According to the S&P CoreLogic Case-Shiller U.S. Home Price Index (say that five times fast), house prices increased over 52% between January 2020 and December 2024.
Is it just us, or does that seem wildly out of control?
Although the down market looks (and is) bad, we didn’t get here by accident. Decisions made years ago — justified by a global crisis — led to the present state of the US economy.
We were all there, right? The mask mandates, the vaccine cards, and — oh, yes — the mass printing of the US dollar to “stimulate the economy.”
Recall that in 2020 and 2021, big government issued Economic Impact Payments (EIP) to individuals and families, presumably to help Americans through the pandemic. They knew what this would do to the value of the US dollar (nothing good), but that was a future problem.
On the lending front, the Fed cut the federal funds rate to nearly zero, stimulating borrowing and investment, despite economic uncertainty. They also purchased mortgage-backed securities (MBS) en masse to increase demand while keeping mortgage rates low.
These were unprecedented times (not really, but we’ll save that argument for a different day). They called for unprecedented measures — consequences be damned.
That excuse worked for a short while. Historically low mortgage rates, combined with government stimulus programs, made homebuying more accessible (even amid a global disaster). Gas and flight prices plummeted to match decreased demand.
For a minute, it looked to uninformed observers like we beat inflation.
But, as Ayn Rand put it, “You can evade reality, but you cannot evade the consequences of evading reality.” And that’s exactly what’s happening now: the reckoning.
In fact, by 2022, we were already seeing the effects of playing God. Inflation — back to bite us — increased the cost of land, building materials, and labor. The Fed also raised interest rates (shocking), making borrowing more expensive and homeowners reluctant to sell.
The result? A home price increase of over 52% by the end of last year.
But all hope is not lost. As with many bureaucratic screwups issues, restoring balance to the housing market is a matter of cutting red tape and removing barriers. This could look like:
- Fewer regulations and reformed zoning laws. This means higher-density housing, faster permit processes for builders, and reduced impact fees, making construction smoother and less expensive.
- Natural market forces at work. The sooner the Fed stops intervening in the market, the better. We’ve seen time and time again how their “easy money policies” create housing bubbles. It’s time to stop blowing them up.
- Private sector innovation. Yes, we think there should be more competition in homebuilding, not less. As usual, we can get there by reducing regulations and promoting innovative construction methods.
- Decreased incentives that boost demand without increasing supply. First-time homebuyer subsidies, rent control, and other price caps all fall into this category. Artificially inflating demand does nothing for supply issues.
- Reduced institutional barriers. Eliminating the capital gains tax would be an excellent start (but we’d settle for lowering it).
The bottom line: The Fed needs to get out of the way and let the market work. We simply cannot fix it using the same, tired interventions that got us here.
Supply and demand will adjust naturally once we slash heavy-handed regulations and put an end to artificial market distortions.
We already said goodbye to the CFPB. Things are about to get interesting around here.
