THE BLOG

Wages Tortoise vs. Home Price Hare

06/23/2015 05:38 pm ET | Updated Jun 22, 2016

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A recent report from RealtyTrac is creating a stir among those who want more home buying to spur the economy or their incomes. The report states an astonishing 13-to-1 ratio nationally of home price increases to wage increases. In 76% of markets, home price increases are outpacing wage growth in varying degrees. On a national level, home prices are up at a median 17.31%, while wages are up by only 1.30% for the same period since 2012.

The report gathered date from the Bureau of Labor Statistics and 184 real estate market deed records for median prices. There's no argument that new home construction is a major driver in our economy, as it is fed by material and labor from many other industries. Existing home prices usually follow increases of new home prices, and inflation generally contributes to both.

Many analysts attribute the bulk of upward price movement to investors and upscale buyers who are less dependent on wage improvement to afford a home. With these being the buyers driving price increases, it is clear that there is a major disconnect between home prices and wage increases. The average American isn't buying in anything like the numbers before the real estate crash. On a large scale there is a "watch and wait" attitude. Almost everyone knew someone or had a relative who lost their home in the crash, and there isn't the old enthusiasm to buy into this market climate.

Some metropolitan areas are exhibiting this disconnect to an amazing degree.

• Merced, CA at 141:1
• Memphis, TN at 99:1
• Santa Cruz, CA showing 94:1
• Augusta, GA reporting 78:1
• Palm Bay, FL at 62:1

If you're an average worker, not in upper management or in business for yourself, these numbers are very discouraging. Some analysts believe that in areas with this explosive inequity there will be some peaking of home prices this year.

On the other side of the coin, there were 44 of the 184 markets exhibiting wage growth that outpaced home price appreciation. Some of these were:

• Hagerstown-Martinsburg, MD-WV
• Wichita, KS
• Des Moines, Iowa
• Gulfport-Biloxi, MS
• Harrisburg, PA

The good news is that the drop in prices during the crash was so deep in most markets that these reported increases are largely just bringing prices back to levels present before the crash. It is little comfort though for people who must move into these high home-to-wage price ratio areas for work. They are likely to experience sticker shock when they check into buying a home.

This is in a way good news for real estate investors, as rental demand should continue to grow, and rents should rise with that demand. However, rents are also outpacing wage growth in the majority of urban markets, so it's a mixed bag. You are losing ground for housing whether you rent or buy, but we all need a place to live.

It's a race, and unfortunately in most markets the housing rabbit is leaving the wage turtle far behind.