This week the minimum wage increased for the first time in over 10 years, but there are some good reasons why having more money won't make much difference to homebuyers.
The Fair Minimum Wage Act of 2007 raises the minimum wage to $5.85 an hour from $5.15 an hour. Congress plans to phase in more increases every summer until the minimum wage reaches $7.25 an hour in the next two years.
According to estimates, about 1.7 million workers earned $5.15 an hour or less in 2006, so by the time wage increases are completed, about 13 million workers will be favorably impacted.
Some economists predict that employers will respond by trying to cut personnel, but others say that the minimum wage increase is long overdue. One estimate noted that the minimum wage was at a 52-year low when adjusted for inflation.
That's a lot of time and money to make up, and the new federal wage guidelines do neither.
If you are a minimum wage earner and want to buy your first home, you could be looking at paying about $180,500, the median priced home for first-time homebuyers. With a 10 percent downpayment and a fixed-rate loan of 6.67 percent counting private mortgage insurance, your monthly payment would be about $1,045. To qualify for a home in that price range, you'd have to be making an annual income of $50,160.
As a minimum wage earner today, you'll bring home about $12,168. By summer 2009, you'll earn $15,080. You'll still need another income or a co-signer, or you'll need to buy a far less expensive home than the first-time buyer is able to.
Other reasons why the wage increase won't impact housing is that some states have already raised their minimum wage much higher than federal standards. In Washington, the lowest wage is $7.93. In California, it's $7.50, and in Vermont, it's $7.53.
So, the workers most impacted will be those who live in states that follow the federal wage guidelines. That means housing affordability is still going to be a problem for many low-wage earners, and that keeps the pressure on first-time homebuyers and move-up homebuyers.
