January 30, 2014 / 2:01 PM / 4 years ago

RPT-Fitch: Labor Struggles Call U.S. Home Price Growth into Question

Jan 30 (Reuters) - (The following statement was released by the rating agency)

U.S. home prices are continuing their upward push nationwide, though the trend faces strong headwinds from persistent labor market struggles and depressed median wages, according to the latest sustainable home price update from Fitch Ratings.

Home price growth is maintaining near-record pace in much of the western US as supply remains tight. New home sales are limited by low construction rates. Additionally, existing inventory is restricted by both underwater borrowers unable to sell their homes and a large number of properties still mired in extended foreclosure proceedings. a€˜In markets with short supply, increased demand from institutional investors and individual borrowers returning to recovering markets has created the conditions for the sharp climb in prices,a€™ said Director Stefan Hilts.

Unemployment is now down to its lowest level in five years (6.7%). However, a closer look at this aggregate number shows that much of the improvement is driven by workers dropping out of the labor force. a€˜Without a strong employment base, it is difficult to find sustainable support for the rapid growth in home prices across much of the country,a€™ said Hilts.

GDP growth is another area where strong numbers may be disguising economic weakness. Last quartera€™s annualized growth rate of 4.2% marked the strongest numbers in nearly a decade. However, median wages remain depressed as the economic base has declined in many traditional employment sectors, with 4Qa€™13 median household income 8% lower than in 1999 in real terms. a€˜With median wage levels stagnant, many potential buyers do not have the resources necessary to participate in the home ownership market,a€™ said Hilts.

Fitch’s ‘U.S. RMBS Sustainable Home Price and Economic Risk Factor Report a€“ January 2014’ is available at ‘www.fitchratings.com’ or by clicking on the below link.

Link to Fitch Ratings’ Report: U.S. RMBS Sustainable Home Price and Economic Risk Factor Report a€“ January 2014

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