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Latest Realty News from NAR
By metro area
Based on the headlines, home prices outpace wage growth. Indeed, in the last six years home prices increased 47 percent while wages rose 16 percent. What do these percentage changes actually mean for a typical homebuyer? How much did the typical salary increase in dollars? How much more do buyers need to pay for their monthly payment because of the price increase?
NAR calculated the monthly earnings for a typical employee in both 2018 and 2012. Respectively, using the median home prices in 2018 and 2012, we also computed the monthly payment for a typical home for both years. Then, we compared the change of the average monthly wages in dollars with the change of the monthly payment in the last 6 years.
Nationwide, the monthly earnings of a typical employee rose by $530 to $3,784 in the fourth quarter of 2018 from $3,256 six years earlier. In the meantime, the monthly payment increased by $354 to $1,114 in 2018 from $760 in 2012. Thus, although home prices increased nearly three times more than wages (in percentage points), homebuyers needed to spend less than their salary increase for the higher mortgage payment. Noticeably, homebuyers needed to spend nearly two thirds of their salary increase (above the 30% rule) for the higher mortgage payment.
Since all real estate is local, we calculated how much both the monthly wage and mortgage payment changed during 2012 and 2018 for the 100 largest metro areas.
In the last six years, the Seattle, WA and San Francisco, CA metro areas experienced the highest gains in wages. In both metro areas, the average monthly salary increased by $1,150 between 2012 and 2018. In the Seattle, WA metro area, the average monthly salary increased to $5,632 in the last quarter of 2018 from $4,479 six years earlier. However, in some metro areas, wages dropped. In the Tucson, AZ metro area, the average monthly earnings declined by $189. Similarly, in the Palm Bay, FL metro area the average monthly wages dropped by $172. Overall, the average monthly wages increased by $433 in the 100 largest metro areas.
In the meantime, home prices increased in all of the 100 largest metro areas except for the Bridgeport, CT metro area. As a result, current homebuyers need to pay a higher monthly mortgage payment for the same home compared to 2012. Among the 100 largest metro areas, San Jose, CA and San Francisco, CA metro areas experienced the highest increase in the monthly mortgage payment because of price appreciation. Specifically, in the San Jose, CA metro area, current homebuyers need to pay $2,428 per month more than in 2012 for the same home. However, overall, the monthly mortgage payment increased by $340 on average in the 100 largest metro areas.
Comparing the amount of the wage increase with the higher monthly mortgage payment, in 70 percent of the 100 largest metro areas, wages in dollars increased more than the mortgage payment. Moreover, in most of these metro areas, the increase of the mortgage payment accounted for less than 30 percent of the wage increase. For instance, in the Chicago, IL metro area the average monthly wage increased by $572 while the monthly mortgage payment rose by $326. Another example is the Dallas, TX metro area. In this area, homebuyers in 2018 earned $558 more every month than homebuyers in 2012 while the monthly mortgage payment increased $420 since 2012 because of the price appreciation.
See below the top 5 metro areas with the highest monthly income gains compared to the extra housing cost:
Nevertheless, the extra monthly housing cost exceeds the income gains in 30 percent of the 100 largest metro areas. For instance, in the San Jose, CA metro area, homebuyers in 2018 earned $549 more every month compared to the homebuyers in 2012. However, the monthly mortgage payment increased $2,428 since 2012 because of the price appreciation. This means that homebuyers will need to attribute a higher percentage of their monthly earnings to housing cost since their income gains are not enough to cover the extra housing cost.
Here are the top 5 metro areas where the extra housing cost exceeds income gains:
See below how much both the monthly wage and mortgage payment changed during 2012 and 2018 for each of the 100 largest metro areas.
 Assuming the same mortgage rate at 4% for a 30-year fixed rate mortgage.
 Based on the rule of thumb, 30% of the gross income should be spent for housing.
E-commerce continues to challenge brick-and-mortar retailers, especially department stores and sporting goods, hobby, book, and music stores. However, the retail trade sector is still facing bright prospects in growing metro areas that are attracting people, jobs, and housing. The trend towards integration of online and offline shopping, mixed-use commercial/residential development that requires a strong retail anchor, and the tax incentives for Opportunity Zone projects are factors that will support the growth of brick-and-mortar retail stores in 2019.
E-Commerce and Retail Trade Trends in 2018
In 2018, electronic and mail order sales totaled $598 billion, or 12.7 percent of the $5.3 trillion in total retail sales in 2018, up from a mere four percent of the market in 1992. Electronic shopping & mail order sales outpaced warehouse clubs and super store sales ($481 billion) and department store sales ($149 billion). Department store (excluding leased space) retail sales (think Sears, JC Penny, Marshall Field’s, Filene’s Basement, and the like) have shrunk since 2000 from $231 billion to just $149 billion by 2018. Warehouse clubs and super stores (think Sam’s Club/Walmart, Costco, BJ’s) sales have risen robustly along with e-commerce sales since 2000, but sales have been overtaken by e-commerce sales since 2016.
Department stores (excluding leased departments) and sporting goods, hobby, book, and music stores have been hit the hardest, with sales contracting in 2018 for these sub-retail sector markets. In 2018, sales of department stores excluding leased space and sporting goods, hobby, book and music stores sales contracted while electronic and mail order retail sales rose 10 percent. E-commerce sales outpaced the growth of total retail sales (4.7%) and all retail subsectors except sale of gasoline stations (12.7%), fuel dealers (23.5%) and men’s clothing stores (12.7%). Men’s clothing stores appears to be doing better in the face of the e-commerce compared to women’s clothing stores (3.3%) (perhaps because it still makes sense to fit an expensive suit at the store). Jewelry store sales also still rose strongly (8.2%) (perhaps because shoppers still want to try on the jewelry before making a purchase).
