Our Director of Economic Research, Ali Wolf, focuses on how broader economic trends influence housing activity and was perplexed by the lack of wage growth throughout this economic expansion. Our prior coverage of wages in the Zonda Newsfeed reported Job Growth having the longest growth stretch on record. As for today, one would expect that once an economy hits full employment, generally defined by a 4.5% unemployment rate, wage growth would follow. The US economy hit full employment in March 2017 and it took a year and a half to see a shift. According to ADP, the payroll processor, wage growth hit 3.5% in the second half of 2018 after nearly a decade of minimal growth. Interestingly, individuals that switched jobs saw a 5.5% increase in their wage, a full percent and a half higher than last year. This is relevant because job quits are close to their highest level on record and 25% of Millennials voluntarily left their job in the past year.
2018 Wage Growth Increase
In the housing industry, stagnant wage growth has been damaging. Nationally, only 48% of households can afford the median-priced new home. This varies wildly by the market. For example, in Austin, it’s 52%, compared to 30% in Denver and roughly 10% in Los Angeles. If sustained, the uptick in wage growth should help housing affordability across the country, even if just marginally.