, explained that the wage rate is not where we would expect it would be this far into recovery.

"We would think employers would be competing with each other and that we would see that competition reflected in wages," Sinclair said. 

Reportedly, that is anything but the case. 

Sources: National Mortgage Professional Magazine, CNBC, Chicago Tribune, KSL / Photo credit: Pixabay

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