Homebuying has always required financial resources, but it's become even tougher in the past two years, thanks to rising home prices and stagnant wages.
Home price appreciation has outpaced wage growth in 76 percent of U.S. housing markets during the past two years, according to a new analysis from RealtyTrac. Across the country, home price appreciation has outpaced wage growth by a 13-to-1 ratio, the study found.
While that's good news for sellers, the trend poses difficulties for first-time homebuyers or those who are struggling with stagnant wages and a desire to trade up. Given that wages aren't keeping up with home prices, what's prompting the real estate appreciation? Investors, such as institutions and international firms, that have the deep pockets to pony up, RealtyTrac said.
"Home prices in many housing markets across the country found a floor in 2012 and since then have rapidly appreciated, particularly in markets attracting institutional investors, international buyers or some other flavor of cash buyer not constrained by income as much as traditional buyers," said Daren Blomquist, vice president at RealtyTrac, in a statement.
The findings come on the heels of strong sales of new homes in February, rising 7.8 percent from January. The average home price rose 4.6 percent, reaching $341,000, compared with a year earlier. The numbers suggest "at least some sustained increase in demand, at least for new homes," Sterne Agee chief economist Lindsey Piegza wrote in a research note.
While home prices are rebounding, wages have yet to see the same types of gains. From 2012 to 2014, the median home price rose 17.3 percent, but the U.S. median weekly wage rose an anemic 1.3 percent. That disconnect between housing prices and wages may pose trouble ahead. RealtyTrack predicts that the markets with the biggest gap will see housing prices plateau this year.
"Traditional buyers will need to play a bigger role in the housing market for the recovery to maintain its momentum," Blomquist said.
The surge in institutional buying came as the Federal Reserve included mortgage-backed securities in its asset-buying program, which has since ended. Low interest rates have also brought buyers into the market.
Despite the quick run-up in housing prices, RealtyTrac said most markets remain affordable, given that about three-quarters of the 184 markets it analyzed had median home sale prices in December that required less than 28 percent of median income to cover mortgage payments, property tax and insurance.
The city that witnessed the highest ratio of price appreciation to wage growth is Merced, California, which racked up a 141-to-1 ratio. Memphis followed in second place (99:1), while Santa Cruz, California recorded the third-highest ratio (94:1).
Even towns that continue to suffer from the fallout of the recession and housing bust have seen home prices outpace wage growth. Like Detroit, which recorded a 12-to-1 ratio, RealtyTrac noted.
However, in about one-quarter of the markets RealtyTrac covers, wage growth actually outpaced home price appreciation. They include Tulsa, Oklahoma, and Raleigh, North Carolina.