EC The 50 Altered States Of American Housing

Clearly we’ve crossed the Rubicon to atypical. Today, the market inflation rate captured by private firms is running below that of the CPI; it’s at 3.5 percent over the last year as oversupply finally collides with unaffordability. That’s bound to be welcome news as rent inflation has been running closer to five percent since 2014.

The culprit in the apartment arena may have a familiar ring to it. Last year, three out of every four apartments constructed were for the luxury sector, continuing a trend that’s been firmly in place since 2012. Making matters worse, realistic and mutually beneficial public/private partnerships have also dried up in recent years, yet another reflection of the gridlocked economic potential trapped inside the Beltway.

It’s easy enough to say that something has to give. For the moment, it appears as if that something is apartment rental rates, a welcome development. Over the longer haul, though, even the millennials have to settle down and have 2.4 kids and get a dog who enjoys a backyard in a home they own.

We can only hope Mohtashami is wrong though his reasoning is sound: “I call it the ‘Tiffany Effect.’ Just like most couples cannot afford an engagement ring that comes in that distinctive blue box, only the very fortunate few will be able to afford a new home.”

Of course the hope is that household formation kicks up to two million a year or more from here on out as the sheer number of millennials entering their prime earning years simply forces up the ranks of first-time homebuyers.

“The massive demographic push that will come in years 2020-2024 will increase housing demand,” concedes Mohtashami. “But it won’t be as strong as some of my bullish friends in the housing community are betting on.”

What a beginning to the century it’s been for housing. It started with low interest rates fueling unfathomable home price appreciation. Sixteen years later, it’s an Altered State of being with low interest rates driving rampant rental inflation, even as median incomes remain 1.5-percent below their 2000 levels.

On whose watch was this fright show produced? Who wrote the script being played out in all its gory detail across all 50 states of the residential real estate map?

Meddling in markets never ends well. Though much hope is pinned on housing being the exception to this rule, the odds are stacked against a miracle outcome. They say power corrupts absolutely. After nearly 30 years, one can only hope the lesson has also been learned that lower for longer also distorts indefinitely.

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David P. Goldsmith 5 years ago Member's comment

A great read as always Danielle DiMartino Booth.

Moon Kil Woong 5 years ago Contributor's comment

Federal Reserve and Fannie and Freddie Mac have created a horror story by disrupting the free market and yet they blame the free market for the conundrum. Eventually, high value homes will face a similar disunity as their inefficient and overvalued natures break down. In the end everyone loses when the market is disrupted by the greed. Yes it is the greed of bureaucrats and banks including the Federal Reserve that created this mess that is only growing worse by the day.

This story is far from over as the young and middle class pay the price for misdeeds done in the name of prosperity for the well connected and sold to the public as lies upon lies.