Just last February 15, Payless ShoeSource announced it was closing some 2,100 stores in the United States and Puerto Rico after it had filed for bankruptcy in 2017. This brings to 4,287 announced store closings in 2019, following on the heels of 8,139 announced store closures in 2017 and 5,524 in 2018, according to CoreSight, a website that tracks the retail market.
Implication on Jobs and Income
With brick and mortar retail trade sales on the decline and e-commerce retail sales on the rise, job creation has shifted towards transportation and warehousing, which are the logistics supports of e-commerce sales. In 2018, the retail trade sector created a mere 14,000 net new payroll jobs in 2018, while transportation and warehousing created 216,100 jobs. Retail trade job creation in 2018 slightly rebounded from the 87,900 jobs lost in 2017, although this is paltry compared to the average of 223,000 jobs created in the retail trade sector during 2012–2016.
What’s the implication of this shifting in jobs from retail to logistics for the economy and for workers? If workers can find a job quickly in other sectors such as in warehousing and transportation, their incomes are likely to be higher. Retail trade workers are generally the least paid among all other major groups of workers, receiving on average $594 weekly compared to transportation and warehousing workers who receive on average $948 weekly and wholesale trade workers who receive on average $1,210 weekly (as of February 2019).
Retail Trade Opportunities
Opportunities for the growth of retail trade varies across metro areas, creating jobs in growing metro areas that are attracting people, jobs, and housing. Factors that will support the growth of retail trade in 2019 are the trend towards integration of online and offline shopping, the development of mixed-use commercial/residential areas that require a strong retail anchor, and the tax incentives for real estate development projects in Opportunity Zone areas.
Amazon’s purchase of Whole Foods and the increasing online presence of warehouse and discount stores demonstrates the growing interconnection between online and offline (physical, brick-and-mortar) shopping. Walmart or Target customers can now order online and have same-day delivery or pick up at a nearby store. Related Cos., the real estate developer of the Hudson Yards—New York’s biggest mixed-use commercial development that opens in March 2019—just acquired Quiet Logistics, a distribution and logistics company that specializes in catering to primarily online retailers because primary online retailers have also set up shop in Hudson Yards. Grocery stores and restaurants/fast foods are also offering online ordering and delivery companies (e.g., Uber Eats, Grub Hub) or have tied up with delivery companies (DoorDash for McDonald’s orders ).
The trend towards mixed-use commercial and transit-oriented development will continue to prop up the demand for brick-and-mortar/physical stores around which mixed-use, transit development is anchored on (e.g., Harris Teeter is the anchor for the Merrifield development near the Dunn-Loring Metro station in Falls Church, VA). The just opened 28-acre Hudson Yards in New York City has a seven-story mall, office and residential properties, a hotel, school, cultural center, parkland, and public space.
The tax incentives for projects in Opportunity Zone areas is another positive factor that will support the construction of brick-and-mortar stores.
The shift from ‘big box’ development to small format stores in urban areas, such as what Walmart and Target are doing in the Washington, DC area, also presents a growth opportunity for brick-and-mortar retailing.
To be able to take advantage of these opportunities, brick-and-mortars will need to enhance their logistics (warehouse, packaging, distribution, last-mile delivery), use technology to improve the customer’s experience at all phases of the shopping experience from product search (e.g., using visual search instead of text search) to the check-out, physical delivery, or pickup, and to understand that the physical store is a place to create brand impact and awareness.
Retail Trade Employment Still Growing in Half of Metro Areas
While the retail trade sector is facing huge challenges from e-commerce sales on a national scale, retail trade employment is still growing in metros that are attracting people, jobs, and housing construction. Of 405 metropolitan areas and metropolitan divisions, 47 percent created net retail trade jobs over the past three years from 2015 Q4 to 2018 Q4. Below are the top metro areas which created 5,000 or more retail trade jobs during this period.
 Source: U.S. Census Bureau Monthly Retail Sales, seasonally adjusted, downloaded from Haver Analytics
 Think of brick and mortar big names that have shuttered—Sears, Marshall Field’s, Hecht’s, Kids R’ Us, Woolworth, Filene’s Basement, Borders, Crown Books, Kaufmann’s, Linens ‘n Things, Sports Authority, Herman’s, Hhgregg, Circuit City, Comp USA, FAO Schwarz,— or have had major store closings such as Macy’s, JC Penny, Kohl’s, Lord & Taylor, and Toys R’ Us
 The mean duration of unemployment is 8.9 weeks in January 2019. The average duration has been on the downtrend since 2011 with the average duration at 22 weeks.
 Bisnow, “Related Cos Makes Inroads into Logistics to Provide Amazon Alternative”; see https://bit.ly/2T8njar
 Globe St. “Hudson Yards Open: Going Inside Vessel”, https://www.globest.com/2019/03/18/hudson-yards-opens-going-inside-vessel-slideshow/?kw=Hudson%20Yards%20Opens:%20Going%20Inside%20Vessel%20%28Slideshow%29&et=editorial&bu=REM&cn=20190318&src=EMC-Email&pt=NewYork
 Bisnow” Developers Sign Trader Joe’s for Silver Spring Opportunity Zone Project”; see https://bit.ly/2CnqwgR
 DC North Star “New Target Store Coming to DC”; see http://dcnorthstar.com/target-georgia-avenue/
 Divisions are part of metropolitan areas, so there is some double-counting of the total number of metro areas and divisions. However, when we get the share of metro areas and divisions which have negative retail trade growth to the total number of metro areas and divisions, there is no practically no double counting.