In many countries around the world, the salaries earned by Americans seem very lucrative, whether converted into Renminbi or New Taiwan dollars, the numbers are quite substantial. However, the reality is that even with lucrative salaries, it may still be difficult to afford living expenses. The latest data indicates that to sustain an average standard of living in the United States, one would need to earn a minimum hourly wage of $23, but at the same time, housing prices are soaring and living spaces are shrinking. Although renting may pose less financial pressure compared to buying a house, rental costs still remain a heavy burden.
According to a collaborative research analysis between a US human capital management company and the Massachusetts Institute of Technology, the required hourly income level to sustain living in the United States varies significantly across different regions and metropolitan areas.
For example, in the Silicon Valley area of northern California, including San Jose, Sunnyvale, and Santa Clara metropolitan areas, a dual-income family with two children would need an hourly income standard of around $40 per person. However, for a dual-income family in the Houston metropolitan area, this figure would drop to $25.
In fact, in recent years, the salaries of full-time employees in the United States have seen a significant increase. This year, the monthly wage growth rate has been around 4% or close to 5%; in the previous year of 2023, it was approximately 6%. However, due to the impact of inflation, the wage increase that outpaced prices during the pandemic period is now being overtaken by rising prices.
A wage research report shows that 62% of male employees in the United States can sustain a living, but this percentage drops to only half for female employees. For Black or Hispanic employees, the ratio is even lower at only 40%.
Housing costs are one of the main culprits of high prices. According to a recent study by USA Today, comparing with five years ago, the median size of homes has shrunk by 128 square feet, while prices have increased by $125,000.
Out of 18 metropolitan areas in the United States, only a few have seen an increase in the average size of homes over the past five years. However, it is undeniable that everyone is witnessing rising prices. Essentially, the median size of homes has decreased by 6.4%, while the overall median price has increased by 39%, with a 52% increase per square foot.
Building smaller homes does not prevent the increase in price per square foot; it simply makes the total housing cost appear more affordable while providing buyers with smaller accommodations. However, this situation cannot be blamed on builders who have no choice but to construct smaller homes due to worsening affordability crises.
Among the cities where housing has drastically shrunken, Colorado Springs saw the most significant reduction: a 22% decrease in home size since 2019, coupled with a 25% increase in listing prices. Among the top 10 cities with the largest decrease in home size, seven are located in the southern United States, with four in North Carolina, including Charlotte and Raleigh. Other notable metropolitan areas include New York, Houston, Honolulu, and Washington DC.
On the other hand, Davenport on the border of Iowa and Illinois has witnessed the largest growth in home size among metropolitan areas. Over the past five years, home sizes in this region have continuously expanded, from 1,520 square feet in 2019 to 1,684 square feet in 2024, a nearly 11% increase. However, during the same period, home prices in the region have also surged by 58%!
Overall, the metropolitan areas that have seen an increase in home sizes tend to have lower housing prices, except for Santa Rosa in California, which has already hit the million-dollar mark. Other regions like Youngstown and Akron in Ohio fall within the mid-hundreds of thousands range for median house prices, with most of these metropolitan areas experiencing significant price surges. Due to lower initial housing prices in these regions before the pandemic, there was more room for a greater surge in prices.
Over the past five years, all 150 cities analyzed witnessed an increase, whether in median home prices or price per square foot. Furthermore, as living spaces narrow while prices rise, the price per square foot has also increased. Similar to how microchips become smaller yet hold more integrated circuits, the demand for higher technical standards leads to rising costs. Hence, architects and interior designers face the challenge of maximizing space efficiency in increasingly limited areas, providing homeowners with functionality while creating a sense of spaciousness.
Currently, Naples in Florida tops the list of cities with the greatest unit price increase, with the median price per square foot skyrocketing from $238 to $447, an increase of nearly 88%. New York City follows closely, jumping from $302 to $550 per square foot, while Atlantic City in New Jersey rose from $148 to $267. Knoxville in Tennessee also saw a significant increase, from $126 to $227 per square foot. The top four cities on this list all experienced increases of over 80%.
Interestingly, aside from two cities in Tennessee, the rest of the cities with the highest unit price increases are located along the East Coast of the United States, from Florida to Georgia, North Carolina, New Jersey, New York, and Maine.
However, this does not mean that the West Coast has seen minimal price increases. In reality, San Diego’s price per square foot rose from $395 to $649; Los Angeles saw a rise from $452 to $702; San Francisco went from $546 to $702, and San Jose increased from $689 to $857. Seattle in Washington state also saw an increment from $303 to $450 per square foot.
These soaring prices have added significant pressure to the lives of many Americans. Even without looking at the data, many have heard complaints from friends about the terrifying price hikes in the United States. While previous salaries allowed for a comfortable lifestyle, now many are finding themselves budgeting more tightly.
