Home Prices In 80% Of US Cities Grow Twice Faster Than Wages... And Then There's Seattle

According to the latest BLS data, average hourly wages for all US workers rose 2.5% relative to the previous year, well below the Fed's "target" of 3.5-4.5%, as countless economists are unable to explain how 4.3% unemployment, and "no slack" in the economy fails to boost wage growth. Another problem with tepid wage growth, in addition to crush the Fed's credibility, is that it keeps a lid on how much general price levels can rise by. With record debt, it has been the Fed's imperative to boost inflation at any cost (or rather at a cost of $4.5 trillion) to inflate away the debt overhang, however weak wages have made this impossible.

Well, not really. Because a quick look at US housing shows that while wages may be growing at roughly 2.5%, according to the latest Case Shiller data, every single metro area in the US saw home prices grow at a higher rate, while 16 of 20 major U.S. cities experienced home price growth of 5% or higher: double the average wage growth, and something which even the NAR has been complaining about with its chief economist Larry Yun warning that as the disconnect between prices and wages become wider, homes become increasingly unaffordable.

And while this should not come as a surprise, one look at the chart below suggests that something strange is taking place in Seattle, which has either become "Vancouver South" when it comes to Chinese hot money laundering, or there is an unprecedented mini housing bubble in the hipster capital of the world.

Putting the above data in context, here are two charts courtesy of real-estate expert Mark Hanson, the first of which shows how much household income increase is needed to buy the median priced home in key US cities...

 

... while the next chart shows the divergence between actual household income, and the income needed to buy the median priced house.

 

Comments

Iskiab ejmoosa Tue, 08/29/2017 - 13:52 Permalink

The economy has changed quite a bit, globalization has led to winners and losers depending on where you are in the country. Looking at median incomes for the nation and comparing it to regional prices is stupid. Instead compare it to regional incomes.

A good example of this is to look at house prices during the financial crisis in Seattle and San Francisco. There was no house price drop in those areas. If you want to see if the house prices are overinflated look at your local economy and whether there's still prosperity.

There's also a lot of talk of china investment increasing house prices but that's a load a shit too. It's local speculation and REITs that are increasing prices.

In reply to by ejmoosa

tmosley Tue, 08/29/2017 - 09:48 Permalink

Central bank reallocation/misallocation of purchasing power away from capital (the source of wages) to assets via loanmoney.The only way to stop it and maintain a fiat system is to end the central bank.Otherwise, the market will have to adopt its own alternative--crypto.

Byrond Tue, 08/29/2017 - 09:52 Permalink

Seems pretty clear, here it is. The top two hip, liberal cities (Seattle and Portland) believe that Obama made the economy wonderful, so they're willing to pay the crazy high prices. Meanwhile, in reality, it's a bubble, and they're delusional. And it's like 2007 but way worse, because the incredibly higher rent prices are helping to create the housing bubble and the apartment building bubble, and it's all going to collapse any second. 

business as stusual Byrond Tue, 08/29/2017 - 10:10 Permalink

Dude!!!!! It is so fucking amazing that you can make such sweeping blanket statements about the people of Seattle and Portland. Unfortunately just because your omniscient ass said it does not make it true. I strongly suggest you find out WTF your taking about, before you publicly demonstrate you complete lack of awareness, logic, and deductive reasoning.

In reply to by Byrond

HardAssets FixItAgainTony Tue, 08/29/2017 - 16:21 Permalink

You did see lots of Obama and Hillery bumper stickers in Seattle. Just about zero for Trump. But then again, there are a lot of weenie passive-aggressive types there now who'd key your car or throw a brick through your window. So its not smart to have a Trump bumper sticker showing.

Seattle used to be a great blue collar town. The Cali techie types ruined it.

In reply to by FixItAgainTony

Gorgeous HardAssets Tue, 08/29/2017 - 17:29 Permalink

I'd say a "brick through your window" is more than passive-agressive.  Course, tying a passive-aggressor to a Trump-stickered bumper and dragging zhim/zher for a mile in the country is even better. Hard to figure why the new money crowd turns progressive.  Happend to the Colorado over the last couple decades. It's not just CA.  But it's CA-like. 

In reply to by HardAssets

Jon Bong Jovi HardAssets Wed, 08/30/2017 - 00:21 Permalink

I live in New Orleans. We'd kill for some tech. They tried to dub us Silicon Swamp or some shit. GTFO, dumb fuckin' marketing fucks.But who the fuck knows, I went to my fav porn site and i always see that "Step Sister Porn" is top trending porns. It's all good. I don't listen to it with the audio at work. It would be weird and all with my cube mate. Shit be weird bro. 

