The situation of the average American is getting worse. The middle class is being hit hard by the rising cost of living.
While prices in general for consumers have risen by 35% over the last decade, car insurance rates have increased by 45% in the last 5 years.
Higher education is increasingly valued more highly. Over the past 40 years, tuition at US universities has risen by more than 700%, while general consumer prices (the US Consumer Price Index) have risen by 199%.
However, it is worst in the real estate market, which is becoming increasingly inaccessible for an ordinary citizen. As we can read from the chart below, the median household income in the US is 79 thousand dollars (blue line). The same median should be at least 123 thousand dollars (or 56% more – the orange line) for the average Americans to be able to afford to buy a house at an average market price. This was calculated on the condition that a US citizen can provide 30% of their annual income to repay the mortgage and cover the short-term obligations for the property they occupy. It is worth noting that the gap in question has widened very dynamically since 2020.
It is therefore not surprising that real estate prices have just recorded the second-highest year-on-year decline in the last ten years: -2.2% in May. This is mainly due to the growing oversupply. There are currently 1.9 million sellers compared to 1.4 million buyers. This is the biggest difference in the last twelve years.
In addition, HOA (Homeowners Association) fees, often associated with maintenance of common areas or infrastructure, are increasing, adding to owners’ monthly costs and deterring potential buyers. Insurance costs, such as those associated with increased risk of natural disasters (hurricanes, flooding), are also on the rise. Costs are also increased by additional, ever more expensive fees (e.g. for repairs to various facilities). An important point in the whole situation is the fact that potential buyers are finding it increasingly difficult to obtain a mortgage due to persistently high interest rates and increased caution on the part of banks. It is worth remembering that the USA currently has the most expensive loans in the last 15 years.
The above-mentioned phenomena are leading to lower real estate prices. In large cities, we are seeing discounts of ten to ten percent year-on-year. In Florida’s metropolitan areas, we can buy properties at a discount of more than 30%.
House prices will certainly not be helped by the fact that the conversion of offices into residential buildings or apartments is rising sharply. According to the chart below, this phenomenon is expected to gain momentum and really take off within two years. The last, highest blue column corresponds to the announced conversion projects to be implemented from 2027.
The process of converting offices into living spaces is being accelerated by the fact that the number of unused offices is increasing. This is due to the recession (which has been kept quiet and swept under the carpet) and the increasing popularity of telecommuting.
Add to this picture of the US economy the fact that unemployment is rising and it becomes clear why President Trump is increasing the pressure on the Fed to lower interest rates. But would cheaper credit really be a way out of this downward spiral?
