End of the American Dream- Why Home Ownership is Out of Reach

About this Video

• Video Title: End of the American Dream- Why Home Ownership is Out of Reach
• Channel: Infranomics
• Speakers: One speaker (name not provided in transcript)
• Duration: 00:29:48

Introduction

This video analyzes the factors contributing to the unaffordability of homeownership in the United States. The speaker explores several key elements, including interest rate hikes, the Federal Reserve's role, the declining purchasing power of wages, and the impact of the current account deficit and capital account surplus on home prices.

Key Takeaways

1. Skyrocketing Interest Rates: The increase in mortgage rates from approximately 2.6% to 6.6% significantly impacted home affordability, drastically increasing annual interest costs.
2. Federal Reserve's Role: The Federal Reserve's actions, such as quantitative easing (QE), artificially inflate housing costs by purchasing mortgage-backed securities, subsidizing risk, and increasing demand. A reduction in these holdings could lead to a substantial correction in home prices.
3. Declining Purchasing Power of Wages: The real purchasing power of wages has decreased significantly in recent years, making homes less affordable for many. This is shown by comparing wages to gold, M2 money supply, and GDP growth, all indicating a widening gap between income growth and asset price appreciation.
4. Current Account Deficit and Capital Account Surplus: The US current account deficit (largely due to trade deficits) leads to a capital account surplus, causing trillions of dollars to flow into US financial assets, including real estate, thus driving up home prices.
5. Homes as Retirement Funds: The significant portion of boomer wealth tied up in home equity makes it politically difficult to allow a major correction in the housing market, even though it may be economically necessary.