Why America’s Economy Won’t Get Well Soon
If you watch the news about the current and future state of the American economy, you have likely heard nothing but depressing news. You have most likely heard that the American economy is heading towards a deep recession. You have also heard television news anchors and other commentators on social media platforms draw comparisons between the current state of the economy and its state in the 1970s and 1980s. These claims, while not entirely true, serve as a useful comparison to measure current developments in the U.S. economy. While this crisis is different from similar crises in the past, many of the same factors will extend the length of the current pitfall we as a nation are in. Nothing better illustrates the slowdown of America’s economy, among all sectors, than the recent hits to the the rental and for-sale housing markets.
Inflation has hit all-time highs, peaking at 8.6% for May 2022 (Trading Economics, 2022). The cost of most goods is increasing, with no end in sight. However, the area of the economy experiencing the most significant price rise, and what arguably hurts ordinary Americans most of all, is the cost of housing. For example, the median sales price of new homes in the U.S. increased steadily from 2020 to 2022. It increased from $328,900 to $365,300 through 2020, $373,200 to $410,000 through 2021, and in May 2022, the median new home sale price reached $449,000. (U.S. Census Bureau and HUD, 2022). This makes both the initial purchase of a home and the mortgage payments over time difficult. It was reported that “the average rate on a 30-year fixed rate mortgage rose to 5.78%...[and] Last week, Freddie Mac reported an average mortgage rate of 5.23%...”(Goldfarb and McCaffrey, 2022). This does spell trouble, as America’s average annual 30-year fixed mortgage rates in 2019, 2020, and 2021 were 2.96%, 3.11%, and 3.94%, respectively. It is true that current rates are nowhere near the highs of the 1970s and 1980s, with average annual mortgage rates above 7% from 1971-1999, even surpassing 10% from 1979-1990 (Freddie Mac, 2022). However, a long-term decline in rates followed by a spike leaves many homeowners unprepared for what’s ahead. This is doing noticeable harm to homeowners. Just in May 2022, “there were a total of 30,881 U.S. properties with foreclosure filings [both fully residential and of mixed property], up 1 percent from a month ago but up 185 percent from a year ago” (ATTOM Staff, 2022). Although foreclosures were notably low during the start of the COVID-19 pandemic, in January 2020, this is mainly due to the foreclosure moratoriums instituted by the federal government, one of which being the program implemented under Section 4022 of the CARES Act, passed by former president Donald Trump in March 2020 (It also bolstered state and territorial unemployment insurance systems and provided emergency mortgage, rental payment, and business loan default assistance. Most of its provisions had expired on or around December 31, 2020).
Sadly, Americans’ financial status since its passage has been unstable since then, with some sectors of the economy recovering their former financial status, and even exceeding it, and others remaining where they were or worsening. For example, CNBC reported in April 2022 that “the average amount of personal savings dropped 15% from $73,100 in 2021 to $62,086 in 2022” (Vega, 2022). Although these two figures appear large, they are the result of merely gradual accumulations of money over a period of one year. Throughout the COVID-19 pandemic, people’s earnings had a tendency to change drastically in both directions on smaller timescales. The large movement in earnings, for example from week to week, combined with the ever-increasing price of housing (as well as consumer goods) does not leave many Americans with hope that their financial futures will improve soon.
