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Local wage growth lags home-price gains

House on a stack of U.S. dollars, real estate concept - 3d renderHome price appreciation has outpaced wage growth in the Charlotte metro area over the last two years by a ratio of 7 to 1, making it more difficult to save for a down payment and afford monthly mortgage payments.

Average wages in the Charlotte-Gastonia-Concord metropolitan area grew by just 1.2 percent between the second quarter of 2012 and the second quarter of 2014. Meanwhile, median home prices in the area rose 8.6 percent in the two years ending in December 2014, according to a report by RealtyTrac.

Average weekly wages rose to $911 from $900 in the two-year period, while the median home price increased to $152,000 from $140,000.

Among the 184 metro areas analyzed by RealtyTrac, average wage growth was 3.7 percent. Home prices appreciated, on average, 13.4 percent.

Nationwide, weekly median wages rose 1.3 percent between the two second quarters – when home prices bottomed out and started rising again – to $782 from $772. Median home prices grew 17 percent in the last two years, to $183,000 from $156,000.

“Home prices in many housing markets across the country found a floor in 2012 and since then have rapidly appreciated, particularly in markets attracting institutional investors, international buyers or some other flavor of cash buyer not constrained by income as much as traditional buyers,” said Daren Blomquist, vice president at RealtyTrac. “Eventually, however, those traditional buyers will need to play a bigger role in the housing market for the recovery to maintain its momentum.”

Late last year, RealtyTrac reported that home sales to institutional investors, which had been falling since mid-2013, rose both quarterly and annually in the Charlotte metropolitan statistical area in the third quarter, resulting in Charlotte being the second-most active market for such sales.

In the third quarter, 14.2 percent of Charlotte area home sales were to institutional investors, defined as entities that buy at least 10 properties in a calendar year. That was up from 11.6 percent in the second quarter and 13.4 percent in the third quarter of 2013.

Among areas with populations greater than 500,000, only Memphis, Tenn., – which includes northwest Mississippi and eastern Arkansas – had a greater share of institutional investor purchases, at 16.4 percent, but that was down from last year’s 20.3 percent.

At the time, Blomquist cited several reasons for the influx of investors to the Charlotte market, including relatively low home prices, a good-sized market and the growth in the number of millennials moving here.

The Charlotte area’s 7-to-1 ratio of home price appreciation to wage growth appears innocuous when compared with other metros. Those with the highest ratios were Merced, California, at 141 to 1; Memphis, Tennessee, at 99 to 1; Santa Cruz, California, at 94 to 1; Augusta, Georgia, at 78 to 1; and Palm Bay-Melbourne-Titusville, Florida, at 62 to 1. Home price gains rose faster than wage growth in 140 of the 184 metro areas.

Other metro areas with wide ratios include Sacramento, California, at 17 to 1; Riverside-San Bernardino, California, at 15 to 1; Las Vegas, at 14 to 1; and Detroit, at 12:1.

Among the 140 markets with home price growth outpacing wage increases, 45 had a median home price in December that required more than 28 percent of the median income for monthly mortgage payments, an amount that is traditionally considered unaffordable. The Charlotte-Gastonia-Concord market required 28.15 percent of median income, RealtyTrac says.

Bellingham, Washington, topped the list, with 63.4 percent of the median income needed to make monthly mortgage payments, followed by Merced, California (59.4 percent); Memphis, Tennessee,  56.4 percent; Santa Cruz-Watsonville, California (54.7 percent); and Augusta-Richmond County, Georgia, 54.4 percent.

“Marketing homes in areas that have home ownership costs continually outpacing wage growth means that you run into more people leaving areas for their next move, up or down,” said Mark Hughes, chief operating officer at First Team Real Estate, covering the southern California market. “The dynamics driving the affordability, or lack of affordability, have as much to do with the new global nature of real estate as much as they have to do with the speed of local wage acceleration. Southern California will remain increasingly unaffordable from within, but a hot commodity world-wide.”

Meanwhile, wage growth outran home price appreciation in 44 of the 184 metro areas. Metros with the lowest ratio of home price appreciation to wage growth were Hagerstown-Martinsburg, Maryland-West Virginia; Wichita, Kansas; Des Moines, Iowa; Gulfport-Biloxi, Mississippi; and Harrisburg, Pennsylvania.

Metros with the highest rate of home price gains during the two years ending in December were Detroit (57 percent); Salinas, California (49 percent); Myrtle Beach, South Carolina (47 percent); Houma-Bayou Cane-Thibodaux, Louisiana (45 percent); and Modesto, California (44 percent).

Areas with the highest rate of wage growth in the two years ending in the second quarter of 2014 were Gulfport-Biloxi, Mississippi (13.2 percent); Naples-Marco Island, Florida (9.2 percent); Houma-Bayou Cane-Thibodaux, Louisiana (8.9 percent); Manchester, New Hampshire (8.4 percent); and San Jose, California (8.3 percent).

RealtyTrac, based in Irvine, California, is a real estate data and analytics firm.

 

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