Fallacy Of Wage Growth And A Housing “Shortage” In Pictures

The WSJ says there is a “historic shortage of homes”. That’s nonsense, but sales are depressed. Why? Real wages explain.

The Wall Street Journal claims there is a Historic Shortage of New Homes.

Housing Crisis?

Supposedly that picture constitutes “The Next Housing Crisis“.

Why? Is everyone entitled to a home?

The Journal interviewed one builder who was burnt in the Great Financial Crisis. When the market crashed, he was stuck sitting on inventory. He learned his lesson and will no longer build on spec.

That seems like a smart move to me.

“Nationwide, membership in the National Association of Home Builders peaked at 240,000 in 2007, then dropped to 140,000 in 2012, where it has remained throughout the recovery.”

So what? I fail to see a crisis, at least the one the WSJ is moaning about.

Median Home Prices

It seems to me we have an affordability issue, not a housing issue.

Those who want a home and can afford a home likely already have a home. Let’s look at the wage side of things.

Real Hourly Wages Production and Nonsupervisory Workers

Real Hourly Wages All Workers

?Take your pick. Real wages have not kept up with housing prices. Note that those are “average” real wages.

Salary increases at the high end bump up the averages. The median worker, seeking a median-priced home is much worse off.

?The following charts are from the Occupational Employment Statistics(OES) data downloads with additional CPI data from the BLS.

Data for these charts are from May 2005 through May 2016. Those are not arbitrary dates.

The latest OES data is from May of 2016 and prior to May of 2005, the OES used varying months. Having all yearly data from May allows easy comparison of wages vs. year-over-year CPI measurements.

National Hourly Wages

Wage Differentials Mean vs. Median Hourly Wages by State

Every month, analysts track the monthly jobs report for “average” wage increases. Such analysis is misleading because most of the benefits go to the top tier groups.

This behavior is not unexpected, but it makes it very difficult for the bottom half of wage earners, who do not own a house, to buy a house.

Who Can Afford a Home?