Home prices soar, doubling the rate of wage growth
U.S. home prices climbed a robust 6.2 percent from a year ago, amid strong demand from would-be buyers and a shrinking supply of properties for sale.
Standard & Poor’s said Tuesday that its S&P CoreLogic Case-Shiller national home price index stood in October a solid 6 percent above its previous 2006 peak.
Prices are rising at more than double the pace of wage growth, creating some affordability pressures that have been offset by relatively low mortgage rates.
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“Since home prices are rising faster than wages, salaries, and inflation, some areas could see potential home buyers compelled to look at renting,” said David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.
The strongest annual gains occurred in Seattle, where prices have shot up 12.7% since October 2015. Las Vegas has seen prices increase 10.2%, while San Diego notched growth of 8.1%. Of the 20 metro areas tracked by the index, Washington, DC reported the smallest price gain with 3.1%.
The 17-year low unemployment rate of 4.1% has left more Americans confident enough to put bids on homes. Sales of existing homes in November reached their strongest pace since December 2006, according to the National Association of Realtors.
Freddie Mac said last week that the rate on 30-year fixed-rate mortgages averaged 3.94 percent, down from 4.30 percent a year ago.
“The lack of wage growth at the aggregate level despite the declines in the unemployment rate and strong job gains remains a mystery,” Joseph Song, U.S. economist at Bank of America Merrill Lynch, said in a note to clients earlier this month.
“One possible explanation is that structural factors such as unfavorable demographics and industry-specific dynamics are playing a bigger role than the cyclical factors,” he added. “However, we continue to believe that a falling unemployment rate will ultimately underpin wages.”
The latter part of that statement represents the hopes and frustrations of economists everywhere.
“Due to a lack of available workers and sustained improvement in aggregate demand we expect wage pressures to be the primary economic narrative during the year,” said Joe Brusuelas, chief economist at RSM. “Our forecast implies that wage growth during final three months of next year should be at or near 4 percent.”
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