Commentary
For those concerned about the housing market, there is troubling news ahead. Signs indicate that the housing squeeze is only going to worsen.
If purchasing a new home seems daunting now, it will likely become even more challenging in the future. While selling may be enticing at the moment, the dilemma arises when you need a place to live. Many individuals are currently stuck in one place, unable to consider relocating for better job opportunities due to the risk of losing a low mortgage rate for a significantly higher one amidst a surge in housing prices.
The data reveals a concerning trend in both housing starts and building permits, with significant declines in May (5.5 percent in starts and 3.8 percent in permits compared to the previous month) and continued downward revisions in the previous month’s data. This downward trend in new housing supply has persisted for three months, with no signs of improvement.
On the demand side, affluent buyers are engaged in bidding wars with cash buyers for any available properties. Major investment firms are also heavily involved in the market, engaging in house-flipping activities to an unprecedented extent.
The fundamental economic principle of supply and demand serves as a key tool in understanding the current housing market dynamics. The imbalance between intense demand from buyers and limited supply due to reduced construction levels post-lockdown is driving the escalating prices.
The current situation far surpasses the housing crisis of 2008, showcasing unprecedented conditions in the market.
One major challenge on the demand side is the soaring inflation in insurance premiums, rendering it unaffordable for many individuals. This financial burden compels some homeowners to sell to cash buyers who are not obligated to carry insurance.
The underlying cause of this crisis is primarily rooted in currency depreciation and rising costs of repairs and reconstruction, rather than attributed to climate change. The inflationary pressures on material costs and labor shortages are driving up insurance premiums, reflecting the escalating expenses associated with housing-related risks.
A similar scenario is unfolding in the car insurance sector, with the expensive repairs of electric vehicles and hybrids contributing to increased insurance costs.
Notably, insurance premiums for both cars and homes are excluded from the Consumer Price Index (CPI), leading to a distorted representation of inflation in the housing market. Once these factors are accounted for, the actual inflation rates could potentially reach double digits.
Adding in interest and insurance, along with other factors, easily pushes us into double-digit inflation for a solid two years. The current economic situation paints a grim picture, reminiscent of the worst inflation rates since the Civil and Revolutionary Wars. Despite our efforts to quantify the impact, there is no definitive number that can accurately capture the extent of the crisis.
Consumers and producers are facing dwindling expectations, compounded by a lack of transparency in reporting by official sources and the media. It is my belief that we have been stuck in a recession since March 2020, a fact often overlooked due to misleading GDP calculations that include government spending and debt as growth factors. Furthermore, the inflation adjustments based on personal consumption expenditures underestimate the true inflation rate, resulting in no real economic growth over the past three years.
It is possible that we are currently in the midst of an unreported global inflationary depression, a scenario that is largely ignored by mainstream media. The housing market turmoil serves as a glaring example of this economic crisis, benefiting large corporations while undermining the middle-class dream of home ownership.
Despite the severity of the situation, there seems to be a lack of viable solutions being discussed in the political arena. It appears that the economic challenges facing us are far from over, with no clear end in sight.
Please note that the opinions expressed in this article are solely those of the author and may not reflect the views of The Epoch Times. Please rewrite this sentence.
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