Wages and Housing Prices

Casey Fleming

7/14/2017 | Casey Fleming | How do housing prices and wages correlate?  Logic would dictate that as wages rise home prices would rise, and vice-versa.  Wages are not the only factor affecting housing prices, however.  Household savings, household debt, interest rates and available inventory all have a serious impact on prices.

Nevertheless, comparing wages to housing prices is an interesting exercise, and shows us that there is at least some correlation.

Generally as wages rise, housing prices rise
The relationship between wages and housing prices

Calculated Risk, one of the premier real estate economics web sites in the country, recently published the chart to the right.  In it, the National Case-Shiller Index (an index of home values) is compared with the National Average Wage Index, published by the Social Security Administration.

What you can see is that housing prices (relative to wages) peaked in 1980, right before the nation slid into recession, 1989 (same comment), and then 2002 to 2010, right before and through the Great Recession.

You can also see that in 2015 we once again slipped above a level that we have been above only three times in the last 40 years.

It is important to keep in mind that all real estate is local, that national trends may be very different than your local market, and that there are many more influences that affect real estate values.  (The proof of this last argument is 2002 through 2006.)

However, it is an interesting metric to consider.

Related – How income affects housing prices: supply and demand

This topic is on everyone’s mind lately.  Are we in a housing bubble?  Are we nearing peak value?  How high can prices go?  However you ask the question, the underlying anxiety is clear.  In the next few months we’ll be examining this question from a number of different angles.

For now, the good news (depending on your point of view) is that demand is still outstripping supply, so it’s very likely housing prices still have some room to go up.  And, in the long run, housing prices have always gone up – given enough time.  Just like it is very difficult to time the market in stocks, it is equally difficult to time the market in real estate.  If it’s time for you to buy because of your life circumstances, it’s probably smart to not worry about housing prices and instead try to find the home that’s right for you and your family.

Stay tuned.

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
Mortgage Advisor, C2 FINANCIAL CORPORATION
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This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written.  Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source.  No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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