Today’s Housing Bubble Could Sink Your Retirement

You may be surprised to learn that housing is now “the civil rights issue of our time” according to some activists.

Bullion.Directory precious metals analysis 18 October, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Of course, like any emotionally charged term, there will be people who will try to take that term and use it to push their agenda. Maybe that’s right to do in certain cases, maybe that’s never right to do.

The problem with most civil rights issues being pushed these days, though, is the solution that activists want to use to solve their perceived problem. It’s always the same solution. Always.

And it should concern you because the “civil rights” issue that we’re talking about today is one that could absolutely wreck your retirement.

But first, let’s talk about what that issue is…

What is the issue?

That’s the first question to ask. What is the issue?

The issue is housing. Specifically, the lack of available affordable housing.

It’s such a problem in some areas that there are lawsuits from the state against local municipalities for not making enough available housing.

I wish that I were kidding about that. Andrea Riquier writes the following for USA Today:

Two years ago, the affluent, mostly white town of Milton, like several dozen others near it, was told by the Massachusetts state Legislature that it must take steps to allow more, and denser, housing. But by February, after Milton spent thousands of dollars and countless hours of city staff’s and elected officials time developing a plan, roughly 5,000 voters shot it down.

Apparently, the Massachusetts state legislature thinks that governments can create things out of thin air by commanding it to be so. Maybe I’ll appreciate that idea more when they successfully legislate the ability to fly without an airplane…

But back to the story. How did the State of Massachusetts respond to democracy in action refusing to turn where they live into a crowded urban area? Again from Riquier:

Days later, Massachusetts Attorney General Andrea Campbell filed suit to force Milton to comply, and on Oct. 7, a panel of judges will hear arguments.

That’s right, they filed a lawsuit.

If this isn’t appalling enough to you, listen to what one activist had to say about this whole situation:

“[Zoning laws to make housing available] is the civil rights issue of our generation,” said David Dworkin, president of the National Housing Conference. 

Now, the point here isn’t to argue whether Dworkin is right about needing some kind of zoning law reform.

The issue is how these types of activists want to solve problems.

How do they want to solve problems?

Activists for social issues or civil rights issues, unfortunately, seem to always think that the solution is to have more government intervention and government control.

And how do governments control things?

Other than passing laws that are enforced by law enforcement officers (so threat of jail, etc.), the government’s primary means of changing things is by trying to manipulate the economy with things such as lawsuits to force compliance and through things like price controls.

Which should make you pay attention.

Price controls don’t work. Ask Joseph Stalin. Ask Kim Jong Un. Ask anyone who’s spent time in Cuba, Argentina or Venezuela.

Price controls don’t work because they reduce supply. Maybe that’s counterintuitive, so I’ll let Tejvan Pettinger explain:

Price controls can reduce the incentive for firms to increase supply. For example, if prices are rising due to supply bottlenecks. The rise in prices will create an incentive for firms to increase supply. However, if the government pursues price controls, then this incentive to increase supply is reduced. Therefore, far from solving the problem, price controls can make the shortage last for longer.

That’s just how markets work! For a longer explanation, see here.

So, if some bureaucrat decides there isn’t enough affordable housing and the government steps in to fix the problem, the most likely result is more housing shortages.

Trust the government to come up with a solution that makes the problem worse. Which leads to more “solutions,” and so on…

And the problem isn’t just in Massachusetts

Not even remotely. More and more people are saying that they simply can’t afford to buy a house.

At Axios, Sami Sparber writes,

The cost of homeownership isn’t worth the squeeze, some renters say.

Why it matters: Home shoppers’ budgets don’t go as far as they did a few years ago.

Taking the plunge could mean giving up big-city living or an amenity-packed building for 30% less house, according to Sam Tenenbaum of Cushman & Wakefield, a real estate services firm.

And, as Sparber also notes, “people who rent aren’t building wealth the same as older generations.”

“I’m from the government, and I’m here to help.”

That’s right, the Democratic nominee for President this year proposed something that, if implemented, will just make housing even more unaffordable for the average American.

I wish that I were kidding. Really. But at ABC News, Selina Wang and Gabriella Abdul-Hakim give this scary bit of information about the Harris/Walz economic agenda:

The campaign is vowing that during its first term, the Harris-Walz administration would provide working families who have paid their rent on time for two years and are buying their first home up to $25,000 in down-payment assistance, with more generous support for first-generation homeowners.

Look: It’s sad that working families can’t afford homes. My heart goes out to them.

The reason they can’t afford homes? Inflation. But don’t take my word for it – take a look at this chart. The blue line tracks the average home price, the red line tracks the total money supply.

Multi-trillion-dollar deficits create inflation. Which makes prices go up – not just prices for food and fuel, but all prices. Including home prices.

So where’s Harris going to find all the money for this “generous support,” hmmm? More borrowing – bigger debt – more inflation. Honestly, what kind of person thinks that the solution to higher prices is more money? 

It’s pretty clear on the chart, right? When the money printer cranks up, homes (and everything else) get more expensive.

Inflation will start another ugly, destructive run.

Do we really want to see that again?

It’s about more than home prices

Really, we’re near that same situation again. As we discussed previously, the U.S. housing market is struggling.

And the housing market is one of the big drivers of the overall U.S. economy. For most American families, their home is their single biggest asset. Home sales and related activities (construction, insurance, mortgage & realtors) are nearly 17% of the national GDP. 

So, a sluggish home buying market drags down the economy. Which means we’re facing a future where:

1. Home prices slowly decline back to rational levels – with all the attendant loss of equity and other problems you probably remember from 2007-08
2. The federal government tries to fix the problem – through price controls, “generous” cash handouts to homebuyers or some equally misguided combination of the two

The first would be pretty awful – if you remember the Great Financial Crisis, you already have a pretty good idea of how such an economic calamity plays out.

The second would be just as awful, setting off a new round of bureaucratic intervention into free markets. And inflation – let’s not forget the consequences of handing $25,000 or more to every first-time homebuyer.

The government cannot create wealth! They can, however, borrow and print more dollars (and hand it out to whoever they want) – which lowers the purchasing power of every other dollar in existence.

As our friend Ron Paul has written before, “There’s only one possible cause of inflation in the U.S. and that is our government.”

And when politicians and bureaucrats who either don’t understand or simply don’t care about basic economic facts are in charge? Who have absolutely no incentive to reduce government spending? Whose solution to the problem of inflationary price surges is to pour more fuel on the fire?

Put your finances on a firm foundation

When I see a slow-motion economic crisis like this unfolding so clearly right before my eyes, it’s easy to feel despair. 

When you’ve worked in finance for as long as I have, and you see the same people making the same mistakes all over again? When you know exactly where those same mistakes will lead, because you lived through it already? 

Instead of giving up hope, I write these columns. I do my very best to point out the smoke and tell you where the exit is. But I can’t carry you out the door – that’s a decision you have to make for yourself.

While you’re pondering your options, let me share a graphic that I shamelessly copied from a LinkedIn post earlier this year:

There’s one thing you can do right now to protect yourself and your family from the consequences of this unfolding crisis. Whether it’s “just” another collapsing bubble, or a government-led parade into inflationary hell.

I can’t solve the housing affordability crisis. I can’t explain basic economics to Kamala Harris and make her care about the consequences of the socialist interventions she’s spitballing. What I can do is make absolutely certain that me and my family will be okay, no matter what.

Give your personal finances a firm foundation with inflation-resistant investments with intrinsic value that can’t be debased, devalued or inflated away.

Diversify your savings with physical gold in a tax-advantaged precious metal IRA for a stable foundation you can securely build the rest of your life on.

This article was originally published here

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