How does the 2016 minimum wage increase impact one’s ability to purchase a house or apartment? Well before we jump into that argument a few facts are in order: the federal minimum wage of $7.25 per hour was instituted back in July of 2009.
The new minimum went into effect on January 1st of 2016. For the most part, the new minimum wage will range from about $7.50 to $9.75 an hour with a few state (California and Massachusetts) weighing in at $10.00 an hour.
Minimum wage, minimal housing
The Housing Stats team at the National Association of Realtors (NAR) did the legwork of computing how a minimum wage job translates into housing affordability.
Calculate full-time employment of 40 hours per week for 50 weeks per year and you come up with an affordable monthly payment which is no more than 25 percent of income for mortgage principal and interest. They then calculated an affordable loan amount, for a thirty-year fixed rate mortgage at a 4.0 percent interest rate (see below).
Does not bode well for lower income folks
NAR points out that “finding affordable homes is likely to be difficult as these amounts are well under the national median. And while there are homes in these price ranges in some locations, they are getting harder to find.”
According to recent Existing Home Sales data from the NAR, sales of homes priced under $100,000 have been declining. Furthermore, in 2015 through November, sales under $100,000 were 8.5 percent lower than the same period in 2014.
Given strong demand, limited supply, and continued low construction, these trends are likely to continue. That does not bode well for someone barely getting by and hoping to purchase a home or an apartment.
NAR reiterates the plague of affordability
While it’s no secret that minimum wage workers come from families of all income levels. The average share of income earned by a near-minimum wage worker is just over half (54.3%). Additionally, nearly one-quarter (23.7%) of these workers are the sole providers of family income.
We’ve reported before on the state of the housing market. Purchasing a home is difficult enough for someone who is earning three figures. But the outlook for lower income wage earners is challenging at best and bleak at worst.
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