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When Housing Value Growth Exceeds Wage Growth: A Look at the Effects

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Even though this nation's job numbers remain strong, slow wage growth compared to housing appreciation rates is pricing people out of homes. While U.S. home prices have gone up about 60 percent since 2012, according to the S&P CoreLogic Case-Shiller 20-City Composite Index, Bureau of Economic Analysis figures show that household income has risen just under 30 percent over the same period.

The housing affordability gap continues to widen for many consumers, but this varies depending on location. Studies show that some parts of the country are keeping pace with housing value growth by paying workers enough, and others are falling short.

What Is Considered an "Affordable" Home?

The long-used rule of thumb among homebuyers and real estate agents for affordability is a home that costs about 2.6 times your household income. However, a 50-year look at the Shiller-Case Homes Price Index reveals that homes have historically cost about 3 to 4 times the median household income in the U.S.

These figures have fluctuated, of course. During the peak of the 2007 housing bubble, the ratio rose to over 5, and it was at its lowest point in 1998 at 2.96. After the 2008 financial crisis, the ratio dropped to 3.46 in 2012, but it has slowly climbed again as housing has become less affordable.

Today, that ratio is sitting at 4.5, meaning the average single-family home in the U.S. will cost 4.5 times the U.S. median family income.

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How Much Income Does It Take to Buy a Home?

CityLab took a close look at how many years of median household income it would take to buy a median home in just about every U.S. metropolitan area. It came up with a list of the least affordable markets and the most affordable ones.

The least affordable metro areas include Los Angeles (9.6 years), San Jose (9.5 years), San Francisco (9.2 years), San Diego (7.9 years), and Honolulu (7.6 years). The most affordable metro areas include Youngstown, OH (1.9 years), Scranton, PA (2.0 years), Dayton, OH (2.3 years), Toledo, OH (2.5 years), and Akron, OH (2.5 years).

Looking at this from another angle, the National Association of Realtors (NAR) figured out that there are some metro areas that are ahead of the curve (i.e. - wage gains are outpacing housing value growth), and others that are losing ground (i.e. - housing value growth is outpacing wage gains).

Among the metro areas that have the highest net monthly gains are York-Hanover, PA, Baton Rouge, LA, and Huntsville, AL. The top ones in which extra housing costs are exceeding income gains include San Jose-Sunnyvale-Santa Clara, CA, San Diego-Carlsbad, CA, and San Francisco-Oakland-Hayward, CA.

Homeownership Rates Have Plummeted

Lack of affordability means that people simply can't and won't buy homes. According to the Fed, homeownership rates over the past four years have dropped to levels not seen in the past two decades.

A Rental Affordability Report released by ATTOM Data Solutions reveals that renting a 3-bedroom home is cheaper than buying in 59 percent of the 755 U.S. counties studied. The study points out that home prices have climbed faster than wages in 80 percent of U.S. markets and that renting is a more affordable choice in 93 percent of counties that have populations of over 1 million people.

On a bright note, there are pockets of the country in which wage growth is outpacing home price appreciation, and the gap is closing slightly in some markets.