What’s happening to US economy?
Scary high home prices, gas prices, soaring inflation, stock markets
Its crazy times here in USA that I haven’t seen before. I’ve been living here since 1995 and have seen 2000 dotcom burst recession, 2008 great recession, 2020 recession and now 2022. This time it's nothing like before. Let’s take a look at 3 major factors:
1. The elephant in the room: Housing — Scary-High Home Prices
- Two years ago, we were all forced indoors for an indeterminate amount of time.
- One year ago, people realized they needed more space and started buying homes at a feverish pace.
- This year, average home sales prices eclipsed $500,000 for the first time ever. Couple that with rising interest rates, and you have what appears to be an untenable position for the housing market.
For fun, let’s look at what it would take for the typical American to buy a house right now. Assuming averages across the board, here are our assumptions:
- House price: $507,800 — the average according to the Fed at the end of Q1
- Down payment: $66,014 — based on the median down payment of 13%
- Mortgage: $441,786 — which we will assume is a 30-year fixed
- Interest rate: 5.81% — the weekly average according to Freddie Mac
And the financial toll excluding taxes, fees, insurance, maintenance, and so on:
- Monthly payment: $2,595
- Monthly gross income: $4,120
That’s 63% of the typical individual’s GROSS income. Yikes!
2. Stock and Equity Markets — It’s official — the current market reset is the 10th worst since 1929.
3. Inflation — Record High of 8.6%
Annual inflation rate in the US unexpectedly accelerated to 8.6% in May of 2022, the highest since December of 1981.
Inflation seems to be out of control. Based on this, If you believe that the worst of the fallout of the Russian invasion is at hand, the effects of the pandemic will fade (supply chain), and the fed can use monetary policy to slow growth in the economy so it doesn’t blow past full employment and cause wage price problems to manifest- inflation should moderate.
We’re not facing headwinds, but swirling winds