The latest jobs report checks all the boxes for the Fed to hike rates when it meets next week. But when it comes to housing, the job market comes up uncomfortably short.
The economy created 211,000 jobs in November and unemployment is near a Goldilocks level at 5 percent–not too low, not too high. As a bonus, last month brought a smidgen of improvement in labor force participation, which means more people were drawn into the job market. For these reasons, there’s almost unanimous agreement that the economy is strong enough to handle a rate hike.
But when it comes to the housing there’s a missing piece of the recovery — wage growth. It’s too low to sustain the market. After home prices hit bottom in 2012, they saw a vigorous and dramatic turnaround, growing by double digits for several months. Overall, year-over-year, median sale prices in major markets tracked by Redfin grew an average of 9 percent a month since 2012. Wages on the other other hand, grew by just 2.1 percent.
The fact that prices have mostly recovered while incomes haven’t has been masked by strong demand from investors, foreign buyers and trade-up homeowners whose buying power isn’t determined by a weekly paycheck. To sustain momentum, the next phase of the housing recovery requires first-time buyers, and they’ll need income growth to keep up with prices.
A small rise in interest rates won’t affect housing much. Sustained stagnation in wage growth surely will.
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