Charleston SC Real Estate: Will Slows Rising Wages Hurt Real Estate?

In my most recent posts about Charleston SC real estate I have been looking at some potential hurdles buyers face in 2015. One of those factors is wage increases. For over the last year, home values have appreciated at a rate that is almost double that of wage increases.

If wage increases were closer to keeping up with the rising home prices, that would be a good thing for real estate. Since there is a gap, there is fear that many would be home buyers could get priced out of the market.

Despite the fact that 2014 was the highest year for job growth in the US since 1999, wages didn’t increase that much. While most experts expect wages to increase in 2015, they do not see that big of an increase.

Many 2015 wage increase projections were around 3%. According to a recent article from the Wall Street Journal (“Wage Growth Remains Largely In Check” by Ben Leubsdorf), the annual pace so far for 2015 is 2%.

 

Home values are projected to increase by 4.4% according to the most recent Home Prices Expectations Survey.

If this projection carries out, combined with wage increases around 2%, then the trend of the last year continues–home values doubling wage increases.

This can negatively impact housing in two ways: first, as already mentioned, many potential buyers could get priced out of the market. Second, it could keep potential sellers from selling–especially move up buyers.

Will Wages Affect Buyer Demand?

It’s no secret that there is a huge demand for housing right now, but a very limited inventory.

So far in 2015, it doesn’t appear that wages are holding back buyer demand.

The thing holding back buyers is lack of supply.

The most recent numbers from the National Association of Realtors show that although home sales dipped in January, they are still well above the number of sales from January 2014.

 

 

Pending Sales numbers are also up.

Another potential setback to buyers is interest rates.

They are projected to increase this year.

 

 

 

However, a recent study by the Federal Reserve Bank Of New York have shows that interest rates are not the biggest concern for buyers.

Even with a 2% increase in interest rates, buyers will still buy.

The big hurdle for buyers is down payment–or the perception that a minimum of 15% is required for down payment.

In the same survey, potential buyers said that a reduction in required down payment from 20% to 5% would actually increase their motivation to buy by 40%.

If wages do not increase as much as home values, it is possible that demand will remain high. Of course, if values do increase that will mean the down payment will increase as well.

But, if buyers understand that they only need as little as 3% for down payment and not 10% or 20%, then this may not be that big of a deal.

How Will Wages Affect Sellers?

Buyer demand remains strong, and has been. Usually you do not see buyers turning serious until Spring. That is not the case so far in 2015.

Despite this, inventory remains low.

Builders have recognized this and are building more homes.

But existing home inventory is still lagging behind.

One reason may be that for many of these home owners, their home was purchased after the real estate market crash.

Many saw negative equity situations, and selling hasn’t been an option (other than a short sale).

 

As a result, home owners have held onto their homes much longer than they traditionally have.

Whereas traditionally people sold a house every 6 or 7 years, today that number is closer to 10.

The number of homes in negative equity is down to 5.1 million.

 

 

So, based on that info, more home owners should be looking to sell right?

Perhaps many home owners are looking at a refinance as opposed to selling and buying a larger home.

The mixed signals from the job market have had a negative effect on the stock market. It seems as the economy is doing well, yet not where we would like it.

If a home owner doesn’t feel they will be seeing a raise this year, then perhaps the idea of buying a more expensive home doesn’t make too much sense.

By refinancing they can still take advantage of interest rates near their historical lows and actually decrease their monthly expenses.

However, this doesn’t help the overall housing market that needs inventory.

Fortunately, Consumer Confidence remains high–the highest it’s been in 11 years according to a University Of Michigan survey.

Perhaps more home owners will look at the numbers to see what the new home they want or need will cost them at the current low interest rates.

If it makes financial sense to move up, then that could give the market a boost.

Although wages aren’t increasing at a higher rate, oil prices have dropped, making gas cheaper. This is putting more money in people’s pockets and is helping to offset wages.

So far, it doesn’t appear that wages are hurting the real estate market. However, it is important to keep an eye on how the market and economy progress this year. There is a lot of potential for a really good year, but there is also potential for some setbacks.

It seems as the main hindrance for real estate is the same one we have seen for the last year: lack of inventory.

What About The Charleston SC Real Estate Market?

There are good projections for the Charleston SC area for 2015 according to The Post & Courier.

According to David Wren’s article “Continued Growth Forecast For Charleston Region, With Only A Few Pitfalls” shows many good signs for the state and local economy for 2015.

However, there is one potentially ominous quote:

“Growth in real income – the difference between a wage increase and inflation – is expected to remain mild, with a growth rate of 1.8 percent projected for 2015. Real income across most regions of South Carolina has been consistently growing at a rate below the national average.”

So far, just as it has nationally, it hasn’t had that much impact on the local market.

If you are looking to buy or sell Charleston SC real estate, then bee sure to visit my Pam Marshall Realtor website.