Pub 20 2023 Issue 4

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. 17

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