Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating the Cost of a Mortgage
Transcript
- Lucas: So Luna, I was looking at the latest numbers this morning, and there's a headline that I think we've been waiting a long time to be able to say out loud. For the first time in years, the cost of buying a home is actually growing slower than the average raise. Luna: Wait, seriously? Because it feels like every time we talk about housing, it's the opposite — prices running away while paychecks crawl. What changed? Lucas: Well, it's a couple of things coming together. The employment cost index for wages — that's the broadest measure of what employers pay — rose to 179 in the second quarter, up from 177.5. That's about a 3.2 percent annualized pace. Meanwhile, the ten-year Treasury is hovering around 2.28 percent, and mortgage rates have followed it down. So the monthly payment on a median-priced home is rising, but not as fast as paychecks. Luna: So you're saying the gap between what people earn and what it costs to buy is actually shrinking? That's not a headline I've seen in a long time. Lucas: Exactly. And it's not just theoretical. Let me put some concrete numbers on it. Average hourly earnings for private workers hit 37.6 dollars in June, up from 37.51 the month before. That's a steady climb. And CPI actually ticked down to 332.6 in June — prices are cooling. So when you adjust for inflation, real wage growth is positive. Luna: Okay, so wages are up and inflation is down. But home prices — haven't they just been on a tear? I read that the median home price is still way above pre-pandemic levels. Lucas: They are, no question. But here's the thing: the rate of increase is slowing. And because mortgage rates have come down from the highs we saw a couple of years ago, the actual monthly payment is growing at a slower pace than earnings. It's not that housing is cheap — it's that the gap is closing. And that's a structural shift, not just a blip. Luna: Hmm. So is this the moment where buying a home starts to make sense again for the average worker? Or is it still out of reach for most? Lucas: I think it depends on the market and the person. But the math is moving in the right direction. Let's break down the components. On the wage side, the employment cost index is a really important gauge because it covers wages and salaries across the whole economy, not just hourly workers. It's up about 3 percent over the past year. On the cost side, mortgage rates are driven by the ten-year Treasury, and that's been drifting lower. Luna: So is the Fed behind this? I know they're supposed to be focused on inflation, and we've seen core PCE actually tick up slightly to 130.3. But the headline CPI came down. What's the story there? Lucas: Right. The Fed's preferred measure is core PCE, and it's still running above their 2 percent target. But the fact that headline CPI is falling is significant. And with a divided Fed — you saw the headlines about that — there's real debate about whether to keep rates where they are or cut. Chairman Warsh is under pressure, but the data is mixed. That uncertainty is keeping long-term rates from shooting up, which helps mortgage borrowers. Luna: So we've got wages rising, inflation cooling, and the Fed in a holding pattern. Sounds like a Goldilocks scenario for homebuyers. But is there a catch? Lucas: The catch is that housing supply is still tight. You've got a structural shortage in many metro areas, and that keeps prices from falling outright. So the affordability gain is mostly coming from the financing side — lower rates, not cheaper homes. Also, the data we're looking at is national averages. In hot markets like Austin or Boise, the story might be different. Luna: Right, because the median home price in those markets is still way up. But if wages are growing at, say, 3 percent nationally, and mortgage rates are stable, then the mortgage payment on a median home might be growing at 2 percent. That's a real improvement. Lucas: Exactly. And that's the kind of specific number I want listeners to take away. If your raise is 3 percent and your monthly housing cost is only going up 2 percent, you're actually ahead. That hasn't been true since before the pandemic. So for someone who's been sitting on the sidelines, this might be the signal they've been waiting for. Luna: But wait, Lucas — is this sustainable? We've seen inflation dip before, only to come back. And the Fed could raise rates again if things heat up. Lucas: That's the million-dollar question. And it's why I want to look at the components. The CPI drop to 332.6 was driven by falling goods prices — think used cars, furniture, electronics. Services inflation is stickier. And the employment cost index is still showing solid wage growth, which can feed into services prices if companies pass it along. So the Fed is in a tight spot. Luna: So we've got this window where wages are beating housing costs, but it might not last. Is that the takeaway? Lucas: I think the takeaway is that for the first time in a long while, the average worker's purchasing power is improving relative to one of the biggest expenses they face. That's a big deal. And it's worth paying attention to whether this trend continues into the fall. Luna: You know, this show is all about helping people understand their own finances. And I think this episode is a good example of how the macro data can actually hit home. If you're thinking about buying a house, this is the kind of information that can inform your decision. Lucas: Yeah, and that's what we're here for. And speaking of what keeps us going — we don't run ads on this show, we keep it independent. And that's possible because some listeners who find it useful decide to buy us a coffee. If you've gotten something out of these conversations, you can find us at buy me a coffee dot com slash fexingo. Even a couple of dollars a month genuinely helps keep the lights on. Luna: Yeah, it really does. We're a small operation, and every bit counts. So if you're able, we appreciate it. Now, back to the housing story — you mentioned the Fed being divided. What does that mean for someone with a variable-rate mortgage or a HELOC? Lucas: Good question. For variable-rate debt, the near-term path of the Fed funds rate matters more. And with the Fed on hold, those rates are probably stable for now. But if inflation flares up again, they could hike, and that would hit variable-rate borrowers. So lock in fixed rates if you can. Luna: So the advice is to take advantage of the current window. But I'm curious — what would it take for this trend to reverse? What are the watch items? Lucas: I'd watch three things. First, the employment cost index — if wage growth accelerates past 4 percent, that could pressure the Fed to hike. Second, the ten-year Treasury yield — if it jumps above 2.5 percent, mortgage rates will follow. And third, housing supply — if we see a big pickup in new construction, that could actually bring prices down, which would help even more. Luna: And what about the consumer? Are they feeling this in their daily lives? I'm thinking about the CPI number — 332.6 — that's still 3 percent higher than a year ago. So prices are still rising, just more slowly. Lucas: Right. And that's the thing — 'beating' the cost of a mortgage doesn't mean everything is cheap. It means the gap is narrowing. For a typical family, a 2 percent mortgage increase versus a 3 percent wage increase means a little more breathing room each month. That's real, but it's not a windfall. Luna: So it's progress, not a miracle. But it's the kind of progress we haven't seen in a while. I guess the question is, what happens next? Lucas: That's the part we can't predict. But we can arm ourselves with the data. And right now, the data says: wages up, inflation down, mortgage rates stable. That's a combination that hasn't been this favorable since before the pandemic. So if you're in a position to buy, it's worth running the numbers for your specific market. Luna: Well, and I think that's the key — it's not about timing the market, it's about knowing the trends. And this episode is a good reminder that the economy is always moving. What might have been true a year ago isn't necessarily true today. Lucas: And that's exactly why we do this show — to help people make sense of it. So if you're thinking about buying a home, or just curious about how your raise stacks up against the cost of living, this is a good time to pay attention. We'll be watching these numbers. Luna: Same. And as always, thanks for joining us. We'll see you next time.