• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Changelly
  • Price table

Crypto News PRO

From the world all news

  • Home
  • News

Inflation Is Already Rampant If You Aren’t A Homeowner in 2020

Written by:
Aeon Flux
Published on:
15 December 2020
Thoughts:
No comments yet

The stock market has become more popular than ever this year due to the big crash in March of this year and with more people working from home than ever, stock investing has really become a more important part of many people’s lives. The record highs of the NASDAQ and S&P indices have been touted as empirical evidence for inflation in 2020 during the pandemic. While I’m not here to debate the merits of this assertion, I do think many of us might be missing an even bigger problem in our purview, the skyrocketing housing market, even during a time when the typical American is having difficulties to make ends meet.

The Housing Market is out of control around the nation on average. Courtesy of Redfin

As a retail investor who takes heed of economic trends and observes various markets, I opine that the housing market is the most alarming indicator of inflation right now for the typical American, especially in popular urban and metro areas. Stocks aren’t an essential part of the typical American’s lives. Other than 401k and IRA retirement accounts, the majority of Americans weren’t major players in the stock market prior to 2020. On the other hand, housing plays a much more prominent role in American families’ lives. With historic lows in home ownership, this is especially troublesome for many millennials in their late 20s and 30s, who may be renting still and looking for a permanent residence to live in.

Courtesy of the Federal Reserve Bank of St. Louis

If you thought houses were unreasonably expensive prior to 2020, and I certainly know many friends and business associates who have been waiting the past couple years for an inevitable dip/crash in housing prices, you certainly were in for a rude awakening this year. Yet prices continue to rise, even amidst a global pandemic that is supposed to be devastating the economy with more unemployment and less spending, all deflationary actions nominally.

Worse yet, companies like Zillow and Redfin, who aggregate lots of data regarding housing statistics, predict the housing market is only going to continue to soar in 2021.

No signs of a housing slowdown. Courtesy of Zillow

There could be general micro bubbles in pockets around the nation, but overall, in my opinion, we will continue to see housing prices go up unabated in the coming years and we are not seeing a bubble like we saw in 2007 and 2008. The reason being that housing inventory is still too low and as already seen, there are a large number of millennials who still don’t own a home. In economics, it’s all about supply and demand right? With the emergence of the pandemic and work from home culture, coupled with the low mortgage interest rates, it seems that many people want to transition to owning homes, which are all grounds for a demand shock in the housing sector.

Where I live, in the Bay Area in California, I am seeing homes increase in value by 10–15% in a matter of months! The same floor plan that sold for $840,000 in July is now selling for over $950,000 in December, a matter of just 5 months! Homes that are listed for $870,000 ultimately selling for over $1.02 million. Homes having 100 tours and 10–20 offers all above list price and many removing all contingencies: housing, inspection, and loan. After all, that, guess what? The next home seller in that neighborhood with a similar floorplan feels completely justified to list his/her house for higher than the list price of the previous house seeing how well it did, and he/she knows there are 9–19 others looking for this kind of house (if we extend the aforementioned hypothetical scenario).

This is a classic seller’s market, but on steroids

Needless to say, it is definitely a frustrating time to be a home buyer and a great time to be a home seller. I personally don’t own a home yet, and it is incredibly infuriating to see the hard-earned money I have saved up in the bank and the money I have invested in the stock market decrease in nominal dollar value so quickly.

Percentage of homes around the nation selling above list price. Courtesy of Redfin.

To summarize, here are the reasons I believe the housing market will still go up:

  1. WFH culture making the concept of home more sacred and important, as people and families spend more time at home, which leads to increased demand for homes, and we know homeownership is at historic lows.
  2. People from expensive metro areas moving to the surrounding suburbs, bringing up the prices of the surrounding areas while not dropping the prices in metro areas enough for most Americans to afford.
  3. Low inventory of homes, which causes homebuyers to compete with each other to get a home.
  4. Abundance of cheap credit. Historically low mortgage interest rates have a two-fold effect: they encourage home buying due to reduced interest payments and they also allow people to bid more on homes (if you’re a cash buyer, you’re not seeing any benefits from the reduced interest rates)

To reiterate, if you are not a current home owner and are looking to buy one, it seems quite apparent that you are a victim of inflation as we speak.

If your local housing market is following the national trend, or even worse, is increasing faster than the national trend, you could go about this two ways:

  1. Take advantage of historically low mortgage interest rates and buy a home now before it continues to rise next year.
  2. Wait for an indefinite amount of time for the price of housing to drop

If you truly believe the narrative that the housing market will continue to go up, the money you’re saving to buy a house is rapidly diminishing in value each month, and that is the true definition of inflation, right? You can see right in front of you that your money can’t buy nearly as much house now as it could have in 2019, or even a few months ago.

With that being said, no one really knows what is going to happen with the housing market in 2021 and 2022. However, we do know that many experts and analysts were wrong about the housing market taking a dip during the coronavirus pandemic; while initially there was a dip in housing prices during the inception of the crisis, it is undeniable now that the housing market is stronger than ever. What can I can say — it’s a good time to be a home owner right now and a regretful time to be a home buyer.

People often state the aphorism “what goes up must come down,” but the housing market is not at all governed by the laws of physics and classical mechanics. Anyone can make the claim that the housing market will come down and they will be right eventually. But what if prices have already risen so high that the inevitable corrective dip in housing prices still dwarfs current housing prices? There is simply no guarantee that housing prices will return to pre-2020 levels in the coming years, and in that sense, the loss of purchasing power becomes solidified. Federal Reserve chairman Jerome Powell has already stated that he expects to keep interest rates low through 2023, so the upward pressure on housing prices from low interest rates continues to persist.

If the dip in housing prices also temporally coincides with a commensurate increase in the mortgage interest rate, then the total amount paid over a 30 year loan might still end up being the same.

As many Americans can probably relate, I am not seeing my salary increase in spite of the increasing cost of living in my area, and none of my investments are scaling up the way that housing prices are.

So officially, if we are going by the CPI, we might later conclude that conventional inflation didn’t occur in 2020. However, I’ll take a doubling in the price of milk and $5/gallon gas prices over paying $100,000 more for a home any day.

At some point, the housing prices have to stop going up and at the very least, plateau, but I’m doubtful on them ever giving up all of the gains they’ve accrued this year, let alone the past couple years, so if I wait for a corrective dip to buy a home, I don’t believe I’m going to be getting that much better of a deal than I am now, especially since I will have to continue to dump money into rent each month I wait to own a home.

That being said, it’s unfortunate that I may find myself participating in this insane game of home buying so that I can get in on a house before I get completely priced out for good. Perhaps it is time to get with the program to use credit, especially when it’s cheap, to leverage longer term gains.

If your experience with your local housing market or your analysis on the trends of the housing market in the future differs, I welcome those in the comments below!

Categories: News

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Search in the news

Translate:

Earn up to 5% every 10 days with Aeon Flux Coins

Categories

  • Bitcoin (2,396)
  • Ethereum (1,614)
  • News (5,011)

Recent Posts

  • One Simple Way You Can Invest in a Bear Market and Make Money 9 May 2022
  • Best Stocks Expected to Boom in 2023 7 May 2022
  • How soon before the US$’s reign as the world reserve currency is over? 7 May 2022
  • What You Need to Know About the Era of “Play-to-Earn” Crypto Gaming 7 May 2022
  • Interview with Ian Manson, Storyboarding and World Builder at JustAGame 6 May 2022

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020

© 2015-2020 Crypto News PRO
All Rights Reserved. Powered by IWG Agenzia Web