The State of U.S. Housing (A Series)

June 2018

Part 3: Home Prices and Rent Growth

Over the past couple of months, STF has released a series of articles analyzing the U.S. housing market called “The State of U.S. Housing”. Part 1 focused on too many buyers and not enough homes. Part 2 took a look at high construction costs and public policy that hinders new construction. This month will dive deeper into home prices and the impact stagnant wage growth has had on the market.

The lack of new housing supply has been the driving force behind home values. On the national level, home prices have regained most or all of the ground lost during the recession. Home prices have risen year over year an average between 5% and 7% in the last 5 years, 2018 first quarter saw an increase of 6.9% over the same time period in 2017. While an increase in home price is fantastic news to the seller, for many buyers including first time home buyers, they are being priced out of the market. Heavy demand has led to massive bidding wars and many people have resorted to paying above asking price.

With a robust economy many economist assumed wages would rise naturally, however that has not been the case for many employees. Growth in average hourly earnings has had mediocre increases year over year averaging between 2.5% and 2.7% yearly since 2010. This increase in wages are slightly higher than the yearly rate of inflation which has remained steady at 2.2% for the past 5 years.

Not only has wage growth been stagnant but increases in average monthly rent have actually surpassed inflation. According to Zillow and the Zillow Rent Index (ZRI) rent growth has increased 2.5% annually. This along with the stagnant wage growth indicates that people have not been able to increase savings or have had to decrease savings for general living costs. For many first time home buyers, this has been the hurdle they are trying to overcome, the inability to save or increase savings for higher priced homes has shut the door on the dream of home ownership.

Switch To Mobile Version