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Morning Wire
The Smoke And Mirrors Economy | 11.5.23
Nov 5, 2023
Mitch Rochelle, a market expert and managing director of Madison Ventures, dives into the turbulent U.S. housing market. He highlights how soaring interest rates have cut median income households' purchasing power in half since 2020. Rochelle discusses the struggles faced by middle-class families with rising income requirements and dwindling savings. He also uncovers the paradox of high consumer spending amid growing debt, questioning the sustainability of current economic trends.
13:22
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Quick takeaways
- The US housing market is facing a severe affordability crisis due to soaring interest rates and inflation, resulting in the purchasing power of the dollar in the housing market being halved since 2020.
- The significant shortage of housing supply in the US, caused by factors such as a scarcity of land, rising material costs, and a lack of skilled labor, is driving up housing prices and making it unlikely for prices to decrease without a significant increase in supply.
Deep dives
Impact of Rising Interest Rates and Inflation on Home Affordability
Rising interest rates and inflation have had a detrimental effect on home affordability in the US. As per data from the Federal Reserve, the purchasing power of the dollar in the housing market has been halved since 2020. The median income household could afford a $730,000 home in December 2020, but today that number has dropped to $356,000. Housing affordability is currently at its lowest point since 1980, with millions of middle-class families being priced out of the market. The combination of rising interest rates, increased housing costs, and higher living expenses has made it difficult for average Americans to afford a monthly mortgage payment.
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