https://www.nytimes.com/2022/05/01/upshot/pandemic-housing-m…
**The Extraordinary Wealth Created by the Pandemic Housing Market**
**Rarely have so many Americans gained so much equity in so little time, but it’s also inseparable from the housing affordability crisis.**
**By Emily Badger and Quoctrung Bui, The New York Times, May 1, 2022**
**Over the past two years, Americans who own their homes have gained more than $6 trillion in housing wealth. ...Millions of people — broadly spread among the 65 percent of American households who own their home — have gained a share of this windfall. It’s a remarkably positive story for Americans who own a home; it’s also inseparable from the housing affordability crisis for those who don’t. For them, rents are rapidly rising. Inflation is whittling away their incomes. And the very thing that has created all this wealth has pushed homeownership as a means of wealth-building further out of reach....**
**The bubble in the early 2000s was defined by risky lending and overbuilding. Today, home buyers are on much sturdier ground with their credit scores, conventional mortgages and pandemic savings. Today there’s also a housing shortage nationwide. And that has collided with soaring demand from historically low mortgage rates, from families in search of more space during the pandemic, and from remote workers who could relocate to more affordable places. Home values, as a result, have been up nearly everywhere (making many of those affordable places not so affordable any more).**
**Price growth will most likely slow now that interest rates are rapidly rising, but economists generally don’t expect prices to fall. There’s just too much demand for too little housing in America today....** [end quote]
It’s no coincidence that the dramatic rise in home prices coincided with the Federal Reserve purchase of massive amounts of mortgage debt, suppressing mortgage rates and making a family’s mortgage payment stretch to a higher priced home.
https://fred.stlouisfed.org/series/CSUSHPINSA
https://fred.stlouisfed.org/series/MORTGAGE30US
Now that mortgage rates are rising, what do the Macro trends tell us?
Unlike the 2008 financial crisis, people are not selling homes due to mortgage default. There’s no crisis today. People can afford their homes. Delinquency rates are low.
https://fred.stlouisfed.org/series/DRSFRMACBS
People who own homes, especially with those golden low mortgage rates, are likely to stay in them. This reminds me of the late 1970s, when people who had low mortgage rates from the 1960s and early 1970s held onto their homes as mortgage rates rose due to inflation.
Many older people want to age in place. The expected Macro trend of a wave of seniors selling homes to go to nursing homes has been fading. The last straw was the Covid epidemic. I think that the trend of seniors aging in place has legs – probably at least a decade, maybe more.
Millennials are moving into their professional earning years and looking to establish households. My mentee, Nicole, whom I began mentoring at age 10 in 2010, phoned yesterday to tell me that she is getting married. I’m delighted…and predict a lovely family which will need a home in a few years. Along with millions of others.
Supply of housing will grow but inflation has raised the price of all the components. So housing will be more expensive, even if supply grows to meet demand.
Meanwhile, those who can’t afford to buy are getting further and further behind. They are also squeezed by rising rental costs.
https://fred.stlouisfed.org/series/CUUR0000SEHA
Housing prices amplify inequality. Those that has, gits. Those that don’t are left further behind.
Wendy