Don’t blame the free market. Blame the central planners at the Federal Reserve. Those who were wealthy enough to hold onto their assets through The Great Recession have ridden a Federal Reserve created inflationary wave over the last decade. Those who had to liquidate during The Great Recession or who have never had any assets to begin with are now caught watching home prices rise again.
The Fed protected the well-to-do, but by putting a floor under housing and then pumping fiat into the economy post 2008 (particularly) the Fed hurt the less well-to-do. If housing prices had been allowed to correct to market levels many Millennials would be in their own homes now. A whole generation of homeowners would have places of their own at reasonable prices and would be looking forward to a life of solid wealth creation (potentially). But the Fed in its “wisdom” decided it knew better.
Freddie Mac reported on Thursday that its weekly average 30-year fixed mortgage rate rose to 4.47%, the highest since January 2014, which is still very low historically. On Friday, the average 30-year fixed mortgage rate for top tier borrowers rose to 4.58%, according to Mortgage News Daily, on a day when the Treasury 10-year yield surged to 2.96%, the highest since 2014…
…For example, in San Francisco, where the median home is $1.4 million, and the “entry-level home” $1.12 million, the monthly mortgage payment (interest and principal) would come to about $5,400 for an entry-level home. Property taxes would come to about $1,365 a month. Plus insurance and private mortgage insurance. So pretty soon, this “entry-level home” costs about $7,000 a month, or $84,000 a year, not including utilities, maintenance, and other expenses. If it’s a condo – and at this price, it certainly is a condo – the homeowner association fees will have to be added on top.
This is why even the median Facebook employee (not to be confused with its contract workers), making over $240,000 a year in total compensation before income taxes, is feeling the squeeze.
In San Francisco “middle class” is a quarter million a year. No wonder California, when the cost of living is factored, is the poorest state in the union per capita.