Home ownership is the foundation of a good economy. There are many pieces of data that factor into why and how a family purchases a home. In many cities around the U.S. there has been tremendous growth over the last several years, yet homes that were previously sold as soon as they hit the market, are now sitting on the market for days and weeks longer. Why are houses not selling as fast as they were, despite the fact that the inventory is still lacking?

The biggest reason why is that wages for a potential homeowner are not increasing as fast as home prices.  

What are some reasons for the decline in wage growth? Why is housing continuing to rise?

 

Here are some reasons why wage growth hasn’t kept up with home prices:

Underemployment

Underemployment is a problem that has carried over from the 2008 housing crash. Potential employees who were just out of college faced a shrunken job market. Instead of getting good jobs right out of college, many graduates were taking jobs they were overqualified for and living at home. While their jobs are showing a lower unemployment rate, they are still earning much less. The underemployment effect has prevented many workers from being able to afford a home.

 

Increased Benefits

When a company figures compensation for a worker, it includes more than a salary. The benefits are also a large part of the worker's wages. Because of a rise in insurance and other costs, the benefits package has contributed to a smaller salary. Companies have enticed workers with other out of the box benefits like shorter days, shorter workweeks, unlimited vacations or company retreats. These alternative benefits take a great chunk of employee pay.

 

Home Prices

Home prices have increased in the last few years. The cause for the rising prices is several different factors. The supply in many markets is low, especially in the lower price range. Because there is so much demand for homes in the lower end, many homes in that range are getting multiple offers for homes, which raises the prices. In addition, new home builders tend to build higher-priced homes, which price out many new homebuyers. This cycle is frustrating for first-time homebuyers who want to get into an affordable home.

 

Location

More expensive locations are becoming almost unaffordable. People moving from places like San Francisco, Seattle and Portland are causing an influx of people moving to Mountain cities like Phoenix, Salt Lake City, and Denver. While this is a boom to the cities it is also creating a shortage of homes. With the number of existing homes becoming less available, companies are building at a high rate. This shortage creates a higher demand for homes and thus higher prices.    

 

What happens with this growing problem is anyone’s guess, but the hope is that home prices will slow and wages will increase and meet in the middle.  

 

https://www.cnbc.com/2018/03/13/economist-home-prices-are-increasing-twice-as-fast-as-income-growth.html

https://www.usatoday.com/story/money/business/2018/06/06/home-prices-outpace-income-inflation/679451002/

https://www.homes.com/blog/2018/10/home-prices-increasing-faster-wages/