This article was written by Brandon Smith and originally published at Birch Gold Group
One of the most detrimental aspects of an inflationary or stagflationary crisis is that, in most cases, housing costs tend to rise while home sales fall.
It might seem counterintuitive; one would assume that as sales fall so should prices, but this is the upside-down world of inflation. Certain commodities and products, usually necessities, almost always skyrocket in price, ultimately driving most American families out of the market completely.
One of the only exceptions to this rule is when the government institutes rent or price controls. In Weimar Germany, for example, the government enforced strict regulatory controls on landlords, fixing rent at a rate that made profits impossible.
Biden’s housing crisis
Now, this might sound familiar – during the height of the Covid pandemic the Biden administration established a lengthy moratorium on evictions, which made it impossible for many property owners to collect rent payments they were owed. Owners couldn’t replace delinquent tenants with those willing to pay on time, leading to massive financial burden on property owners across America.
The effects of this were detrimental to both the U.S. economy and especially the rental market.
How? The moratorium awakened property owners to the reality that they could be unilaterally restricted from their own business. They could be stopped from collecting rent payments owed by tenants under contract while still being forced to pay taxes and maintenance expenses on those same properties.
The entire rental market became a zero-sum game. In response, landlords began selling their extra properties in droves instead of renting them out.
As you might expect, this has led to a shortage of rentals in many parts of the country. When supply is constrained, what does basic economics tell us must happen? The eviction moratorium led directly to much higher prices on the limited rentals that still remain.
But it wasn’t just a reduction in supply that caused prices to rise.
Those owners still willing to rent properties under the eviction moratorium had to increase their prices to compensate them for the additional risks they were taking in a market where the rules suddenly changed. By placing the moratorium on rent, Biden made an existing housing crisis far worse.
Who benefits from this manufactured crisis?
Another factor to consider is this: who were the buyers for many of these suddenly-for-sale properties?
Massive conglomerates like Blackstone and Blackrock have been increasingly involved in the housing market since the crash of 2008.
While Blackrock claims it has no involvement with the single-family housing market, it works closely with companies that are involved, buying up multiple houses and bundles of distressed mortgages.
Blackstone has continued to buy houses in bulk for the past decade, removing properties from the market for a time. These mass purchases give the public the impression that local sales are “hot” and that the market is thriving. As you might expect, these actions force prices up even further to meet this artificial demand.
Currently, median sale prices of homes have spiked dramatically to all-time highs in the span of a couple years – a 30% price surge coinciding with the beginning of the Covid panic.
Now, part of the price inflation can be attributed to the large migration of Americans out of blue states to escape draconian Covid lockdowns and high taxes, but this migration has now died off. Housing sales are plummeting back to Earth. Yet, prices remain higher than the average family can afford.
Housing Inflation Is far Outpacing Wages
In 2022, the median cost of a home in the US is now $428,000. The average American makes around $50,000 a year or less, placing them far outside the current market.
In terms of rentals, the average cost in the US has exploded to $1300 per month for people that stay anchored to a location, and $1900 per month for people that relocate. This average is of course partially pushed up by the ridiculously high prices in major coastal cities like San Francisco (up 22% year over year), Los Angeles (up 297% since January 2000) and New York (up 159% house price inflation since January 2000).
An individual today must make at least $20 an hour to afford a single bedroom apartment. Consider that over 30% of Americans are paid less than $15 an hour (before taxes).
Nearly half of the American population doesn’t make enough money to maintain a one bedroom rental. The vast majority of Americans will find it impossible to buy a home at today’s prices.
On average, an annual salary of $105,000 is recommended before taking on a mortgage for a $350,000 house. And keep in mind, as the inflation crisis accelerates the Federal Reserve will raise interest rates – which pushes up mortgage costs. So where does this leave us? It only gets worse from here.
What comes next?
Home buyers waiting for prices to track lower along with sales may find they are waiting around for a while. This could change IF the government enforces price controls on home costs. Granted, that is highly unlikely.
I think it’s more likely that, as inflation rises, the government would freeze monthly rents, but not home prices themselves.
That said, if there was another moratorium on evictions, or a freeze on rents, then landlords would probably sell off their properties en masse once again to avoid taxes and expenses on investments that are making them no money. That could lead to a larger drop in prices, but again, I wouldn’t hold my breath.
One solution to the housing problem would be a moratorium on corporate purchases of homes. That would limit hedge funds and investment banks to speculating on industrial and retail properties.
Personally, I’m not a fan of the government insinuating itself into business, but maybe it is better to stop conglomerates from buying up American homes and driving up prices than it is to stop landlords from collecting rent? We also have to consider the very real possibility that global corporations devouring the U.S. housing market is part of a calculated agenda to make housing expensive.
Price explosions caused by inflation like we are seeing today often last for many years, sometimes a decade or more. When housing finally does deflate, it will only be under drastic economic instability. By that time, people will have much bigger concerns beyond whether they can take on a mortgage. (Note: Birch Gold has reported extensively on the latest housing bubble, and the forces behind it.)
Property rights and ownership are a primary pillar supporting a free society. When ownership is relegated to the upper-middle class and the wealthy the result is an inevitable social decline into various forms of feudalism or socialism.
For those with authoritarian ambitions, housing inflation is a boon. Homelessness feeds the kind of desperation that drives the public to support totalitarian actions. They might provide you with housing eventually, but it will be at a terrible cost.
The last thing anyone with common sense would want is for the government to become their landlord by default. It’s very hard to defy the trespasses of government overreach when that government controls the roof over your head.
After 14 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.
Great article!, confirming once again your predictions about the huge economic collapse that is becoming more and more concrete.
