Ep. 615 – American Dream Is Too Expensive

The Kapital News
The Kapital News
Ep. 615 - American Dream Is Too Expensive
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Housing prices are at all-time highs and rents are following suit. Looking at the S&P-Case Shiller National Index we see for the month of June that this index has hit an all-time high, now standing at 260.87. This reading is well above the all-time high prior to the GFC, which was then 184.5 back in June of 2006. Just as concerning is the rate of increase in housing prices where in June of 2021 the year-over-year increase also hit a new all-time high, standing at 18.6 percent. This is also well above the “sub-prime” housing boom when in September of 2005 the previous all-time high was 14.5 percent. The same story can be told with the 20-city S&P-Case Shiller Index and a mixed bag with the 10-city composite. In the 10-city index, the index is at a new all-time high, however, the year-over-year increase is slightly below the all-time high prior to the GFC – but within a stone’s throw and definitely reachable by the end of the year.

What is fueling such price increases during the Greatest Depression? Asinine fiscal and monetary policies of course. Let us begin with the monetary measures. The Fed remains committed to their policy of quantitative easing whereby they will at minimum purchase $120 billion per month in US government debt ($80B) and mortgage-backed securities ($40). While both contribute to rising financial asset and consumer goods/services prices, we will focus on the latter of their purchases. According to the Fed’s balance sheet, they now hold $2.5 trillion in mortgage-backed securities, which is a new all-time high. The week-over-week increase was $76 billion! Meanwhile, they claim they are shooting to be close to $40 billion per month. Watch what they do, not what they say. However, even when it comes to their rhetoric, several members of the Fed have stated publicly that their policies are pricing millions of Americans out of the housing market – yet they show no signs of stopping. And despite record low or near record low mortgage rates, prices are so high, most Americans are not even contemplating purchasing a home because they are just too expensive. This however, is not such a concern for major investment firms, hedge funds, and pension funds who are selling their MBS holdings and receiving cash from the Fed and they using this cash to go out and but these homes for all cash! See the game that is being played? Then these firms will turn around and rent these homes back to these Americans who were trying to purchase the same homes, but could not compete with all cash offers. This is one reason why we may see falling mortgage applications, yet housing prices continue to climb higher – you do not need a mortgage is you are purchasing in all cash! And of course, these policies are not only impacting housing prices, they are also impacting rent.

Rent prices across the country are skyrocketing as well and due to the same policies plus the fiscal policy of the rent moratorium. Thankfully that has been struck down by the US Supreme Court because their are property and contract rights in this country. But this policy hurt a countless number of landlords across the country. Now in response, they are raising rents to protect themselves from other harmful fiscal policies that may or may not occur in the future. They need a larger cash cushion to weather any type of economic storm that may be the direct cause of the government! Further, since millions of Americans cannot afford to purchase a home, they then need to rent. So now the demand side of the pictures comes into the scene and the sheer amount of demand is contributing to upward price pressure. And their is also the supply side of the equation, not enough supply to meet the demand and prices go higher. Add to that any new construction over the past year has had to contend with construction materials through the roof, and so those price increases are passed along to the renters, thus increasing rent payments. This is a vicious cycle and these price increases are not transitory – signing a year long lease means you are paying the higher price for a full year at least. Rents coming down after that with the continuation of these asinine policies – good luck. Stay diversified, stay vigilant, and stay with The Kapital News. #HousingPrices #Rent #Inflation #Stagflation #Liberty #Justice #Revolution #Economy #USA

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