When the government released March inflation data, it showed that prices increased by 8.5 percent from a year ago, the fastest pace since December 1981. Gas (+48.8%), food (+8.8%) and used cars (+35.3%) showed eye-popping advances, but another line item is also worrisome: shelter, which increased by 5%

Jill Schlesinger 

annually. That may not seem so bad when compared to those other categories, but shelter accounted for nearly two thirds of the monthly increase in the Core CPI, which removes the volatile food and energy figures.

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The U.S. has a burgeoning housing affordability crisis and it’s likely to persist longer than high prices in grocery stores and at gas pumps.

The problem can be traced back to the bursting housing bubble of the 2000’s. National home prices peaked in July 2006 and then bottomed out in February 2012, luring large investors to act. Private equity firms raised money, bought up as many distressed properties as they could, fixed them up and rented them out. Although rents weren’t going crazy yet, the money that these firms collected provided a better stream of income than they could find in the bond market, so they just held on.

The reduction in inventory, along with the slow pace of building in the aftermath of the housing crash, led to a shortage of homes and pushed up prices. “Real house prices — prices adjusted for inflation — have steadily increased in the U.S. since 2012,” according to analysis from the Federal Reserve Bank of Dallas.

The pandemic only exacerbated the problem, as buyers, armed with excess savings and taking advantage of ultra-low mortgage rates, flooded markets, and gobbled up whatever was available. As demand soared, prices dwarfed wage increases, damaging affordability. Evidence points to “abnormal U.S. housing market behavior for the first time since the boom of the early 2000s.”

Before you start dusting off the Great Recession playback, there are a couple of factors that may not spell disaster. Households are in better financial condition and banks have not lost their minds with out-of-control lending. But those facts only lessen …read more

Source:: The Mercury News


Jill On Money: The housing affordability crisis

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