National Housing Market Outlook

High-Income Job Growth to Determine New Home Demand

February 16, 2016

Housing affordability has become a big problem in many major metros in the country. In fact, many middle-class buyers can no longer afford a new home. Consider the following:

  • Price/income. Home price to median income ratios exceed the historical average for all 20 of the largest housing markets in the country.
  • Payment/income. Payment to income ratios exceed the historical average in the majority of the 20 largest housing markets in the country.
  • New home prices. New home prices exceed resale home prices by record levels, and not just because new homes are larger and better located than usual.
  • Anticipation of rising rates. Bond markets currently assume that long-term rates will rise over the next few years, putting additional upward pressure on home prices.

Strong wage growth seems to be right around the corner, which will help affordability. Incomes should rise steadily over the next few years due to demand for high-income workers and a shortage of workers overall.

Job growth remains healthy in most markets, especially in high-income jobs. High-income job growth has recently emerged as a primary driver of new home demand, particularly in higher-priced markets. Nationwide, high-income jobs are up 2.6% year over year. However, growth in high-income sectors has played out very unevenly across the major metros.

High-income sectors include Financial Activities, Information (tech), and Professional and Business Services. Tech markets lead the way in high-income growth, with energy markets falling behind. Not surprisingly, the tech-centric San Francisco Bay area has created the most high-income jobs. There are also several non-tech markets, including Riverside-San Bernardino, Fort Lauderdale, and San Antonio, with year-over-year high-income growth exceeding 5%. High-paying job growth remains strong in the major Texas markets, with the exception of Houston, which has lost high-income jobs over the last year. The below chart shows the high-income job growth over the last 12 months in the major housing markets.

In summary, monitor high-income job growth carefully, as we do for every market every month. Have more confidence in the markets with strong high-income job growth, and become cautious if those growth trends begin to slow.

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