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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST The Affordability Problem: New Home Demand Hinges on Wage Growth Areas with high-income job availability show the most promise. H ousing affordability has been a persis- tent issue in many real estate markets across the country since the housing crisis. With household income lagging and home prices continuing their upward climb, fewer buyers are able to afford a home in today's housing market. The January 2016 Employment Summary from the Bureau of Labor Statistics showed that wage growth, which has lagged in recent months, jumped by 12 cents over-the-month in January—up to $25.39—and by 2.5 percent since the previous January. Perhaps even more wage growth could be coming to help buyers with affordability issues, according to a new report from John Burns Real Estate Consulting. The report said that "incomes should rise steadily over the next few years due to demand for high-income workers and a shortage of workers overall." The report stated that many middle-class buyers can no longer afford a new home due to the following factors: • Price/income. Home price to median income ratios ex - ceed 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 major - ity 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 in the past. • Anticipation of rising rates. Bond markets currently assume that long-term rates will rise over the next few years, putting additional upward pres- sure on home prices. "Job growth remains healthy in most markets, especially in high-income jobs," the John Burns report noted. "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 percent year-over-year. However, growth in high-income sectors has played out very unevenly across the major metros." San Jose, California, experienced the most high-income job growth, with a 8.2 percent year-over-year increase. The city has 343,800 total high-income jobs, up 26,000 from last year. Austin and Riverside-San Bernardino took second and third place, with a year-over-year increase in high-income jobs of 6.4 percent and 5.1 percent, respectively. The John Burns report stated that they "have more confidence in the markets with strong high- income job growth and become cautious if those growth trends begin to slow." Builder Confidence Shaken by Cost, Availability of Lots, and Labor NAHB expects sales to increase in coming months. B uilder confidence in the newly-built single-fam- ily home market is still doing well, but it has seen a drop since last month, according to the National Asso- ciation of Home Builders/Wells Fargo Housing Market Index (HMI) released last month. The latest HMI showed builder confidence to be at 58 in February, down from January's 61 and seven points lower than its recent peak of 65 in October. That said, the index is still well above the tipping point of 50 and three points above last February's number. NAHB Chairman Ed Brady attributed the dip to the high cost and lack of availability of lots and labor, but said that February's index shows builders are still generally op - timistic about the housing market. "Of note, they expressed opti- mism that sales will pick up in the coming months," Brady said, despite consumer worry about the housing market over the past few months. Indeed, the HMI component measuring sales expectations in the next six months rose one point to 65 in February, which is a good sign that builders are optimistic overall. Any number over 50 indicates that more builders view conditions as good than poor. According to David Crowe, NAHB's chief economist, "the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and signifi - cant pent-up demand all point to a gradual upward trend for housing in the year ahead." Broken down into the four main regions of the country, the three-month moving averages for regional HMI scores were all in slight declines. The Midwest fell one point to 57, the West registered a three-point drop to 72, and the Northeast and South each posted a two-point decline to 47 and 59, re - spectively, according to the report. Weather did not appear to have a large impact in either direction or confidence, which is a major differ- ence between last winter and this one thus far. While the Northeast and Mid-Atlantic regions have had to deal with some hefty snowfalls, January indicators showed no worse decline than regions that have had little winter weather. According to NAHB, new home purchases are "dominated by existing home sellers with very good credit, significant equity accumulation, and strong employ - ment records." First-time buyers, the organization announced, are missing from the new market—per- haps due to a trend toward larger houses with more bedrooms and baths, which could be keeping new buyers wary. "One downside to this trend is these same well-off new home buyers are also more likely to hold a substantial share of their wealth in equities," NAHB stated. "The turmoil in the stock market and the general unease concerning in - ternational economic trends is most likely to affect the same group of households that are the most active in new home purchases."