Rise in housing prices outpaces income growth

Posted at 6:49 PM, Feb 04, 2021
and last updated 2021-02-04 18:49:40-05

CHARLOTTE COUNTY, Fla. — The value of homes is pretty high right now. While that’s great for realtors, it could be a risky situation for investors and homebuyers. The average income isn’t keeping up with the rising housing prices.

In order to meet those rising real estate prices, Kari Wilbanks with Cooperative Real Estate in Charlotte County says more buyers are moving in with friends or borrowing with someone else to buy a home.

“We’re seeing more and more co-borrower situations,” she said.

According to Federal Reserve Economic Data, within the last 20 years, the median price for a house in the U.S. doubled from $165,000 to $346,000. But, income increases don’t come close.

From 1999 to 2019, the median household income only grew by a measly $4,000, according to the U.S. Census Bureau.

“I’m seeing 20-somethings who were originally able to purchase by themselves - you know if they would’ve bought in the last 2-3 years - they’re having to have a co-signer,” said Wilbanks.

The high demand and low supply of homes is driving the prices up, pushing investors to flip homes to make a profit. Finance Professor Tom Smythe at Florida Gulf Coast University says that’s not a safe route to take if the prices trend down anytime soon.

“If it does, the flippers are going to be in trouble,” he said.

Smythe added investors know that when they sign up.

“That’s one of the downsides, one of the risks, hopefully someone who flips takes into consideration,” he said.

The average interest rate for homes is still at a historic low of about three percent.

“That will prompt people to buy. Now, ultimately, that could lead to a bubble issue,” said Smythe.

If prices drop, Smythe says they probably won’t drop as quickly as they did in 2008 or as far. So, he doesn’t anticipate the housing market crashing like it did back then.