Living in Prescott, or perhaps anywhere in the United States, something you may have noticed is the difference in wage growth verses the difference in home price growth.
Being a Real Estate Agency in Prescott, this is something we have definitely noticed as our market has continued to grow healthily over the last few years. With such quick growth in the housing market, it would really be hard for wage growth to keep up.
Home prices can grow at any time they want. From one month to the next, the market can change and prices can go up. Even though the difference might not be substantial, or perhaps even noticeable, there is steady growth in home prices throughout the year (depending on the housing market at that time).
Wage growth, however, tends to be much slower. If you think about it, growth in wages happens maybe once or twice a year, if that. Being an employee, you may get a raise at the end of the year, or a raise when you are promoted to a higher position, but that’s not nearly enough to keep up with the rate of growth of the current housing market.
On top of that, Prescott has been known to be a very competitive job market, meaning employers can start a position off at a lower salary knowing that someone will be eager to fill the position with hopeful raises and bonuses later on down the line. Speaking of bonuses, many companies often don’t raise your salary at all, rather you get a “Christmas bonus” at the end of the year, meaning home price growth has gone up all year round, yet salary growth has remained stagnant. It all depends on the company you work for and the industry you work in.
To further show this fact, check out this quote from the National Association of Realtors (NAR), “Based on the headlines, home prices outpace wage growth. Indeed, in the last six years home prices increased 47 percent while wages rose 16 percent.”
After reading all of that, it may feel discouraging or make one think it would be impossible to afford a home when the rise of wages isn’t keeping up with the rise of home prices. However, what NAR found is that doesn’t appear to be the case.
“Nationwide, the monthly earnings of a typical employee rose by $530 to $3,784 in the fourth quarter of 2018 from $3,256 six years earlier. In the meantime, the monthly payment increased by $354 to $1,114 in 2018 from $760 in 2012. Thus, although home prices increased nearly three times more than wages (in percentage points), homebuyers needed to spend less than their salary increase for the higher mortgage payment. Noticeably, homebuyers needed to spend nearly two thirds of their salary increase (above the 30% rule) for the higher mortgage payment.” – NAR Economist’s Outlook Blog.
This is good news! It means that even though housing prices have grown far more than wages, wages have still grown enough to keep up with the price of these higher mortgages, only costing consumers two thirds of their salary increase towards their house payments. That may still seem like a lot, but at least it isn’t equal to or more than, which means housing based on current salaries is still somewhat affordable.
The best thing to do when thinking of buying a home, and wondering what you’d be able to afford on your salary, is to connect with a local lender. This is the very first thing you should do before even beginning to look at homes. That way you don’t’ set your eyes on something you can’t afford and have your hopes dashed. They will help you determine what your price range is based on your income and get you moving towards your ultimate goal: becoming a homeowner.
Need help finding a lender? Call us today and we can help! Working in the Prescott area for over a decade, we have a lot of experience with all the local companies and can help you find the right fit for you. 928-771-1111.