Bidenflation has taken a massive toll on the economy for nearly two years, showing little sign prices will come down without a recession. Consumers have felt immense pain from sustained 40-year high price increases, making the purchase of basic necessities such as food and gasoline difficult. Now the American dream of home ownership is becoming unaffordable for most of the middle and working class.
This year, new homes in the United States reached a record low affordability. The median home price rose 8% to $470,600 in September. July 2022 had the highest recorded median new home price of $479,800. In addition, September saw a significant spike in mortgage rates with the interest rate on a conventional 30-year mortgage rising to 6.11%.
Zero Hedge reported:
“The mortgage payment for the median new home sold in the U.S. during October 2022 would now consume nearly half the monthly income of an American household earning the median income.”
“This negative change is primarily the consequence of rising mortgage rates, which have been pushed upward as the U.S. Federal Reserve has sought to make borrowing more expensive in its attempt to stall and reverse President Biden’s inflation in the U.S. economy. The next chart shows how mortgage rates have exploded during 2022 in response.”
As previously mentioned, Bidenflation has been soaring since 2021 and shown little sign that it will come down to target levels. Inflation reached its highest level in 41 years this June with a Consumer Price Index reading of 9.1%. For most of 2022, CPI readings have hovered around this four decade high, well beyond a healthy level of inflation. The Federal Reserve’s target inflation is around 2%, which is indicative of a healthy, growing economy.
In October, the CPI increased 7.7% when compared to last year. Biden and investors took a victory lap on this data as a sign that inflation was cooling. However, with continual strong labor market data it is likely the Federal Reserve will continue to hike interest rates at an aggressive pace.
NextAdvisor reports on the matter:
“This latest drop is a continuation of the downward slide that began last Friday, when a strong jobs report Friday morning sent stocks falling. The country added 263,000 jobs in November, according to the Bureau of Labor Statistics, much higher than expected. The unemployment rate held steady at 3.7%. Investors know that the Fed wants to see higher unemployment as a sign that its rate hikes are working to cool down the economy, and the latest jobs report doesn’t paint that picture.”
For inflation to come down significantly, the economy will need to experience declining growth. Evidence of this will show in declining demand for labor. Therefore, most experts anticipate another rate hike of 0.5% during the Fed’s upcoming December meeting.
Until the Fed’s contractionary monetary policy takes its course and slows down the economy, interest rates will continue to increase, making the American dream of home ownership even more inaccessible. However, once the economy starts to unravel the housing market is one of the first sectors to slow down. There are many signs it is currently slowing, particularly from these exorbitant mortgages.
"*" indicates required fields