I am attempting to become a first-time home buyer. That is not easy these days because inflation in general is rampant and supply cannot keep up with the demand in the overall housing market. The current sellers’ market may work for real estate investors and home buyers who have seen their home values rise over the years, but it has potentially devastating effects for the next generation because as prices rise, wages do not even come close to keeping pace.

U.S. house prices rose 17.5 percent in 2021 according to the Federal Housing Finance Agency. In some areas that are seeing high-percentage population growth, prices are rising even quicker.

Here are the five places with the highest annual price increase by percentage according to the FHFA:

1. Arizona— 27.4 percent
2. Utah— 27.1 percent
3. Idaho— 27.0 percent
4. Florida— 25.6 percent
5. Tennessee— 24.1 percent.

Primary factors contributing to the notable rise in housing prices include monetary policy, price of goods increases and internal migration.

Typically, when there is more supply of a certain good or service, it is valued less, even if it is useful. Water, for instance, is an extremely valuable resource as everyone and everything needs it in order to live. However, most people in the world have relatively cheap and easy access to water. It is obviously very good to have as much water as possible as we all need it to survive. The same could actually be said about housing.

With the dollar, that is not remotely the case. It’s only value is as a medium of exchange and the best it can do is to be consistent. I have written extensively in other places about sound money and why it is valuable. However, that is not the primary point of this article so I won’t expound too much other than to say that when there is more money, it makes perfect sense that you would have to use more of it to make any sort of purchase. 

That is exactly what is happening. Between January 2020 (just before the COVID-19 pandemic) and January 2022 the total U.S. money supply was increased by 41.76 percent according to Federal Reserve data. Over that time period, the U.S. has seen a 31.24 percent increase in home prices according to Federal Reserve data.

Likewise the price of goods is rising too and this obviously drives new house prices up as the materials needed to build are harder to obtain and more expensive. A few particular materials are major contributors to this. Softwood lumber prices rose 20.1 percent and Hardwood lumber prices 30.8 percent in 2021, according to the producer price index report. SteelMill products rose a ridiculous 112.7 percent.

The stage 4 intermediate demand category that covers much of the services that go into home-building rose 12.2 percent in the 12-months ending in December 2021.

“Increases in prices for metal containers, architectural and engineering services, softwood lumber, portfolio management, gross rents for retail properties, and diesel fuel outweighed decreases in the indexes for chemicals and allied products wholesaling, hot rolled steel sheet and strip, and unprocessed finfish,” the PPI report wrote of the category.

Of course, internal migration cannot be discounted as a major contributor to the hottest of the housing markets in the United States. Having already established the top five states states in annual price increase for 2021 let’s look at where they fall in population growth according to U.S. census data (July 2020- July 2021):

STATE	% Price Increase	% Population Increase	Total population Increase
Arizona	27.4%	1.4% (#4)	98,330 (#3)
Utah	271.1%	1.7% (#2)	56, 291 (#7)
Idaho	27.0%	2.9% (#1)	53,151 (#9)
Florida	25.6%	1.0% (#8)	211, 196 (#2)
Tennessee	24.1%	>1%	55, 099 (#8)

As is apparent, almost every state with rapid price increases in the housing market has corresponding population growth in the top 10.

Unfortunately people’s incomes are not nearly keeping up with prices in the housing market or prices in general. As a result, many people are stuck renting at high prices, are unable to grow their personal wealth, and potentially live a lower quality of life than the previous generation.

Compensation costs increased 4.0 percent overall for the 12-month period ending in Dec. 2021, according to the Bureau of Labor Statistics. The difference between the private and public sector is large. Over this same period private sector compensation increased 4.4 percent while public sector compensation only grew 2.6 percent.

“Inflation-adjusted (constant dollar) private wages and salaries declined 1.9 percent for the 12 months ending December 2021. Inflation-adjusted benefit costs in the private sector declined 3.8 percent,” the report says.

This means that despite the rise in private sector wages at 5.0 percent, private sector employees are effectively making 1.9 percent less than they were previously.
In order to ensure that this disparity does not continue or grow worse, the U.S. needs to return to sound economic policy. While I don”t have time to go into detail here, these are my recommendations to solve this issue, all of which I have written blog posts on: End the Fed, open up trade, and stop corporate welfare.