DeepSummary
This episode features an interview with Lance Lambert, the co-founder and editor-in-chief of ResiClub, discussing the reasons behind the current unaffordability of the housing market in the United States. Lambert explains that the fastest ever deterioration in housing affordability stems from the overheating of prices during the pandemic housing boom, driven by a surge in demand that outpaced the inelastic supply of housing.
Lambert delves into the factors contributing to this crisis, including soaring home prices (up 47% nationally from March 2020 to April 2024), rising mortgage rates (from around 2.5-3.5% during the pandemic to over 8% currently), incomes failing to keep pace with price increases, skyrocketing home insurance premiums (with 25 states seeing 10% or more increases in 2022), and escalating home repair costs.
Lambert also discusses the role of the Federal Reserve and central banks in using housing and residential investment to cyclically speed up or slow down the economy, leading to distortions in the market. He suggests that restoring housing affordability may require a period of stagnant prices while incomes catch up, similar to what occurred in the late 1970s and early 1980s after a previous inflationary housing boom.
Key Episodes Takeaways
- The US housing market is experiencing the fastest ever deterioration in affordability due to a combination of soaring home prices, rising mortgage rates, stagnant incomes, skyrocketing home insurance premiums, and escalating repair costs.
- The pandemic housing boom led to a surge in demand that far outpaced the inelastic supply of housing, causing prices to overheat and rise at an unprecedented rate of 47% nationally from March 2020 to April 2024.
- The Federal Reserve and central banks play a distortionary role in the housing market by using residential investment to cyclically speed up or slow down the economy, leading to market dynamics that are not solely based on fundamental supply and demand forces.
- Prospective buyers entering the market in recent years and the near future are bearing the brunt of the affordability crisis, facing the compounded impact of soaring prices, high mortgage rates, and incomes that have failed to keep pace.
- Restoring housing affordability may require a period of stagnant or slowly rising home prices while incomes catch up, similar to what occurred in the late 1970s and early 1980s after a previous inflationary housing boom.
- The housing market dynamics vary significantly across regions and metro areas, with some areas like Florida and Texas experiencing softening prices and increased incentives from builders, while other markets remain unaffected.
- Builders are deploying strategies like mortgage rate buy-downs and incentives to maintain sales volume and profit margins, preferring to absorb affordability adjustments rather than outright price cuts.
- The escalation in home insurance premiums, with 25 states seeing increases of 10% or more in 2022, is an often-overlooked factor compounding the affordability crisis, driven by factors like the inflationary shock and catastrophic weather events.
Top Episodes Quotes
- “And so the combination of prices and mortgage rates and the fact that incomes haven't kept pace has meant, in terms of the math, this is the fastest ever deterioration in housing affordability.“ by Lance Lambert
- “When you live in a world where the Federal Reserve and central banks are constantly speeding up and slowing down housing, it makes it distorted to where you aren't. It's a little less based on the market fundamentals, and you're getting pulled from other directions.“ by Lance Lambert
- “And so the folks that have been hit by the brunt of this are would be buyers who are just now getting into the market. So the vintages that took out mortgages in the second half of 2022, all of 2023, and now 24, and it looks like 2025 still going to be tough affordability.“ by Lance Lambert
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Episode Information
The Pomp Podcast
Anthony Pompliano
7/2/24
Lance Lambert is the Co-Founder & Editor-in-Chief at ResiClub. He is also the former Real Estate Editor at Fortune Magazine, and is the foremost expert in residential real estate. In this conversation, we talk about the 4 reasons why houses are so expensive, as it is the most unaffordable housing market we have had in history. This is a major crisis for the US economy, and people need to understand what it will take to get us out of this.
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