Pros and Cons of Rising Wages on Housing Affordability

Fleming: “In 2018, home buyers may have to take the good—wage growth—with the bad—rising mortgage rates.”

SANTA ANA, CA—On the one hand, rising mortgage rates reduce the affordability of housing since the cost of borrowing increases, but rates are increasing because wages are rising faster than expected, says First American Financial Corp.’s chief economist Mark Fleming.

Fleming’s take is that wage growth simultaneously helped and hurt housing affordability. “However, rising household income has largely offset the increase in borrowing costs brought about by higher interest rates in the past year,” said Fleming in a prepared statement. “In December, consumer house-buying power was up 5.6% compared with a year before, even though mortgage rates increased in 2017.”