Welcome To Serfdom: Americans Face Prolonged Housing Crisis
A cool $4.5 million dollar price tag was not nearly enough money to ask for a 4,300 square foot home located in Mountain View, California. According to the NBC affiliate in the area, this particular home was able to fetch more than $1 million dollars ABOVE its list price. Though Mountain View, California is located in the always hot housing market of the Bay Area, this is not an isolated incident. Housing prices through the United States are on a rocket ship ride higher.
Housing Prices Rise By Greater Than 16% In Just Over A Year
There are plenty of reasons why homes are considered a safe and solid investment, not the least of which is because they generally increase in value over time. Take the period of time between January 1, 1980 and May 1, 1981 as an instructive example. In that time period, the average home price rose from $55,074.15 to $60,575.35, a solid 9.98% increase in approximately a year and a half. However, this was also during a period of inflation, so the figures adjusted for inflation show that the average price for a home during that period of time actually decreased slightly. This has been the pattern for much of American history. The price of homes rise during periods of inflation, and decrease somewhat during times of deflation or low inflation. Overall, the average homeowner might expect a return of between 1–3% per year (inflation adjusted) on average on his or her investment in a home.
Families have built impressive levels of wealth through home ownership. Not only does the asset of the home itself increase in value over time, but they are able to build equity in the home as they make their mortgage payments month after month. Additionally, homeowners are offered special tax breaks that others do not receive. Finally, they may also pass the asset on to their children after that pass and thus continue to cycle of generational wealth.
This system has worked beautifully for centuries for those who were able to own their own homes, but it is something that is now threatened by housing prices that are out of control and certainly out of sync with prevailing wages. Simply take a look at the following chart to see how housing prices have become wildly decoupled from inflation numbers during the COVID-19 pandemic and into present day:
The middle column shows the median housing price for that given time period while the far right column shows the inflation adjusted price. The numbers are very similar as inflation has been relatively low and as these prices are near our present-day reality. What you see is a 16.3% increase in the average price of a home from January 1, 2020 to March 1, 2021 (the most current numbers available). The terrifying things about this is that the numbers only continue to grow by the day, and yet wages have remained largely unchanged for the average American worker.
In some markets the news is even more grim. Phoenix led the nation with the highest year-over-year with homes in this city costing 20% more than they did the year prior. It is certainly a good time to be a seller, but the future facing individual home buyers is very dark.
Who Is Driving The Pricing Surge?
If wages are stuck in place for American workers and there are a record number of unfulfilled job openings throughout the country, one might reasonably wonder who or what is the driving force behind the housing price mania.
It is not so simple that it can be explained with one answer, but the following video offers some good examples of the variety of factors converging to produce the price spikes we are seeing today:
Why the U.S. Housing Market Keeps Surging — YouTube
Another factor not touched on in that video is the fact that many private equity firms and other big money investors are vacuuming up homes throughout the country very rapidly. Their goal? To turn as many properties as possible into rental units that generate reliable and ongoing income for said private equity firms and large investors.
The more homes scooped up by private equity and large-scale investors, the fewer that are left on the market for everyone else. Thus, the price of the remaining properties begins to climb rapidly. This is what we are seeing now, and this is why the future picture of homeownership for the middle and lower classes is now so bleak. The market is quickly squeezing out those with average or below-average salaries from every achieving the dream of homeownership.
A Nation Of Renters
The above described factors are forcing more and more people to become long-term renters and pushing demand for rental properties of all kinds to higher levels than before. Thus, the average rent paid is now on the rise as well. The unfortunate souls renting properties in Boise, Idaho saw the average cost of a rental soar by 30% in the last year. Those renting in Washington D.C. can expect a median rental price of $1,668 for a one-bedroom apartment.
There is no end in sight to these trends, and yet no ability for many to even be able to afford the down payment on a home at the surging prices now manifesting in most parts of the country.
Given these factors and the unchanging wages situation, it appears that a never-ending cycle of rent payments that serve only to enrich mega landlords and private equity is in the cards for millions of Americans going forward.
