RealtryTrac recently revealed the results of their recent study on U.S. wage growth and home price appreciation over the past two years, during the housing industry's recovery. The analysis showed that home appreciation surpassed increase in wages in 76% of the housing market, reports RISMedia.
The reported price appreciation outpaced wage increase in 140 of the 184 metro areas (76 percent) with a combined population of 176 million.
RISMedia described how RealtyTrac got their findings: RealtyTrac analyzed the growth in the average weekly wages data collected from the Bureau of Labor Statistics for the years 2012 to 2014. It also computed for the median home prices based on the sales deed data obtained from 184 metropolitan statistical areas in the U.S. having a combined population of about 228 million for the same period.
According to CNN, from 2012-2014, the average home prices increased by 17%.
"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, RealtyTrac vice president.
However, the outlet also mentioned that within this period, the average wages only increased by 1.3%, which means the ratio of the increases was 13:1. Usually, a rebound of house prices is good news, but if it exceeds the wages at an alarming rate, its effects will not be beneficial in the long run, says CNN.
"The bounce back has taken home prices in some markets out of reach of the ever-important first-time homebuyer we need to continue the momentum," said Daren Blomquist.
According to Blomquist, places markets experiencing 30% or higher home price increase are becoming unaffordable for many buyers.
The reported five metropolitan statistical areas with the highest ratio of home price appreciation to wage growth included:
1.Merced, California (141:1)
2.Memphis, Tennessee (99:1).
3.Santa Cruz, California (94:1)
4.Augusta, Georgia (78:1)
5.Palm Bay-Melbourne-Titusville, Florida (62:1)
"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 stated.
Housing Wire also gave information on other areas with wide gaps of home price increase to wage increase ratio: Sacramento, California (17:1 ratio); Riverside-San Bernardino, California (15:1 ratio); Las Vegas, Nevada (14:1 ratio); and Detroit (12:1 ratio).
It's a good thing though that interest rates are low, allowing buyers to still purchase homes,even with the wages not coping with the home price climb, says Blomquist.
He then adds, "It is a concerning trend, but the good news is we are at the juncture where it hasn't become a housing bubble yet. If the trend continues, we will be in a bubble in the next year or two."
On the other side, 24% of the cities (44 out of 184 metros ) had higher increase in wages than home prices .
The five metropolitan statistical areas with the lowest ratio of home price appreciation to wage growth, mentioned in Housing Wire, were Hagerstown-Martinsburg, Maryland-West Virginia, Wichita, Kansas, Des Moines, Iowa, Gulfport-Biloxi, Mississippi, and Harrisburg, Pennsylvania.
In these areas, Blomquist said, "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."
