Texas Squeeze: A series examining the high costs of high growth in North Texas.
In a masterpiece, Jerome Powell, the chairman of the Federal Reserve, recently said: “If you’re a home buyer or a young person looking to buy a home, I’d say you need a bit of a reset.”
It’s like saying a storm is an “adjustment” in the weather. You can get an idea of the cost wall home buyers are running into by considering two numbers:
- According to the National Association of Realtors, the year-over-year change in US home prices at the end of May was 14.8%.
- A year ago, it was possible to get a 30-year home mortgage at around 2.75% interest. Today, the rate is 5.78%. This means that the monthly payment on every thousand dollars borrowed has increased from $4.08 to $5.85. 43.4 percent increase.
Now combine the two increases by multiplying the higher cost of the house by the higher cost of the money borrowed to buy the house. Cost of shelter for borrowers increased by 64.5%.
In 12 months.
And, lest I forget, your down payment is also higher, so if you’re putting 20% down you’ll need closer to $10,508 to buy that moderately priced home.
If you think driving a car into a brick wall is the best way to lower a car this is just a “reset”.
Meanwhile, the nationwide market for rentals is dire. Retirees in Maine need to relocate but can’t find a place anywhere near their current rental. A traveling maternity nurse in California had to cancel an assignment because no short-term shelter was available. New college graduates can’t find a place to live in the Boston area because the rents go up the moment they list.
These are anecdotes from people I know or have encountered in recent weeks. But if you read a newspaper anywhere in the country, you read about huge rent hikes.
One response — call it the “next big thing” — is the boom in RV parks. In the Hill Country area where I live – Dripping Springs and Johnson City – people are giving up on having a traditional home.
RV parks are booming.
The Fitz, which just opened, has hill country views, high-speed internet and a remote location. Cavallo Terrace, several miles down the road, claims to be the “first full-time luxury RV community.” The reality is that one person’s escape from the Michigan winter is another person’s primary residence.
We are talking about a big change here.
So what does the Consumer Price Index tell us about housing inflation?
Nothing is absolutely true or useful.
The inflation rate for the shelter in the 12 months ending May 31 was a whirlwind, what? Say it again! Yes, 5.5%.
How could that be?
The first thing you need to know is that this weird, meaningless figure is not a product of the devious Deep State or the Bilderbergers. Nor is it the result of a plot funded by George Soros.
No, it’s the result of a formula constructed by a very competent, completely normal economist, trying to construct an indicator of changes in the cost of shelter. As some would say, it is a “construction”. They have been trying to do this for a long time. Decades in fact. But they have had little success in this particular move.
The problem here is that the cost of shelter is not the same as the cost of bananas, shoelaces, champagne or ground chuck. It’s more complicated. And it totally depends on your particular home – did you buy it this year, what was the financing cost, etc. It’s a little easier for renters, but it depends on whether you’ve moved.
We can be sure that asylum is a dangerous wild card for our society. It makes life better for some and makes life hell for others.
If you’re young, mobile and hungry to buy your first home, you’re looking at a tsunami of inflation. And if you’re renting until you find the right place, then yes, you’re in luck there, too.
But if you’re old enough to limit your real estate tax bill, you’ll be in the sweet spot when it comes to inflation. For you, the biggest single thing in the Consumer Price Index is fairly stable. As Shelter, at 32.4%, is the largest single component of the index, you have a large buffer against price increases elsewhere.
This is the biggest divide between the young and the old. Start watching.
If you’re on the quieter side of this, it probably means you’re old enough to remember some great rock and roll, and you can get a visceral, ominous feeling just by listening to a single song. This is a lyric from the 1969 hit “Gimme Shelter” by Mick Jagger and Keith Richards of the Rolling Stones.
Oh, the storm is threatening
Today is my life
If I don’t get some shelter
Oh, I’ll hide.