Income growth is among the strongest and most consistent predictors of home price appreciation. That’s why studies aiming to isolate the effects of other factors, such as housing supply constraints, typically control for income before assessing the impact of other factorsa. In short, any credible model of housing prices must account for income growth.
But incomes are hard to measure at a geographically granular level and at high frequency. Instead, we think investors should focus on employment—a useful proxy for the “wage bill” (the number of people employed x the hours they work x the wage they earn).
The Bureau of Labor Statistics provides state and MSA-level employment data every month through its Current Employment Statistic (CES) programb, and at the county level through Local Area Unemployment Statistics (LAUS)c.
Employment growth correlates with home price growth
Figure 1 below shows that, within the largest 30 American cities, the top tier cities for employment growth have experienced more rapid appreciation than the bottom tier almost 90% of the time since 2002. The gap between the two has averaged over 6 percentage points.
High growth cities outperform
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