Home prices are rising all over the country. That much isn’t news. However given the current rate of growth, it looks as though prices are rising much faster than inflation and wage growth.
According to a new Reuters poll, US home prices are on track to outpace wage growth and inflation by 2:1. A shortage of housing is driving up prices while wage growth and inflation aren’t keeping pace with the high costs.
Wage growth has been below 3% for several years. At the same time, home prices have risen by 5%.
The latest poll of nearly 45 analysts taken May 16-June 5 showed the S&P/Case Shiller composite index of home prices in 20 cities is expected to gain a further 5.7 percent this year.
That compared to predictions for average earnings growth of 2.8 percent and inflation of 2.5 percent 2018, according to a separate Reuters poll of economists.
U.S. house prices are then forecast to rise 4.3 percent next year and 3.6 percent in 2020.
To an extent, this is nothing new. Home prices have been outpacing wage growth for several years. However, this is also a trend that doesn’t show any signs of slowing down. Demand for homes has dropped slightly, but a lack of supply has kept prices high and in some cases, climbing.
“U.S. house prices are slightly over-valued when looking at fundamental valuation metrics such as the median-home-price-to-income ratio,” noted Brent Campbell, economist at Moody’s Analytics.
Another issue is rising interest rates which may price some people out of the housing market. After the 2008 economic downturn, interest rates cratered. Now, with a recovery humming along, interest rates are almost certain to rise. They certainly aren’t going to go down.
In such a market, it may drive more people to rent rather than buy, a phenomenon which is already taking hold in certain localities.
Cost of Living
Rising home costs, slow wage growth, and inflation are all factors which impact cost of living. Of course, location matters and cities will be impacted differently.
This is why City vs City uses real, local data to calculate cost of living. Our app uses data curated at the zip code level to provide an accurate look at the real cost of living in your city.
Simply input your data and zip code and City vs City will do the rest. What’s more, you can compare your costs with another city of your choosing to determine which city has a better cost of living scenario.
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