A constant subject in American economic and political media discourse is the question, “Why do many average Americans not seem to agree when economists, politicians and pundits insist that the American economy is strong and showing signs of serious growth and improvement?” There is a persistent chasm between the positive economic news that is presented in the media and the stress and anxiety that most Americans claim to feel on a daily basis. Particularly since the 2008 recession, it feels as if there is a constant tug of war between economic analysts — who often cite topline economic numbers such as GDP growth, unemployment rate and the success of the S&P 500 — and everyday American citizens — who are burdened by soaring housing costs, wages that fail to rise with inflation, enormous health care costs and overall inflation from the past few years. This tug of war exists because the two factions essentially experience and, ultimately, process two completely different realities.
A decent analogy for the current predicament of the American economy would be trying to get one’s health in order while ignoring multiple serious underlying problems. It’s difficult to have working out or eating better have any positive effect if you have an overriding health condition so serious that it renders these other actions irrelevant. It’s difficult not to conclude that the American economy faces a similar existential crisis. The American economy is capable of explosive growth at the top, producing an astounding number of billionaires and world-renowned corporations, but its fundamentals — such as wages, housing costs, education, healthcare and transportation costs — have been abandoned, leaving countless regular Americans increasingly fraught and anxious economically. To use another analogy, America’s economy is like a basketball player who can throw down spectacular dunks but struggles to shoot and dribble competently.
Housing costs may be the greatest source of instability in our economy, as housing is perhaps the most fundamental aspect of maintaining a functioning, thriving society. On that note, in October 2023, U.S. existing home sales dropped to the lowest level in more than 13 years. According to Robert Frick, corporate economist at Navy Federal Credit Union, there are some obvious factors causing the drop in home sales. “The combination of high prices, high mortgage rates and millions of homeowners unwilling to move, given they’ve locked in low rates, has frozen the market.” According to a Reuters article from November 21 of last year, “The rate on the popular 30-year fixed-rate mortgage averaged 7.31% in the final week of September, before peaking at 7.79% in late October, the highest level since November 2000, according to data from mortgage finance agency Freddie Mac.”
The housing market has been most dramatically affected by the U.S. Federal Reserve’s relentless monetary policy tightening. Minutes from a late October Federal Reserve meeting indicate that multiple participants expressed concern about a flattening housing sector caused by further increases in mortgage rates from already high levels, so, at the highest levels of the Fed, there’s clearly awareness of the cascading effects of the monetary policy it’s pursuing. Furthermore, the housing crisis has been exacerbated since the COVID pandemic began in 2020, further tightening an already constricted housing market. As the Reuters article further details, “There were 1.15 million previously owned homes on the market last month, down 5.7% from a year ago. Most homeowners have mortgage rates under 5%, making many reluctant to sell. Before the pandemic, there were nearly 2 million homes for sale.” The lack of supply of previously owned homes is boosting demand for new homes. Additionally, there is a severe shortage of homes in the $100,000 to $250,000 price range. The sky-high mortgage rates combined with the lack of affordable supply have created a burgeoning housing crisis. As the Reuters article also explains, “Builders have been breaking more ground on new housing projects, but they are being constrained by the higher borrowing costs. With supply still tight, multiple offers were the norm in some areas, keeping house prices on an upward trend on a year-over-year basis. The median existing housing price rose 3.4% from a year earlier to $391,800, the highest for any October. About 28% of the homes sold last month (October 2023) above listing price.” Another telling statistic listed in the article is that first-time buyers comprised only 28% of sales in October, significantly short of the 40% that realtors say indicates a robust housing market.
In recent weeks, there have been articles claiming that the housing market is set for a huge rebound, but again, articles like these don’t live in the realm of what most Americans actually experience on the ground. As a recent article in CNBC details, “The average rate on the 30-year fixed has been on a wild ride since the start of the COVID pandemic. It hit more than a dozen record lows in 2020 and 2021, below 3%, causing a historic run on homebuying and a sharp rise in prices, only to then more than double in 2022. Rates hit a more than 20-year high in October 2023, hovering around 8% before falling back below 7% in December. Rates, however, are still twice what they were three years ago.” The optimism cited in the article is solely due to mortgage rates coming down from an already record high but still hovering at a colossal 7%. High mortgage rates combined with high median home prices still create a completely inaccessible housing market for most Americans. The optimism cited in the CNBC article is the type of fantasia meant to blunt how truly unmanageable the housing market in this country is for many people.
Part of why the Fed’s recent monetary policy has created such an unwieldy housing market is their moves to tame inflation largely went after the wrong actors. Numerous studies have been done in the past year indicating that the principal cause of soaring inflation in 2021 and 2022 was corporate profiteering, companies choosing to raise prices exponentially simply because they could. Now, there were certainly other factors involved, but the continual raising of interest rates mostly served to make the housing market completely inaccessible while doing absolutely nothing about rampant corporate profiteering. As a result, we now have prices that are still extremely high in most sectors due to the inflation of previous years and a housing market that has gotten completely out of hand due to the Fed’s recent monetary policy. It’s not a sustainable formula for the average family.
Housing becoming inaccessible to vast swaths of Americans has cascading effects. As a result, rent becomes far higher in most areas, as there is much more demand to rent in an extremely tight housing market. When rent and housing go up exponentially, then homelessness often goes up as well. On that note, a December report by the Department of Housing and Urban Development (HUD) found that more than 650,000 people nationally were living in shelters or outside in tents or cars. To put it in perspective, that is a shocking 12% increase from the year before. To homeless advocates, it’s sadly an expected outcome. “We simply don’t have enough homes that people can afford,” says Jeff Olivet, executive director of the U.S. Interagency Council on Homelessness. “When you combine rapidly rising rent, that it just costs more per month for people to get into a place and keep a place, you get this vicious game of musical chairs.”
As a December NPR article about the HUD report details, “Homelessness has been rising since 2017 in large part because of the country’s massive shortage of affordable housing. There was a pause during the pandemic, and Biden administration officials say that’s because of sweeping federal aid that kept people from getting evicted. But, last year, in a triple whammy, that aid started running out. Inflation spiked to its highest level in a generation, and median rent hit a record high. Research has found that where rents rise, so does homelessness. This year’s big jump was driven by people who lost housing for the first time, which Biden administration officials say reflects the sharp rise in rent. The largest increase was among families, and the count also found a significant rise among Hispanics. Nearly 40% of the unhoused are Black or African-American, and a quarter are seniors. The annual count does not include the many people who couch surf with friends or family and who may be at high risk of ending up on the street.” In addition, many lower-income renters are paying more than half their income on rent, which is generally considered a serious indicator that someone could potentially fall into homelessness.
Housing and homelessness are tests of a society’s priorities. Housing is fundamental to the security of families, and without it, it leads to myriad problems and children being exposed to incredible instability. Homelessness and housing insecurity rips at the fabric of a society and exposes its horribly skewed priorities. There’s absolutely no reason to have the level of homelessness we do in America. It’s a series of discreet policy choices that have been made over decades that have led to this point. One of the core reasons that media discourse about the unemployment rate and the S&P rings so hollow to so many Americans is that the fundamentals of their existence feel so unstable. And the number one sector contributing to insecurity is housing. When something as fundamental to one’s existence as a roof over your head feels unstable, it’s hard to feel confident in anything else. We haven’t prioritized the economic basics and our economic foundation in America, and as a result, everything feels wildly unstable. It’s a choice of our government to have everything feel that way, not some law of nature. It’s always important to remember that.
