For us Baby Boomers, as for generations before us and after, the biggest chunk of the American Dream was owning our own home.
Home ownership is still a primary part of the American Dream. My generation, as it is becoming apparent, was fortunate; when I was a young man in the early Eighties, interest rates were low, housing prices were reasonable, and we lived through a boom that resulted in us folks in our early 60s owning homes free and clear, thanks to a steady increase in prices. That's what getting in on the ground floor, in effect, will do for you. For our kids? Our grandkids? Things aren't looking so good.
The Biden Administration, from the moment of old Joe's inauguration, has done everything they can do to make home ownership more expensive.
Isn’t a big aspiration of the American dream owning a home? Biden keeps making first-time homeownership harder for young families for two reasons. One is that the overall jump in inflation and the slower increase in wages and salaries means that homes are more expensive. High home prices benefit those who already own their homes, but much of the increased value is due to general inflation, which reached a high of 9% last year and hurts everyone.
A bigger killer for first-time homebuyers has been the steady rise in mortgage rates under Biden. When he came into office, the mortgage rate was 2.9% nationally. Now it is 7.1%, thanks in no small part to the Federal Reserve’s 11 interest rate increases prompted by the $6 trillion Biden spending and borrowing spree in 2021 and 2022.
So now, according to the mortgage company Redfin, just the increase in interest rates on a 30-year mortgage from 5% to 7% means that a middle-income family that could once afford a median-value home of $500,000 can only afford a home worth $429,000.
Let's do a quick thumbnail of the process behind all this:
- Claiming a dire emergency (COVID), the Federal government dumps trillions of fiat dollars into the economy.
- An increase in the money supply and a decrease in available goods jump-starts an inflationary cycle.
- Worries about spiraling inflation cause several raises in interest rates.
- A rise in interest rates includes a rise in mortgage rates.
- A rise in mortgage rates, with all else being equal, makes real estate more expensive by raising payments.
To be fair, part one of this process started during the Trump presidency; but the Biden Administration has doubled down, every time, on the very worst economic policies. And it's not just interest rates that are causing the problem; inflation, as my colleague Joe Cunningham recently pointed out, is directly affecting house prices. Oh, and $33 trillion in Federal debt isn't helping that any.
What are the implications? This means that, instead of being able to afford to buy a home, more people - especially younger people - are renting, and for longer periods.
Biden talks a lot about bridging gaps between rich and poor and blacks and whites. But the group that is most handicapped by these interest rate shocks is minorities. Black homeownership is still less than 50% for black households. The Washington Post calls this “heartbreaking,” but they blame racism, not bad government policies.
There’s one other impediment to homeownership for Generation X and millennials. Many 30- and 40-somethings are hamstrung by their existing and expanding debt. Credit card debt is now $1.03 trillion. Half of all families are expected to have problems paying off this debt each month. Delinquencies are rising, which can mean penalty rates of 20% to 25%.
As I believe I've mentioned before, this is happening in our own family. Two of our four kids live in eastern Iowa, where real estate prices are lower than in most of the major cities; they got in while interest rates were lower (specifically, before the Biden Administration) and were thus able to afford to buy homes. Our younger two, though, live in a suburb of Denver, and while they make decent livings for young, college-educated people in their late 20s, between Denver-area housing prices and interest rates, buying a house isn't likely to be even remotely possible, any time soon.
One could point out a ray of hope, in that interest rates in the late Seventies were much higher (true) and housing prices, all things included, were likewise higher when adjusted for inflation (also true) and that the Reagan Administration's more savvy economic programs yielded lower interest rates and a two-decade economic boom. But the national debt in 1980 was under a trillion. One could plausibly claim that we are well past the point of no return here.
I'm no Cassandra. Neither is anyone else. But it's hard to see a way out of this problem, of which housing costs are only one facet.
When it comes to economic policies, the Biden Administration is stupid all the way down. And our children and grandchildren will pay the price.
