Homes Appreciating Faster than Wages:

As we have been reporting for over a year, home prices are rising. That is
the good news. The bad news is that wages are not.

While historically low mortgage rates are translating into big savings for
homeowners, those same low monthly payments are masking a troubling trend.
While home values have been on the rise for the past year – in some areas
appreciating by 15 percent or more annually – median wages haven’t kept
pace. As a result, home price-to-income ratios in many areas are climbing.

By looking at two metrics – an affordability index and a price-to-income
ratio – Zillow researchers have determined that low mortgage rates that make
homes appear incredibly affordable are overshadowing a bigger overall trend
in which the overall prices of homes are actually significantly more
expensive than historic norms relative to annual incomes.

Homeowners in 24 of the 30 largest metros covered by Zillow were paying more
for homes in the fourth quarter of 2012 relative to their region’s median
income than they were from 1985 through 1999. Metros with the largest
difference between their pre-bubble and fourth quarter 2012 price-to-income
ratios included San Jose (52.1 percent more), Los Angeles (48.8 percent
more), Portland, (45.4 percent more), San Diego (44.6 percent more) and
Denver (40.8 percent more).