Thank you to Martin Armstrong @ Armstrong Economics.
Fed Chair Jerome Powell stated that the US housing market would “probably” go through a “correction” period. It is of no surprise as home prices were steadily rising from 2020 until recently after mortgage rates rose and many were simply priced out of the market. The supply chain shortages continue to present a problem for builders. Investors with cash were able to outbid other buyers, and houses lasted less than a week on the market before being sold for above asking. Clearly, this is unsustainable in the long term.
The great American dream of owning a home with a white picket fence sharply rose during World War II thanks to suburbs expanding and the GI bill that assisted service members in purchasing real estate. Homeownership during this time jumped to 65% from the Great Depression period. Surprisingly, home ownership actually increased during the Great Depression as well by 3.7% to 4%. Mind you, cultural dynamics were different back then. Women could not even open their own bank accounts. Living at home was common until marriage for both men and women, multi-family homes were more common, and people simply lived with less. The playing field is completely different today.
In 2021, the real estate industry accounted for 17% of GDP in the US. Investors, landlords, and house flippers did well during this housing boom, naturally. The average American suffered as rental prices are in line with monthly mortgage payments, but obtaining a house remains difficult for the middle class. Those with fixed low rates are not likely to sell. Shelter composes the majority of our household expenses, and countless people who did purchase at the height feel house rich but cash poor. The Fed is focusing on the demand side since it cannot control supply.
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