Key Takeaways
- Home price increases decelerated in July, but continued to outpace wage growth.
- Average paychecks have increased 23% since the pandemic hit, but home prices have gone up more than twice as fast.
- The lack of affordable housing is hurting the economy, and has become an issue in the presidential election campaign.
If you’re counting on your next raise to boost your income high enough that you’ll be able to afford to buy a house, recent data on the housing market might throw cold water on those hopes.
Home prices continued their upward trend in July, breaking new records according to the S&P CoreLogic Case-Shiller Home Price Index released Tuesday. Nationwide prices rose 0.2% over the month and were up 5% over the last year. While that’s a slower increase than the 5.5% annual gain in June, home prices are still growing much faster than paychecks.
According to data from the Bureau of Labor Statistics, home prices have risen more than twice as fast as average hourly earnings since the pandemic hit.
Housing Shortage Hurts Affordability
Tuesday’s report highlighted one of the biggest challenges facing the U.S. economy: persistent and worsening unaffordability stemming from a housing shortage that’s been brewing since the Great Recession. Fortunately for would-be buyers, mortgage rates have fallen recently as the Federal Reserve moves to lower its influential interest rate. But a lack of homes on the market has kept prices on the upward trajectory they’ve been on since the pandemic hit, keeping the affordability picture grim.
How to solve the housing shortage has become a hot political topic. Vice President Kamala Harris has made housing proposals front and center of her economic agenda, promising to build 3 million affordable homes and create a $25,000 tax credit for first-time buyers. Former President Donald Trump said he would tackle the problem by allowing developers to build on federally owned land.
Jared Bernstein, President Joe Biden’s top economic advisor, told Investopedia in an interview that the country’s biggest economic problem is the lack of affordable housing.
“The shortage of affordable housing is one of the biggest pieces of unfinished business we face,” he said.