Bubble? Home Prices in 20 U.S. Cities Rise at Fastest Pace Since 2014 (But Wage Growth Is Terrible)

Bloomberg has an interesting article on rapidly rising home prices.  Despite the fact that US wage growth has been terrible since the Great Recession and is now (depending on how you measure it) 4 times lower than home price growth.

Home prices in 20 U.S. cities climbed in the 12 months through January at the fastest pace since July 2014, while nationwide the increase in property values also accelerated, according to S&P CoreLogic Case-Shiller data reported Tuesday.

Key Points

  • 20-city property values index rose 5.7 percent from January 2016 (forecast was 5.6 percent) after increasing 5.5 percent in the year through December
  • National home-price gauge increased 5.9 percent in the 12 months through January
  • Seasonally adjusted 20-city index advanced 0.9 percent from a month earlier (forecast was 0.7 percent)

Big Picture

Lean housing inventory helps explain why home prices are appreciating at more than twice the rate of inflation and wage growth, an impediment to an even bigger advance in housing demand. That’s making it difficult for some Americans to transition from renter to homeowner, a reason investors remain a big part of the market as they purchase properties and convert them to rental units.

Economist Takeaways

“Tight supplies and rising prices may be deterring some people from trading up to a larger house, further aggravating supplies because fewer people are selling their homes,” David Blitzer, chairman of the S&P index committee, said in a statement. “The prices also hurt affordability as higher prices and mortgage rates shrink the number of households that can afford to buy at current price levels.”

The Details

  • All 20 cities in the index showed year-over-year gains, led by an 11.3 percent advance in Seattle and a 9.7 percent increase in Portland, Oregon
  • After seasonal adjustment, Seattle had the biggest month-over-month rise at 1.7 percent, followed by a 1.3 percent increase in Chicago; home prices fell 0.1 percent in Cleveland

This Bloomberg chart shows that median home price growth is not quite 4x wage growth.

My “homebrewed” chart shows that it a similar effect except I show the decline in the volume of mortgage originations to borrowers with a credit score below 620.

Anyway you want it, home price growth is beating the tar out of wage growth .. but any metric.

Has the robot monster (aka, The Fed) helped create a home price bubble with its uber-accomodative monetary policies that did not help wage growth?

Yes, The Robot Monster (Federal Reserve and other Central Banks) stalks the earth.

 

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