News & Media

Wage Growth Eclipses Mortgage Rate – First Time Since 1972

If the trend continues, it will empower more current renters watching their paychecks rise to save for a down payment and transition into homeownership.

NEW YORK – In October, wage growth eclipsed mortgage rates for the first time since 1972. The U.S. Department of Labor reported that average hourly earnings for production and nonsupervisory employees rose 3.8% in October on a year-over-year basis. Meanwhile, Freddie Mac data show that the average 30-year fixed mortgage rate was about 3.7% in October.

A year ago, before the Fed began easing, mortgage rates were closer to 4.9%. Experts note that if those trends continue, the combination will limit the debt burden for American households by keeping the share of would-be home buyers’ wages being spent on interest payments under control.

Meanwhile, economists J.W. Mason and Arjun Jayadev said U.S. household leverage rose from about 75% in 1983 to 160% in 2008, a trend that was finally arrested by the collapse of the housing bubble and ensuing financial crisis. They argued in a 2015 paper that the primary cause of the increase in household debt relative to income over that period was Fed policy, which kept interest rates well above the rate at which wages were growing.

According to Srinivas Thiruvadanthai, director of research at the Jerome Levy Forecasting Center, “The nominal interest rate has been higher than wage growth for a long time. If this is to be sustained it would be a positive development in setting the bottom 50 or 60% of the population on a sustainable footing.”

Source: Bloomberg (12/06/19) Boesler, Matthew

© Copyright 2019 INFORMATION INC., Bethesda, MD (301) 215-4688