JP Morgan Jamie Dimon also plays the role of oracle. Perhaps he has read your articles…
And Now, J. Yellen “admits” she was wrong about temporary inflation. No kidding!?
In fact, she and the other central bankers have been intentionally lying to the public.
By the way, this reminds me of your conclusions about institutional whistleblowers when the crisis is imminent (after having long refused to see it or knowingly misled the public). I refer to your article “Explaining the End of the Economic Game” and also to this one: “The worst part is that central bankers know exactly what they are doing”.
Here we are, again.
Brandon I know what you are saying makes sense.
When I think about the cost of housing it seems to be the starting point is way down the road from where we need to be looking. The amount of regulations, local, state, and federal put on house building also affects the supply. The cost to follow all the regulations adds tens of thousands of dollars to the cost. In my area following the regulations adds more than $50,000 to a house build. A possible simpler fix on housing could be to build a house similar to 1950’s size and quality. There are still people living in houses built in 1950’s or before. Those houses then remain cheaper to build and cheaper to buy. The cheaper house would be known as a starter house. Not everyone needs or want the most expensive house that can be built.
“the government would freeze monthly rents, but not home prices themselves.”
Sounds about right. This will incentivize the sell of homes to conglomerates like Blackstone. You will own nothing and be happy. Well not sure how they plan on pulling off the happy part other than give us lobotomies or drugs. TPTB really believe in their righteousness. Most tyrants do I suspect.
I believe that this crisis, along with the gun grabs, will be the main factors that will cause a civil war here. Along with gun ownership, gardening, etc, there is going to eventually be a breaking point where they are deliberately trying to prevent access to these homes. This is also the reason why I see more and more tightly closed apartments within the socialist state of NJ and other areas. I hope blackrock and vanguard as companies are destroyed when the civil war occurs.
Brandon thnx 4 this article, this one is globally applicable.
The horror “Doom Loop” spiral (2016) is becoming reality.
I’m so pissed off of the economic nightmare that the globalists are causing as I strongly believe that the suffering will be deeper than what was seen during the Great Depression of the 30s. Millions of Americans, and billions of people around the world, who have simply done their best just to tread water all these years will be swept down by the undercurrent. Hope the ba$tards who caused this mess lose everything and go to H#ll, including Blackrock, Blackstone, Vanguard, etc.
That is where they’re headed. Take heart, the One who cares knows it all. And when its finished, it will be completely finished!👵😇
2022 will undoubtedly be a very, very difficult year for the people of the United States and Europe in particular. Major crises, or perceived as such by the general public, will follow one another in the United States and in the world.
About the U.S energy crisis, a very good and realistic analysis by M. Snyder:
“Control oil and you control nations; control food and you control people.”, Henry Kissinger.
This globalist psychopath, who spoke at the last Davos meeting, knows what he is talking about.
Brandon, tremendous research and insight. One group virtually untouched by this are gubmint employees. With pensions, upon retirement and the sale of their current home they end up in places like where I live.
In Fairfield Glade, TN, people are plopping down $400,000 for homes that were purchased previously $200,000. We are seeing buying and selling for profit in as little as 2 years. Those driving looking around for homes have pension king liscence plates like Illinois.
Then of course there is the military and their “housing allowance.” A couple of years ago I saw and HGTV episode where a military family was looking for a home in, wait for it, Hawaii where they were stationed. The “budget” was $600,000. The gubmint is not stupid. They get loyalty from their employees with our tax $$$.
True. It’s a small percentage of government employees that are getting those kinds of incentives, but I have run into a few of them in the past, and they ALL rabidly defend the federal government and its actions because they benefit.
As an Illinois state pensioner, I detest your comments pertaining to my 30 year career helping private land owners. Your stereotyping does no good for the future of this republic! Drop your divide and conquer attitude. Shame on you!
The fact that you’re taking his comment as if it is aimed at you personally is a little odd. I think he is referring to high dollar federal employees. Why do you think it pertains to you?
Thank you for taking the time to respond and making this site available.
Thank you for taking the time to respond. Your response motivated me to look up Illinois state pensions. The debt now is about $317 billion. Not sure many private sector businesses can operate like that.
Keep complaining. We’re facing an economic collapse. When that happens … watch the pensions and social security evaporate. The globalists are racing to the finish line. They seek to change the fiat currency, gas and food prices are through the roof due to inflation, all costs have escalated due to inflation, weakening the dollar. Promised ‘doles’ from any ‘job’ can be broken. I worry about it daily. Put nothing past thugs. They have no conscience. A loved one always cautioned “stop thumping your chest, bragging about what you “think” you have or own. It can disappear in the blink of an eye. They’re importing millions of invaders from all over the globe, not just Mexico. They need to be fed, housed, clothed, educated and provided medical care. The system is depleted. Where’s it all coming from? Hold tight for the wild ride ahead.
“The few who understand the system, will either be so interested from it’s profits or so dependent on it’s favors, that there will be no opposition from that class.”
-Mayer Amschel Bauer- AKA Rotschild
Yes this horrid mess will make the Great Depression look like a Sunday walk in the park! Sad to say. But God took care of us then and he’ll take care of us now. We do need to prepare though. Learn to do for yourself as much as possible! Form small communities and help each other. That’s the only way it worked back then, it can and will work again. God’s blessings to you all!👵😇America the land of the free and the home of the brave. Let’s act like it!
Let’s go BRANDON!
The origin of the eviction moratorium was the CDC.
They NEVER had authority over ANYTHING and should have been ignored.
In Texas you couldn’t evict anyone because the court system was effectively closed. Many landlords used creative means to make bad renters go away after finding the courts were useless.
Do Not Comply, Ever.
It was the CDC at the behest of the White House, but yes, they have no authority whatsoever and should be ignored.