Times might still seem tough, but income growth is moving at a faster pace than its ever been, particularly in lower-income areas based on numbers from the U.S. Census 2015 American Community Survey [1], released this week. The news indeed came as a surprise, but it was not the only surprise in the numbers.
Ralph McLaughlin, chief economist at Trulia, noted a second surprise [2]‒‒metros with the lowest incomes had the highest income growth last year, a clear sign, he said, that regional income convergence is picking up.
A look at the rate of income growth with the rise in home prices found that in several metros, income growth rate outpaced home price appreciation noticeably. Nashville, where income growth grew most in the country, saw 10.2 percent income growth in 2015, while median houses appreciated 7 percent. El Paso and Birmingham saw nearly 10 percent income growth and low home price growth. Birmingham homes appreciated 4.6 percent in 2015, whereas El Paso homes rose a mere 0.2 percent, the lowest price growth metro.
The two anomalies in the 10 top income growth markets, Trulia reported, were Seattle and West palm Beach; Seattle because it was the only top-10 city considered a wealthy city, and West Palm Beach because it was the only top-10 metro where home prices grew faster than incomes (11.5 to 8.5 percent).
In low-income markets in general, income growth rose about 5.5 percent as median prices rose 3 percent. This dynamic was shared with the highest income areas, where income grew 3.5 percent and median prices grew 3 percent in 2015.
However, lower-middle, middle, and higher-income areas generally saw prices rise about a third more than incomes.
Why are incomes growing?
“It’s tough tell at this stage,” McLaughlin said. “In general, though, income growth can rise for a few different reasons.”
Incomes, he said tend to rise when the unemployment rate drops, employers raise wages to attract labor, productivity increases, and as a result of labor migration.
“As firms open new locations and bring new employees with them, the multiplier effect of local spending generates more opportunity for supporting business,” he said. “Even if new employees aren’t paid any more than existing ones. While we can’t be certain which processes are dominating in individual markets, near full employment at the national level is certainly helping increase wages regionally.”