Yesterday, we looked at the relationship between housing prices and income. Today, we turn to the relationship between housing prices and wages. Wages are a useful way to gauge regional housing prices because they only count money that is earned by doing work. Income, on the other hand, counts any and all earnings from investments, interest, dividends transfers, and other sources.
The graph below plots housing prices in 2009 against wage levels for 2008 (the most recent data available).
There is a clear, positive, linear, and significant relationship between wages and housing values - the correlation is 0.71 and the R2 0.51. Metros above the fitted line had higher housing prices than wages relative to national levels, while those beneath the line had lower than expected housing prices.*
Near the top are many of the same regions from yesterday's analysis. Honolulu is once again the greatest outlier, with housing prices exceeding wage levels by a differential of $384,290. Metros in California once again play a prominent role at the top of the list, including San Diego ($87,365), Los Angeles ($63,340), and San Francisco ($60,148). New York also registers a substantial differential of $76,896 as well as Miami ($46,128).