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 in November rose at a stubbornly low 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 4.1% 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 pace, 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 - considering we have pointed it out on numerous occasions in the past - 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.

Also worth keeping an eye on: price appreciation in Sin City has quietly surged in recent months, and in September home prices surged 10.7% Y/Y, the only other double digit price increase in the US after Seattle. Considering that Las Vegas was the epicenter of the last housing bubble when prices exploded higher only to crash, it may be a good idea to keep a close eye on price tendencies in this metro area for confirmation of the second housing bubble.

 

Confirming the recent jump in home prices, at the national level in November home prices for the Top 20 metro areas rose 6.4% YoY according to Case Shiller, matching October and the fastest rate since June 2014.

“Looking across the 20 cities covered here, those that enjoyed the fastest price increases before the 2007-2009 financial crisis are again among those cities experiencing the largest gains. San Diego, Los Angeles, Miami and Las Vegas, price leaders in the boom before the crisis, are again seeing strong price gains. They have been joined by three cities where prices were above average during the financial crisis and continue to rise rapidly – Dallas, Portland OR, and Seattle.”

As we just showed, the 20-City CS Composite index is within 1% of its record highs from 2006.


Meanwhile, for those looking to buy for the first time, conditions have never been worse. Growth in property values is outpacing wage gains and limiting affordability, representing a major headwind for first-time buyers, and the broader market.

Finally, 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

Pool Shark Tue, 01/30/2018 - 09:50 Permalink

These numbers are from November; BEFORE the passage of the tax bill.

All those high-end markets in Blue States are about to get whacked.

I'm officially calling it: The housing top is now in...

[At first glance, those bottom charts looked like they were from: "McMansion.com"]

MK ULTRA Alpha Cash2Riches Tue, 01/30/2018 - 10:43 Permalink

We must thank Obama for this, while black activist were crying rents are too high, Obama signed a new law for foreign ownership/investment rules.

Foreign capital is flowing into the US into direct real estate ownership. Now we'll pay rent to China, they're the new land lord on the block.

This massive increase in cost of housing is being driven by foreign investment in US housing markets. I have seen armies of Chinese investors touring US property, before the new foreign investment law, it was armies of wealthy Indians, using naturalized and green card family members to funnel capital into US real estate.

If the waves of foreign investment continue, housing in the US will be out of reach for most Americans. Working Americans will live in cars and under bridges until they're broken down, worn out and can't do it anymore. That's America, and we can thank Obama.

It's coming to a theater near you.

In reply to by Cash2Riches

Pool Shark j0nx Tue, 01/30/2018 - 11:19 Permalink

Sorry j0nx, that's not true. Look at this chart:

https://fred.stlouisfed.org/series/MSACSR

Notice that, just like now, housing supply was bottoming just before the crash began.

We currently have more supply (5.7 months) than when the last crash was beginning in early 2006 (5.3 months).

If that chart repeats itself, we are less than 1-Year away from the next crash.

Even if you don't believe the chart, there are a few MAJOR headwinds coming:

1) Higher mortgage rates

2) Median Home Price to Median Income Ratio at ALL time highs

3) Cap on Property Tax Deduction

4) Cap on Mortgage Interest Deduction

5) Economy overdue for recession.

History may not repeat itself,... but it rhymes...

 

In reply to by j0nx

j0nx Pool Shark Tue, 01/30/2018 - 11:50 Permalink

Houses were abundant in the DC area last time the crash happened. This time there is nothing and really hasn't been anything for about a year or more now. RE is area dependent. I'm sure the supply issues in all of those 21 cities listed in that chart are tighter than mine since they are all listed above the DC area. In the DC area I can say definitively that supply is low and prices are high.

In reply to by Pool Shark

CatInTheHat Pool Shark Tue, 01/30/2018 - 11:21 Permalink

I live near Portland and the rents have exploded here leading also to an explosion of homeless.

The NEOliberal gentrification project is in full effect. Affordable housing is nil except for foreign buyers and the NEOliberal techie uptick here from Cali. 

You won't have a problem selling your home here. It is a seller's market here despite skyrocketing home prices.  Gee....wonder why....

In reply to by Pool Shark

itstippy Pool Shark Tue, 01/30/2018 - 11:08 Permalink

So is median home size.  Homes have a lot of fancy touches one didn't see 25 years ago too (granite countertop syndrome).

People buy fancier houses and fancier cars than they used to, and they cost more.  Builders and developers build fancier homes than they used to because buildable sites are more difficult to find.  A neighborhood of typical 1960s 1000 sq. ft. ranch style homes with nice yards wouldn't be built today; they'd build 2,500 sq ft McMansions practically touching each other.

In reply to by Pool Shark

icedoc itstippy Tue, 01/30/2018 - 14:15 Permalink

Much of the home size increase is due to zoning regulation. Minimum size for a certain number of people.

 

I grew up in a family of seven. I the early sixties we got in to a new 950 sqft 3 bed 1 bath house, $11000. that is not acceptable now but we did just fine not having the enlightenment of the gilded class to know we were in constant deprivation

In reply to by itstippy

jemlyn Tue, 01/30/2018 - 10:33 Permalink

I think it's caused by the very same thing that keeps moving the stock market up, investors searching for profits.  In Denver and burbs everyone over 60 is getting cards and letters a couple of times a week.  "I want to buy your house, any condition.  I have not been able to get a hold (sic) of you.  Please call this number as soon as possible...."

adr Tue, 01/30/2018 - 10:33 Permalink

To make matters worse, property taxes in most areas are double what they were in 2006. The taxes on my house were a crazy $2700 in 2006. Right now they are an insane $5100 on a 1400sq ft 1960s raised ranch.

Oh to be back in the midwest where you can buy a 2000 sq ft colonial in a fantastic suburb with great schools for $220k and pay $1800 in property tax.

 

hardmedicine Tue, 01/30/2018 - 11:05 Permalink

don't think you are coming to texas to escape the high taxes.  They have that all sewn up.  No where to run nowhere to hide people!

been raising the rents 10% maximum every single year round here.  I'm moving to a 3rd world shithole as soon as I can. 

agcw86 Tue, 01/30/2018 - 11:16 Permalink

How will the "hipsters" in Seattle afford their homes when the mortgage interest is capped? The Seattle gloss lost its luster long ago when the traffic became worse than LA. Every time I visit there (not very often), it gets even worse. If they have somehow missed taxing something, count on them to find it and ever-bloat the state and local government bureaucracies. This is one reason WA is one of the 5 top exit states.

AutoLode Tue, 01/30/2018 - 12:31 Permalink

WA is a gray and dreary, cold, damp, wet experience and homes that sat empty rotting for years listed for sale at $120k in 2012 are now selling for $450k near the airport with a new coat of paint. Property taxes are outrageous and climbing every year and yes the road system is hopelessly under developed with very few new routes possible due to the geography. The biggest problem nobody in Seattle even knows about is the Cascadia Megathrust Faultline which is historically overdue and will be the most devastating quake in world history. The Hipsters will learn the true meaning of screwed glued and tattooed 

surf@jm Tue, 01/30/2018 - 16:45 Permalink

Just think........

Before long, most U.S. localities, will be sending most of their real estate tax bills, to addresses in China....