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RealtyTrac: Home prices outpacing wage growth in 76% of U.S.

Nationwide home price appreciation tops wage growth by 13 to 1 ratio

Home prices are growing much faster than wages for a majority of the country, a new report by RealtyTrac shows.

According to the RealtyTrac report, home price appreciation is outpacing wage growth in 76% of U.S. housing markets in the last two years.

The RealtyTrac report also showed that nationwide home price appreciation is outpacing wage growth by a 13:1 ratio in the same time period.

“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.”

According to RealtyTrac’s report, the national median wage grew 1.3% from the second quarter of 2012 to the second quarter of 2014. During the same time period, home prices increased by 17% in the two years ending in December 2014, outpacing wage growth by a 13:1 ratio.

Among the 184 metro areas analyzed in the RealtyTrac report, the average wage growth over the two years ending in the second quarter of 2014 was 3.7% while the average home price appreciation in the two years ending in December 2014 was 13.4%.

Despite the rapid increase in home prices, most markets are still affordable by traditional standard, RealtyTrac said. Of the total 184 markets analyzed, 135 (73%) with a combined population of 143 million had a median home sales price in December that required less than 28% of median income for monthly mortgage payments, including property taxes and insurance.

RealtyTrac found that home price appreciation outpaced wage growth in 140 of the 184 metro areas (76%) reviewed. Those areas have a combined population of 176 million.

Metropolitan statistical areas with the highest ratio of price appreciation to wage growth included Merced, California (141:1), Memphis, Tennessee (99:1), Santa Cruz, California (94:1), Augusta, Georgia (78:1), and Palm Bay-Melbourne-Titusville, Florida (62:1).

Other metro areas where home price appreciation has outpaced wage growth by a wide margin during the housing recovery included Sacramento, California (17:1 ratio), Riverside-San Bernardino, California (15:1 ratio), Las Vegas, Nevada (14:1 ratio), and Detroit (12:1 ratio).

“Those markets with the biggest disconnect between price growth and wage growth during the last two years are most likely to see plateauing home prices in 2015 until wages catch up,” Blomquist added. “Meanwhile, markets where wage growth has outpaced home price appreciation during the last two years are poised to see at least steady growth in home prices 2015 in most cases.”

According to RealtyTrac’s data, among the 140 markets where home price appreciation has outpaced wage growth during the housing recovery, 45 metro areas (32%) with a combined population of 63 million had a median home price in December that required more than 28% of the median income for monthly mortgage payments, making those markets unaffordable by traditional standards.

The 45 traditionally unaffordable markets with price appreciation outpacing wage growth included Los Angeles, San Francisco, San Jose and San Diego in California, Seattle, Portland, Boston and Denver.

On the other hand, wage growth outpaced home price appreciation in 44 of the 184 metro areas (24%) analyzed with a combined population of 51 million. Metropolitan statistical areas 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.

Other metro areas where wage growth outpaced home price appreciation during the housing recovery included New York, New Haven, Connecticut, Virginia Beach, Tulsa, Oklahoma, and Raleigh, North Carolina.

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