Latest Real Wage Growth Could Spell Good News for Housing

Latest Real Wage Growth Could Spell Good News for Housing
Many economists and analysts have said that strong wage growth is needed in order for facilitate a full recovery for the housing industry. The latest data released by the U.S. Bureau of Labor Statistics indicates that real wages are on the rise, increasing by 22 cents year-over-year. In the real earnings report for February 2015 released Tuesday, the BLS reported that real average hourly earnings – hourly earnings adjusted for inflation – increased year-over-year from $10.32 to $10.54 year-over-year, an increase of 2.1 percent, despite a drop by one cent from January's average of $10.55.

Real average weekly earnings increased year-over-year in February by more than nine dollars, from $355.17 up to $364.56, while declining by 35 cents from January to February. The BLS cited the month-over-month decrease in real average hourly earnings combined with no change in the average workweek as the reasons for the slight month-over-month drop in real weekly earnings. The average work week remained unchanged at 34.6 hours from January to February while increasing by 0.6 percent year-over-year, from 34.4 hours reported in February 2014.

The average hourly earnings increased by just three cents month-over-month in February from $24.75 to $24.78, while increasing by 48 cents year-0ver-year. Average weekly earnings ticked up by just $1.04 in February from $856.35 up to $857.39 while increasing by more than $21.00 year-over-year, from $835.92 reported last February. At the time the BLS February employment summary was released in early March, Fannie Mae Chief Economist Doug Duncan stated that the slow wage gains were holding back the housing industry, but that he said he believed the strong hiring numbers (an average of 266,000 jobs added per month in the last 12 months).

"We maintain our belief that once upbeat hiring translates into stronger income growth, which we believe it likely will, a stronger housing recovery will follow," Duncan said.

While Fannie Mae reported a slow start to the year economy-wise in its March 2015 Housing and Economic Outlook released earlier this week, recent improvements in the labor market suggest that the GSE's prediction that the economy will rebound and "drag housing upward" in 2015 may still yet come true. The latest year-over-year increase in real earnings suggest that the wage growth analysts are hoping for to lift the housing market may be coming.

"The economy is getting a boost from the strong employment numbers we’ve seen last year and at the start of 2015," Duncan said in the report. "When this employment growth partners with income growth and consumers experience a rise in their personal household income, we should see a similar boost in the housing sector. Overall, we expect an improving 2015 with continued economic growth bringing housing above 2014 levels."

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