In reply to by HardAssets

Quant Jockey FixItAgainTony Tue, 08/29/2017 - 16:36 Permalink

I left Portland for the same reason I left Seattle. There are too few good jobs to support the inflated cost of living and the lunatic left has run both cities into the ground. DT Portland is mostly devoid of large businesses as they have left to escape the Multnomah county income tax and homeless people. The Pearl District is still pretty cool. but beyond that I wouldn't be caught dead there.

In reply to by FixItAgainTony

Decoy 409 Tue, 08/29/2017 - 10:00 Permalink

Yes the great illusion with tricks runing low. The 3 card monte game well run. However with a peak sale period prior to the first interest rate move and dead in the water after....... well give them some credit for trying to uphold that Gdp with a deceased credit chip ridden dollar.Yep I am a calling 'DANGER CASHOUT/BANKRUN VIX 88' see we lost way more than 10bps since that 78 just a short back. Good luck to all relying on unsound credit chips! And keep those house prices up for the believers! The great rollover to good old gmc to hide the mess hey. That's what ya call tripping on that pile (now) that kept getting swept somewhere! Foreclosure haven on it's way just like the good old days not to far back. Where can they roll them to next?

Decoy 409 Tue, 08/29/2017 - 10:04 Permalink

And so much for the credit card coming out with a tril plus just so far this year burned up in credits. Wonder who backs all that for the good old credit givers???? Oh that's right! The 'BROKE" and fdic. Well give some credit though as there have been more than enough part time service jobs provide in the mc d and bar arena to keep up with those costs hey!

ParanoidSquirrel Tue, 08/29/2017 - 10:06 Permalink

I really would like to understand where all this money is coming from to create such home prices. Vancouver, ok, I understand, bunch of money being laundered out of China. But Dallas? Minneapolis? Boston? How is there people with money to buy homes at these prices?

ParanoidSquirrel NEOSERF Tue, 08/29/2017 - 10:46 Permalink

In Denver, one explanation I have heard is the legalized marijuana shops can't deposit the cash into banks since those are federal, so then end up buying properties with it. Add on top of that all the people that move to Denver due to the legal weed, and there is a shortage of housing. Still doesn't explain how these people are affording the rents and mortgages.Amazing to think that there are that many people from the ME and China with that much money driving up prices that much all over the world. Truely is a small world I guess.

In reply to by NEOSERF

jbwilson24 pitz Wed, 08/30/2017 - 01:57 Permalink

Untrue. There is significant investment by foreigners in Vancouver. Estimates are 6-9% from university researchers etc. However, there are ways to buy homes through canadian corps, trusts, relatives, etc, that avoid showing foreign ownership.Seattle, tons of chinese money moving into bellevue. YUou are right in general that the bulk of RE purchases in Vcr are by locals. 

In reply to by pitz

NEOSERF Tue, 08/29/2017 - 10:08 Permalink

Every company in the ealry 2000s offered standard 3% raises with 10% higher and 10% lower....after the crash, many companies offered no raises for years and people were just happy to have jobs.  In the "recovery" years, raises have been dropped to 2.5% and I guarantee you after the next crash, 2% or nothing ....factor this in on ridiculous valuations and a bag of groceries that easily costs $75 now.  Restaurants are dead as are apparel retailers...

HardAssets Double.Eagle.Gold Tue, 08/29/2017 - 16:31 Permalink

There are lots of newly built high rise apartment buildings. Tiny, but expensive units. Shops at ground level. Plenty of new college grads working for the tech companies live in these. Its like an continuation of college dorm life.

"There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution” -
Aldous Huxley

In reply to by Double.Eagle.Gold

Mazzy onthedeschutes Tue, 08/29/2017 - 16:22 Permalink

I'm 30, have none of those debts and am thriving.  Trying to get some friends on board like "hey, ditch that big truck payment", but they just don't get it.  I've got a 35 year old friend trying to scrape together pocket change (as in, he literally took a change jar and paid a coindstar machine to turn it into bills for him because he had nothing else) for a trip.  It feels all the worse knowing that me makes more per hour than I do.  Where does all that income go?  I've been frugal as hell my whole life and everything seems to fall into place without much stress.

In reply to by onthedeschutes