According to the latest BLS data, average hourly wages for all US workers rose at a respectable 2.9% relative to the previous year, if still below the Fed’s “target” of 3.5-4.5%, as countless economists are unable to explain how 4.3% 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 a little over 2%, according to the latest Case Shiller data, every single metro area in the US saw home prices grow at a higher rate, while 15 of 20 major U.S. cities experienced home price growth of 5% or higher, something which even the NAR has been complaining about with its chief economist Larry Yun warning that as the disconnect between prices and wages hits record wides, homes become increasingly unaffordable. Paradoxically – the higher prices rise, the more unaffordable US homes become for the average American as we showed this weekend. In fact, as of this moment, homes have never been more unaffordable, which even more paradoxically hasn’t stopped priced from hitting new all time high virtually every month for the past year.
And while this should not come as a surprise, one look at the chart below suggests that something strange is taking place in Seattle where prices soared by a bubbly 13.2% Y/Y, and 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.
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.