Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Rent
Transcript
- Lucas: So here's a number I've been chewing on: median weekly earnings hit twelve hundred and four dollars at the start of last year, up from eleven hundred and fifty-nine the year before. That's a 3.9 percent jump. Luna: And meanwhile, what are rents doing? Because that's the bill that eats the biggest slice of most paychecks. Lucas: Right. Shelter costs in the CPI are up just 3.2 percent over the latest reading. Now, that's still above the overall inflation rate, but it's the first time in a while that wage growth has clearly been running ahead of the cost of keeping a roof over your head. Luna: So the gap is finally closing. How long have we been waiting for that? Lucas: Going back to the pandemic, rents just exploded. In 2021 and 2022, shelter inflation was running at seven, eight percent a year. Wages were growing too, but not nearly fast enough to keep up. So for years, every raise felt like it was immediately swallowed by the landlord. Luna: And now, suddenly, the worm has turned. What's driving it? Lucas: A few things. First, there's been a wave of new apartment construction that finally came online. A lot of multifamily projects that broke ground in 2022 and 2023 are now hitting the market. In places like Austin and Phoenix, there's an actual glut of units, which is pushing rents down. Luna: I saw a headline about Houston's rents dropping for six straight months. That's a big deal for a city that was a renter's market nightmare just a couple years ago. Lucas: Exactly. And it's not just the Sun Belt. Even in coastal cities, rent growth has slowed to near zero. In Manhattan, the average rent has actually fallen a bit from its peak. So this is a broad-based slowdown. Luna: But is this just a supply story? Or is demand also cooling off? Lucas: Demand has softened too. Fewer people are moving for work, and some younger workers are doubling up with roommates or moving back in with parents longer. So you've got more supply and less urgency on the demand side. That's a classic setup for rents to flatline. Luna: And what does that do to the calculation for someone who's been waiting for a raise to make a move feel possible? Lucas: It changes the math pretty meaningfully. If you're earning the median weekly wage and you're looking for a one-bedroom, the rent to income ratio is finally starting to dip below that thirty percent threshold that affordability experts like to use. For a lot of people, that's the difference between staying in a cramped shared place and getting your own spot. Luna: So the headline is: wages are finally beating rent. But is that true everywhere? Because I've seen some data showing that in a few metros, rents are still climbing. Lucas: That's the nuance. The national average is one thing, but there's a lot of dispersion. Cities like Cleveland and Buffalo—places that didn't see the massive boom—rents are still rising at a steady clip. And in the suburbs, especially around the Northeast, demand remains strong. So it's not a uniform victory. Luna: But for the country as a whole, this is the first real sign that after years of getting squeezed, workers are getting a bit of breathing room. And that's worth celebrating, even if it's uneven. Lucas: And here's something that makes this feel even more tangible: the latest employment cost index, which tracks what employers actually pay in wages and benefits, is still rising around four percent. So the labor market is still tight enough that employers are handing out raises faster than housing costs are rising. That's a reversal of the last few years. Luna: It almost feels like the scales are finally tipping back in favor of the worker, at least as far as housing goes. Lucas: Yeah, and it's worth remembering what it felt like when the opposite was true. Back in 2023, the gap between wage growth and rent growth was something like three full percentage points. Every dollar you got on your paycheck was worth less than the same dollar a year earlier, because the rent was eating it. That's a horrible feeling, and it's been the default for years. Luna: Now it's flipped. And if you've gotten some value out of these conversations about how the economy actually works, we've got a small ask. This show is ad-free and listener-supported. A couple of dollars a month is genuinely what keeps these going. If you've gotten something out of them, you can help at buy me a coffee dot com slash fexingo. Lucas: Yeah, even just the price of a cup of coffee makes a real difference. And we mean that sincerely. It keeps the lights on and the data flowing. Luna: Anyway, back to that rent data. Lucas, you mentioned the CPI shelter number is still above overall inflation. What's the outlook for the next few quarters? Lucas: The consensus is that shelter inflation will keep easing, but there are two wildcards. One is the potential for a big spike in single-family rentals, which have been a growing slice of the market. The other is that the recent fall in mortgage rates could push more renters into buying, which would take some demand out of the rental pool. Luna: So if rents stay flat and wages keep climbing, the affordability picture for renters could keep improving for a while. But is there any risk that this is just a blip? Lucas: There's always a risk. If the economy slides into a recession, wage growth could slow faster than rents. But as of now, the data suggests we're in a sweet spot. And for people who have been waiting to negotiate a raise or make a move, this is the time to take advantage. Luna: That's a good note to end on. Wages beating rent—finally. Let's hope it sticks.