The rise in asking home prices still outpaced wage growth in most of the largest U.S. metropolitan areas despite a nationwide price slowdown, a Trulia report showed Thursday. Rents also grew faster than wages did in all of the major rental markets.
Home prices in June 2014 rose 8.1 percent as a whole over the past 12 months and 2.6 percent over the quarter, compared with 9.5 percent and 3.1 percent respectively, in June 2013 the report showed. But worker wages rose less than 1 percent in all 10 metropolitan areas where asking home prices rose the most last year. Rents nationwide increased 5.5 percent last year.
Decreasing affordability in both home buying and rental markets could be particularly troublesome for young Americans hoping to purchase their first home, says Jed Kolko, Trulia’s chief economist.
“It’s particularly challenging for people who would be first-time homeowners because they would be buying but not selling. The increase in prices isn’t helping them the way it is helping someone who might be trading in one home for another,” Kolko says. “Rising rents make it harder to save for a down payment and that’s a challenge on top of the increase in student in debt, which also makes it harder to save for a down payment."
The areas that experienced the biggest home prices increases over the year were Riverside-San Bernardino, California; Atlanta, Georgia; and Grand Rapids, Michigan.
Kolko calls the home price slowdown last quarter in four markets – Phoenix, Las Vegas, Sacramento and Orange County, California – “especially dramatic.” Those areas had all seen “unsustainable price increases” of 20 percent or more since June 2013.
The report, which also examined the median rent for a two-bedroom rental unit compared with the average local wage, found that Miami, New York and Los Angeles all had the largest increases in rent over the past year. Still the most expensive rental market in the country is San Francisco, where the median monthly rent on a two-bedroom unit in June was $3,550.
“One rule of thumb is to try to spend 30 percent or less of your income on housing,” Kolko says.
In other words, the average two-bedroom rental unit in Miami would cost 62 percent of a person’s wages, Kolko says, but notes that renters often live with other individuals, meaning it’d be 31 percent of each of the renter’s individual wages if they contributed equally.
The most affordable rental market was St. Louis, where the median rent was 24 percent of the average local wage, or 12 percent for two roommates.