Ostensibly, record-low mortgage rates help make homes more affordable, but surging prices have put homeownership out of reach for many Americans.
Or at least that’s one way to view the situation, looking back on a year that saw pandemic effects collide with rock-bottom borrowing costs to inflate what some fear is a new housing bubble in the US.
I can’t imagine anyone arguing that the Fed should have read the tea leaves nine months ago and preemptively redesigned asset purchases or otherwise reconfigured its stimulus blitz to account for the possibility that pandemic-related de-urbanization might trigger huge demand for homes. Jerome Powell had more important things to worry about in March of 2020 than a prospective housing bubble, and the Fed isn’t exactly known for clairvoyance vis-à-vis the US housing market. I guess you could argue past failings in that regard should have been a learning experience, but I digress.
Whatever the case, the market is arguably overheating in America, and recent data suggests the bubble is already starting to buckle under its own weight.
Existing- home sales fell in November for the first time in six months, the latest numbers showed, while new home sales dropped 11%.
While supply is recovering a bit, the market is still very tight, and that’s driven prices sharply higher.
In fact, data out Tuesday showed prices across 20 US cities jumped in October by the most in a half-dozen years.
The MoM print on the same index, a 1.6% rise, was the largest since early 2013.
As a result of these dynamics, would-be buyers now need to spend around a third of their wages to afford a house. That’s according to Attom Data Solutions.
The figure (below) is a tragicomedy of sorts. Critics will suggest it was wholly predictable, even if scarcely any of those critics actually predicted such an outcome in March and April, when that old adage about it being “difficult to make predictions, especially about the future,” became more true than it already was by definition.
A cursory examination suggests that unaffordable housing may ultimately be yet another in the long list of unintended consequences from policy easing associated with the pandemic.
Unfortunately, the pandemic both necessitated that policy accommodation and exacerbated the undesirable side effects.
