Steve Hanke and Dick Lepre write about the connection between monetary policy and housing:
Let’s take a look at how the housing market has reacted to the Fed’s whipsawing of the money supply. The numbers are startling. According to the St. Louis Fed, the average home price in the U.S. increased from $374,500 in 2020 Q2 to $525,000 in 2022 Q2 — a 40 percent increase. Contrary to Fed Chairman Jerome Powell’s assertions, this increase did not represent a housing “bubble.” It was precisely what anyone with knowledge of the quantity theory of money would have predicted.
Now, let’s take a look at the effects of the Fed’s quantitative tightening. In 2020, during the Fed’s ultra-loose monetary phase, the average 30-year conforming mortgage rate was 3.11 percent. For an average home price of $374,000 with 20 percent down, the mortgage size was $299,200. That resulted in a monthly payment of $1,599. In November, under the Fed’s quantitative-tightening regime, the average 30-year conforming mortgage rate reached 7.2 percent. For an average home price of $525,000 with 20 percent down, the mortgage size would be $420,000, amounting to a monthly payment of $2,851. In short, the average mortgage payment on the average priced home increased by a stunning 78 percent in just two years.
Read the whole thing here.