by Martin Armstrong
Fed Chairman Jerome Powell stated that the US housing market would “probably” go through one “correction” period It’s no surprise since home prices rose steadily from 2020 until recently after mortgage rates rose and many simply priced themselves out of the market. Supply chain shortages continue to present a problem for builders. Investors with cash were able to outbid other buyers, and the homes lasted less than a week on the market before being sold above asking. Clearly, this is unsustainable in the long term.
The great American dream of owning a house with a white picket fence increased sharply during World War II thanks to suburban sprawl and the GI Bill that helped service members buy real estate. Home ownership during this time increased to 65% since the Great Depression period. Amazingly, home ownership increased during the Great Depression by 3.7% to 4% as well. Keep in mind that the 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 today is completely different.
In 2021, the real estate industry accounted for 17% of GDP in the US. Investors, homeowners and house flippers did well during this real estate boom, naturally. The average American suffered because rental prices are in line with monthly mortgage payments, but getting a home remains difficult for the middle class. Those with fixed low rates are not likely to sell. Shelter makes up the majority of our household expenses, and countless people who bought at the height feel home-rich but cash-poor. The Fed focuses on the demand side, since it cannot control the supply.