“The Housing Crisis”

On Friday, June 21, 2024, I was surfing the TV channels a little after 4:00 P.M.

I stopped at Fox News –Kudlow, and saw the beginning of an interview that Larry Kowlow was having with the Opinion Editor of the Washington Times newspaper. The Opinion Editor said that the reason that the housing market is in chaos is because the government is “housing illegal immigrants at no cost.”

For those who may not know, Larry Kowlow was Director of the National Economic Council under President Trump from April of 2018 to January of 2021.

Mr. Kowlow does not have a degree in Economics but an undergraduate degree in History. He does have experience in the financial world of Wall Street, however, his predictions are more wrong than right. In a 2015 book, “Superforecasting,” by two University of Pennsylvania political scientists, Philip E. Tetlock & Dan Gardner, they refer to Kowlow as a “consistently wrong pundit.”

I have never been a fan of Kudlow and I am not today.

Larry Howlow had a “financial talk” show on television prior to becoming Director of the National Economic Council, and upon leaving government he returned to television with a show on the Fox Network. A full summary of Kukow’s background can be seen on Wikipedia.

When I heard the discussion between Kudlow and the Opinion Editor of the Washington Times, about today’s housing issue being the result of the government giving free housing to migrants, I was shocked. No wonder there is so little confidence today, in what the media is reporting. This was so blatantly wrong that I was compelled to respond.

The housing market is dependent upon a number of variables; interest rates, home prices, available inventory, supply & demand, and income of purchaser. All of these factors have a significant impact.

A number of factors have contributed to the cost of housing going up and the supply going down. In April 2024, the median price of a “new” home was $433,500 while the average price was $505,750. per the U.S. Census Bureau.

At the same time, sales of “new” homes on a seasonal adjusted basis amounted to 634,000. However, the seasonal adjusted inventory of new homes available for purchase is only 480,000. Is it a wonder that sales prices of new homes is going up? The economic concept of supply and demand at work. More demand than supply, prices normally go up.

Prior to the economic crisis in 2008, new single family home starts averaged in the 1.8 million to 2 million range per year. In 2007, they dropped to 1.3 million and in 2008 to 900,000+-. From 2009 to 2012, the new single family home starts averaged between 500,000 to 700,000 +-. In 2014 they finally reached 1 million. From 2017 through 2023, they ranged from 1.2 million to 1.6 million +-.

Mortgage interest rates have varied significantly in that same period. They primarily vary according to the Federal Reserve’s “Federal Funds Rate.” Prior to 2008, the Federal Funds Rate amounted to 5%+-, except for the period, 2002 to 2004, when it was in the 1%+ range. In 2008 it dropped to 1.92% and from 2009 through 2022 it averaged approximately .5%. In 2023 it went to 5.03% and today the Federal Funds Rate is 5.33%.

The definition of the Federal Funds rate is “the interest rate at which depository institutions (banks) lend reserve balances to other depository institutions overnight on an uncollateralized basis.” As a result, lending rates will generally be 2%+- greater. Todays 30 year mortgage rate is approximately 7.25%.Over the past 30 years, the median 30 year mortgage rate is approximately 7.41%. The highest 30 year mortgage rate was in October 1981 when it reached 18.63%.

The higher the interest rate, the fewer home buyers. The National Association of Home Builders has estimated that a .25% (25 basis points) increase in mortgage interest rates, prices 1.3 million households out of the market.

After the 2008 economic crisis, 30 year mortgage interest rates were as low as 2.5% to 3.5%. Is it any wonder that those folks have no interest in selling today.

Another factor that has had some influence on today’s housing crisis, is the purchase of single family homes, that financial institutions foreclosed on during and after the 2008 economic crisis, by Private Equity and Hedge Funds. Prices dropped significantly during that period, and these organizations saw a new investment strategy. They could purchase these existing homes for significantly less than market value, and then lease them for a significant positive cash flow. In addition, market values should rise in the future, and they would then have a win, win, situation. Medium housing prices have risen 46% since 2011.”The Americans for Financial Reform” organization, estimates that in 2022, these organizations owned a minimum of 239,018 single family homes. They were in major metropolitan areas such as Atlanta, Phoenix, Tampa, Memphis, California, etc., mostly in the “Sun Belt.”

The Washington Times estimated that these organizations purchased 44%of all single family homes that were flipped in 2022. These are homes that were bought to resell, by investors.

In summary, not one thing has contributed to the housing crisis today, but a combination of those discussed above. The comments of Larry Kowlow and the Opinion Editor of the Washington Times, stating that illegal migrants, housed by the U.S. Government, at no cost, is the reason that we have a housing crisis is absolutely wrong and irresponsible.

Jess Sweely

Madison, Va.

June 24, 2024.