While the strong possibility of increased foreclosures would hurt homeowners across the United States, so too would its equivalent in the sphere of renting, also known as evictions. As the cost of rent continues to rise, more tenants can see themselves evicted from their homes. Indeed, in March 2020, tenants also received a measure of assistance from the federal government, notably under Section 4024 of the CARES Act. However, this, and the order from the Centers for Disease Control and Protection (the agency of the U.S. Health and Human Services Department that monitors disease outbreaks) that landlords do not evict tenants (Yearwood, 2022), has expired. States, territories and local governments had supplemented programs under the CARES Act with their own forms of rental assistance, mainly eviction moratorium and rent control policies. Now, though, most of these programs have expired, and it is mostly up to tenants to face rent hikes on their own. Sadly, rental costs have risen since 2021. For example, during the pandemic, the average monthly rent for a one-bedroom rental apartment in New York City hit a peak at approximately $3,073 in January 2020. It then decreased to a relative low point of $2,333 in January 2021, gradually increasing to $3,275 in October 2021, and then reaching a new high at $3,675 in June 2022 (Zumper, 2022). Overall price rises have been occurring in other parts of the country as well. During the same time period in Detroit, Michigan, the monthly cost to rent a one-bedroom apartment hit its January 2020 peak at $925, before more or less leveling off at $1,275 between July 2020 and October 2020. It then peaked at $1,363 in February 2021, dipped at $900 in April 2021, and has floated around $1,200 since August 2021 (Zumper, 2022). Meanwhile, "The national median rent was $1,827 a month in April...If recent trends continue, the report projects the typical rent could be more than $2,000 a month by August" (Bahney, 2022). Although these figures do provide a brief insight into the rental housing situation in the U.S., it must be noted that they do not account for regional movements in price, sometimes differing drastically from the averages. For example, although the relevant average rental price across New York City is currently $3,675, its equivalent in the Upper West Side is $4,198, and in the Upper East Side, it is $3,912 (Zumper, 2022). In any case, fluctuations in price are leading to evictions, but they are having a disproportionate impact on Black renters. Indeed, evictions have been rising since August 2021, leaving mainly black renters without a place to call home and exposed to the extremes of weather (Yearwood, 2022). If prices continue to rise, they will undoubtedly face more evictions.
At this point, there is not much that Americans can do to shield themselves from inflation. Be them homeowners in distress or tenants in danger, most Americans will be hurt by the increased cost of consumer goods and services, as well as housing in all forms. It will be the responsibility of the federal, state, territorial, and local governments to take action to lower housing costs. No matter what happens, it appears that the economy will get worse over time.
Works Cited
(no author). Average rent in Detroit, MI. (2022, June 25). Zumper. https://www.zumper.com/rent-research/detroit-mi
(no author). Average rent in New York, NY. (2022, June 25). Zumper. https://www.zumper.com/rent-research/new-york-ny
(no author). United States inflation rate. (2022, June 1). Trading Economics. https://tradingeconomics.com/united-states/inflation-cpi
ATTOM Staff. (2022, June 14). U.S. foreclosure activity increases slightly in May 2022. ATTOM Data. https://www.attomdata.com/news/market-trends/foreclosures/attom-may-2022-u-s-foreclosure-market-report/
CARES Act, 15 U.S.C. §9001 et seq. (2020). https://www.congress.gov/116/plaws/publ136/PLAW-116publ136.htm
Freddie Mac. (2022). 30-Year Fixed-Rate Mortgages Since 1971. (PMMS). https://www.freddiemac.com/pmms/pmms30
Goldfarb, S. and McCaffrey, O. (2022, June 16). Mortgage rates hit 5.78%, highest level since 2008. The Wall Street Journal. https://www.wsj.com/articles/mortgage-rates-hit-5-78-highest-level-since-2008-11655388013?mod=hp_lead_pos2
Lee, R. (2022, June 18). Here’s how homebuyers can manage rising mortgage rates. Yahoo Money. https://money.yahoo.com/homebuyers-rising-mortgage-rates-150923172.html
Yearwood, L.T. (2022, March 14). Evictions are back. Black renters are suffering the most– again. The New Republic. https://newrepublic.com/article/165585/indianapolis-eviction-moratorium-black-renters-suffer
U.S. Census Bureau and U.S. Department of Housing and Urban Development [HUD]. (2022). Median Sales Price for New Houses Sold in the United States. (FRED). St. Louis Fed. https://fred.stlouisfed.org/series/MSPNHSUS
Vega, N. (2022, May 21). Americans now have an average of less than $9,000 in savings than they did last year. CNBC.. https://www.cnbc.com/2022/05/21/americans-now-have-an-average-of-9000-dollars-less-in-savings-than-in-2021.html