Recently, mortgage rates have continued to decline, with the average 30-year fixed rate reaching 6.35% as of late August 29. This has led to a decrease in monthly payments when compared to the peak in late April, by almost $300.
However, according to Redfin data, recent sales have not shown improvement; in fact, there has been a significant drop, the largest in almost a year. Several reasons have been identified for this trend: firstly, many were waiting for the new commission fee regulations effective from August 17.
Secondly, prices remain high, and inventory is dwindling, with the total number of homes for sale showing the smallest year-over-year increase in five months. Thirdly, many are waiting for potential rate cuts by the Federal Reserve in September, anticipating lower interest rates.
Lastly, with the final sprint of the US presidential election underway, all eyes are on the outcomes, as the results of the Republican-Democratic battle will greatly impact the housing market and economy, influencing many Americans’ decisions to relocate.
Due to these four main reasons, despite the continuing decrease in rates, the US real estate market seems to be cooling off. Mortgage applications for home purchases have dropped by 9% compared to the same period last year, indicating a further slowdown in the rate of home sales, with a higher proportion of homes experiencing price reductions. Nearly all data points towards a sluggish housing market.
While renting currently seems to offer more affordable monthly payments than buying, rental prices have also seen a significant surge. According to a recent study by the personal finance technology company Self Financial, the average American renter between the ages of 22 and 35 is estimated to pay over $333,000 during their renting period.
In other words, this amounts to around $25,000 annually, or slightly over $2,000 per month. However, similar to the typical scenario in the real estate market, rental prices vary significantly depending on the region. For example, Hawaii stands out as the most expensive place to rent, with tenants expected to pay up to $600,000 in rent over a short span of ten years.
Conversely, some regions offer relatively cheaper rentals, such as Texas, where the rental cost amounts to about $303,000, while Minnesota comes in at $273,000.
It is indeed true that rental prices are significantly higher than they were a few years ago. According to Realtor.com’s rental report from June 2024, the median rent is 21% higher than in 2019, equating to an increase of around $305. The median rent in June 2024 stood at $1,743.
Although rents have risen substantially over the past five years, there is a slight improvement in the current scenario. The June report marked the 11th consecutive month of year-over-year price drops, with a decrease of 0.4% compared to the same period the previous year. While prices have been steadily declining, the median rent is only $11 lower than the peak in August 2022.
In June 2024, the most noticeable decreases in rents were in the Southern markets, with Austin, Texas, plummeting by 9.5%, San Antonio by 8.2%, and Nashville, Tennessee, down by 8.1%. Given the significant increase in leasing supplies in these areas, the decline in rents is not unexpected.
Conversely, rental prices continue to rise in the Midwestern markets. Indianapolis in Indiana saw an increase of 4.4%, Milwaukee in Wisconsin increased by 3.7%, and Minneapolis in Minnesota rose by 3.7%.
In contrast, densely populated Western metropolitan areas have experienced continued decreases in rental prices, with Los Angeles decreasing by 1.9%, San Francisco by 4.2%, while rent in Northeast coastal cities like New York City also declined.
Over the past five years, rental prices have increased in almost all cities, except for San Francisco, which witnessed a decrease of $153, a 5.2% drop since June 2019. San Francisco faced challenges during the pandemic, including population outflows, urban stagnation, and security concerns related to “zero-dollar shopping,” leading to its unique position as the only major city with declining rents.
Sacramento, the capital of California, has become the city with the highest rental price increase in California over the past five years. The median rent stands at $2,007, which is $529 higher than pre-pandemic levels, representing a 35.8% increase. Sacramento’s proximity to the San Francisco Bay Area, coupled with more affordable rental prices, has attracted numerous individuals seeking larger living spaces, thereby sustaining growth in the rental market, ranking fifth in terms of rental price increases over the past five years.
Moreover, the top two cities with the highest price increases over the last five years both hail from Florida, with Tampa seeing a $496 increase, a surge of 39.5%, while Miami experienced a jump of $673, a 39.2% increase in rental prices. New York City comes in seventh, having seen a rise of $693, marking a 31.3% increase.
Looking ahead to the end of the year, the current sluggish rental market and increased incentives may continue, or there may be a significant decrease in rents. The recent decline in mortgage rates could weaken rental demand as more households have the ability to purchase homes, combined with a slowdown in job markets which might lead to rent decreases.
Observing the recent housing market trends, there are indeed signs of a balancing market, with more price reductions, increased supply, and declining rates. Perhaps, as Zillow’s newly appointed CEO Jeremy Wacksman puts it, we may have passed the eye of the storm, and the housing crisis’ worst days might be behind us.