If you weren’t one of the lucky ones to have purchased a home prior to the most recent nationwide housing boom, you likely look at current home prices, even after a slight downturn, with a trepidation that borders on outright anxiety. A combination of factors at work in the nationwide economy has unleashed a chain of events that is generally bad news for the middle-class, 9 to 5 working crowd. That combination involves slowly increasing real wages and skyrocketing home prices, which are forcing too many average joes and janes into loooonnnng commute times to try to make ends meet. The Baltimore-Washington metropolitan region, third largest in the country, serves as a microcosm for this phenomenon, and as an interesting case study for those who may be studying the mental health of the average employee in the U.S.

I’m no psychologist, I can work from home if I like, and I was lucky enough to have purchased my first home in December 2000. Nonetheless, it’s fairly clear to me that things are bad right now. On the occasions that I do venture into my office in Baltimore, the commute takes about 45 minutes and the people on the road are angry. I don’t mean slightly miffed or a bit irritated. I’m talking full-blown rage, often coupled with traveling speeds of about 85 miles per hour – when traffic conditions allow for speeds faster than a crawling pace.

Once I get to my office, I look across the street at a townhouse that’s for sale…for $615,000. It’s a nice townhouse, mind you, but it’s still only about sixteen feet wide and located on a busy street. Not the type of place one may expect for that kind of money – and that’s the price after it’s been reduced to take into account the recent downturn in the real estate market. Finally, though I depend on my wiles as an entrepreneur to produce income, my days in the operations department of Legg Mason are still close enough in the rearview mirror to remind me what it’s like in the trenches and how far my old salary would get me today.

According to the U.S. Bureau of Labor Statistics (BLS), nominal wages increased by 17.8% from 2000 through 2005. While this may appear to be quite positive on the surface, notice that I noted “nominal” wages, or wages before an adjustment for inflation. The real wage increase in the U.S. is significantly less than that when 13.4% inflation is factored in for that same 2000 – 2005 timeframe. In essence, wages are increasing just quickly enough to stay ahead of inflation, so the increase itself is minimal. Things could be worse – this slow real wage growth comes at a time when the economy is growing and the equity (stock) markets are at least stable, if not increasing slightly. As a result, overall employment has been good, with generally steady or declining unemployment rates over the five year period noted.

For the would-be homeowner, however, the picture is significantly bleaker. From 2000 through 2005, the national median home price rose 47%, making that 17.8% nominal wage increase appear less significant and the increase in real wages seem, essentially, nonexistent. Though there are areas of the country where housing prices have not grown that quickly, other areas have seen a much more significant increase. In Baltimore, for example, current home prices are roughly 250% higher than they were in the year 2000, and the same holds true for Washington, DC and much of the larger Baltimore-Washington metro area. For those who already own a home, the latest boom has resulted in a significant increase in equity that will largely offset the pain of slowly growing wages. For those looking to buy their first house, or to move into an area where real estate has appreciated quickly, a long commute may be in lurking in the near future.

Again using Baltimore as an example, it’s important to note that the city sustained a mass exodus during the 1970s and 1980s. Many left behind their rowhomes for the manicured lawns and stable schools of the outlying suburbs. The city was still the center of business in the state, but many chose to make 20-30 minute commutes each day rather than live near the office. In the late 1990s, however, people began once again to move to the city, often buying their first homes. These were primarily young people who had just graduated from college and wanted to live not only near their work, but also near the nightlife not readily available in their parents’ suburbs.

The employment situation in the larger Baltimore-Washington metro area is generally positive, especially with the U.S. government operating out of offices all over the area and the existence of other large employers like Johns Hopkins University and Hospital, University of Maryland Medical Center, etc. In the late 1990s and into the 21st century, the employment situation in the area remained robust, with plenty of good jobs paying a nice hourly wage or salary.

But then a strange thing happened. Real estate prices, which had been inching up in the years leading up to 2000, absolutely exploded. Prices continued to increase right up through the summer of 2005, after which prices decreased slowly but not nearly enough to make housing in the area affordable. Without six-figure salaries, recent college graduates won’t be moving to the area as homeowners, but will instead rent. People moving into the area to work in Maryland, DC or Northern Virginia will likewise be forced to rent if they can’t summon the down payments for $500,000 homes. And those who refuse to rent but need to work in the area have only one choice: move to further outlying areas, where home prices are lower, and commute longer distances.

I have to assume that at least some of those angry commuters that I see on the way to work are coming from far-flung places in western Maryland and southern Pennsylvania. Ultimately, their commutes are “only” about 50 miles each way, but when considering the growing numbers of people commuting these distances, and the traffic jams that start well outside of the city because of them, it can take over two hours to reach the office from that relatively benign distance. Gas prices that topped $3 per gallon during the summer of 2006 are not helping the situation.

Taken individually, barely increasing real wages, astronomical housing prices and longer commutes may be manageable. Together, however, it appears that they are creating a level of frustration that is making work ever less palatable (but no less necessary). What the answer is I can’t say for certain, though the current real estate slowdown may help new homebuyers while simultaneously hurting those already owning homes. Gas prices also seem to be coming down slowly, and more employers are beginning to embrace telecommuting as an option for some employees, at least on an occasional basis.

It would appear that people are now stretched almost to the breaking point on these issues, but lately part of the evolving relationship between employer and employee has been a greater emphasis on flexibility. In increasing numbers, employees are drawn to new positions in which they have the ability to work flexible hours or can work from home at least part of the time. Still others are drawn to health and retirement benefits that go well beyond what is generally made available, thus offsetting meager real wage increases. While flexibility and enhanced benefits packages will not necessarily buy you a new house near your work, they are at least steps in the right direction in solving what is becoming a prevalent issue among employees in this country. Only time will tell what additional steps will be taken, and which direction the housing market will take next. In any case, those commuting long distances or renting rather than owning will continue to seek their own slice of the American dream while balancing it with the increasing demands of the workplace.

Tags: commuting, gas prices, real estate boom, real estate bust, real wages

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