Affordable Housing Is An Oxymoron

If you own your home, congratulations. Your children may not be so fortunate.

With the unemployment rate below 4%, wages have been increasing, but at a slower rate than expected — 2.6% year-over-year, according to the U.S. Bureau of Labor Statistics. But housing prices, meanwhile, have been increasing at a much faster pace. In fact, prices are higher than they were in July 2006, when the housing bubble burst.

Housing prices on average increased 6.8% during the past year, according to the latest data from the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. Housing prices increased at a faster pace than inflation throughout the U.S. and in 16 out of 20 metro areas, they increased by at least double the average wage growth.

If you’re looking to buy a home in the Boston area, you can be thankful that the index is up at a less-than-average increase of just 5.8%.

If you’re thinking of moving to Seattle, Las Vegas or San Francisco, though, you have our sympathy. Housing prices in Seattle increased at a 13% annual rate, while they were up 12.4% in Las Vegas and 11.3% in San Francisco. Even in Chicago, which saw the smallest jump in price at 2.8%, increases outpaced wage gains and inflation in general.

Yet Case-Shiller may be underselling San Francisco, as Paragon Real Estate indicates a record 24% annual increase in San Francisco home prices, which increased by $110,000 in just the past quarter. Zero Hedge says San Francisco “has either become ‘Vancouver South’ when it comes to Chinese hot money laundering, or the second housing bubble has finally arrived on the West Coast.”

A year ago, when we pointed out that home ownership was at a 50-year low, we noted that government’s attempts at enabling every American to own a home have had the opposite impact. The housing bubble was created when Americans without the means to pay off a mortgage were still able to qualify for a mortgage, which could be sold to Fannie Mae or Freddie Mac.

Today, as then, a lack of inventory means that supply is out of step with demand, resulting in higher prices. It takes a long time to find the right land, obtain permits and build a home. The permitting process in some locations has become increasingly bureaucratic, resulting in fewer homes and higher prices.

Add on the Federal Reserve Board’s zero interest rate policy (ZIRP), which acted as an accelerant to housing prices, and it’s no wonder that, as Zero Hedge concluded, there has never been a worse time for first-time homebuyers to buy a home.

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