For generations, homeownership has been the foundation of the American dream. Homeownership has been an attainable aspiration that has enabled capital accumulation and wealth preservation.
It has traditionally facilitated a comfortable retirement for homeowners, as well as the ability to provide education and other goods for their children and grandchildren and to pass on wealth to future generations. Indeed, with most of their wealth found in the equity of the homes of the working and middle classes, no other sector of the economy affects them as much as housing.
However, in recent years, the dream of home ownership has become increasingly out of reach for more and more U.S. workers and families.
According to data from the Federal Reserve, the median sales price of a home has risen by 52.7 percent since 2013, or 4.3 percent per year. This is nearly double the median nominal wage growth over the same period. Homes are less affordable now relative to income than they have ever been.
The interest cost of a typical mortgage has more than doubled in recent years, to about 7 percent today from below 3 percent in 2021. With the median price of a home now nearing $420,000, this increase represents an additional $15,000 in annual costs, or an additional 20 percent of the median household income ($75,000) in the United States. This is not tenable in an environment in which all other costs, including energy, food, transportation, health care, and education, are also rising relentlessly.
With inflation running hot for three years now, inflationary “base effects” mean that all of these categories of costs have risen in total at double-digit rates since 2020. Despite the efforts of the Federal Reserve, the cheerleading of Wall Street, and the assurances of mainstream media, inflation has not been transitory, but persistent and stubbornly high.
Inflation is not going away anytime soon. Headline Consumer Price Index (CPI) grew at 3.1 percent in January compared with a year ago.
This figure substantially underrepresents the rising costs of housing. With a 6 percent annual increase in January, the Shelter CPI subcategory grew at nearly double the headline number.
Looking back from the eve of lockdowns in January 2020, the costs of shelter (rent or owners’ equivalent rent) have risen by more than 21 percent.
Wall Street Is Crowding Out Main Street
One of the most important factors contributing to rapidly rising home prices over the past decade has been the entry of institutional buyers into the market for single-family homes.With tens of billions of dollars of capital and ready access to more favorable financing terms than are available to individual homebuyers, private equity firms, pension and insurance companies, and hedge funds have been able to pay more for housing stock, resulting in higher prices overall and fewer options for homebuyers.
Since the global financial crisis of 2008–09, Wall Street has bought hundreds of thousands of homes in the United States. Institutional ownership has grown from an insignificant portion of the market to nearly 20 percent in recent years. According to some estimates, institutional buyers may own 40 percent of single-family homes by the end of the decade.
It was the easy money policies of the Federal Reserve that created this environment. Trying to shore up the severely damaged housing market after the financial crisis, the unintended consequence of excess liquidity has been to re-inflate a housing bubble.
Irresponsible monetary policy has made housing less affordable for ordinary Americans and lined the pockets of the same Wall Street firms that were rescued from bankruptcy by the U.S. government (using taxpayer money, eventually paid back) in the middle of the financial crisis.
The ultimate result is nothing less than the immiseration of the U.S. working and middle classes who are increasingly forced to rent their homes from these enriched corporate and institutional owners.
Without affordable access to the housing stock that has traditionally been U.S. households’ primary path to capital accumulation, younger generations are saving less and risking greater future financial vulnerability.
I have argued recently that we are in the middle of a speculative bubble. This includes the housing markets. When the bubble pops, as all eventually do, the housing markets will also burst.
This will again punish the working and middle classes, at least those who have—despite all of the challenges I’ve outlined above—managed in recent years to acquire a home. The one silver lining is that a downturn in the housing markets might afford younger millennials and Gen Zers the opportunity to enter the market. That is unless Wall Street continues to compete against them.
