I have identified four such impacts that could be highly consequential, and policymakers need to be well aware of them. What I have not seen broadly discussed is the impact such runaway prices will have more generally. And third, government policy-mainly in the form of record-low interest rates-made financing a home much cheaper, allowing buyers to bid up prices without proportionately increasing required monthly payments. families wanted more space to work from home, wealthier families accelerated the purchase of second homes, and so on). Second, the pandemic generated a major jump in the demand for housing (e.g. land use restrictions) and also construction labor and materials shortages, leading to a wholly inadequate supply of homes for sale. First, the pandemic began when the US already had a decade-long production shortage of new homes due to various forms of NIMBY (Not in My Backyard) at state and local levels (e.g. I see the biggest falling into three categories. The media and policy community have reported many reasons why this is happening. (With similar government policy responses to the pandemic in many developed countries, this unusually rapid rise in house prices unsurprisingly is happening overseas as well.) This has been particularly impactful in terms of house prices increasing so much, so fast. It shows how the pandemic, combined with the government’s response via unprecedentedly large budget expenditures and unprecedentedly loose monetary policy, has caused tremendous dislocation in the economy. In short, we are in the midst of what can reasonably be called runaway home prices, far beyond anything justified by the general rate of inflation (worrisome today at only about 5 percent) or household incomes (inflation-adjusted median household income went down in 2020 and is estimated to do so again this year). (If the most recent rate of increase-a very high 1.4 percent in just one month-continues, the two-year increase would actually be about 35 percent!) By the time we reach the second anniversary of the pandemic, given today’s momentum for more increases, a reasonable estimate is that prices may have climbed by at least 30 percent over those two years. This is the fastest increase since record-keeping began, including in the run-up to the bubble in 2007-8. It showed an astounding increase of 19.2 percent over the prior 12 months and that, in the 17 months since the pandemic began, the increase has been 22.5 percent. On September 28, the Federal Housing Finance Agency (FHFA), the regulator of Freddie Mac, Fannie Mae, and the Federal Home Loan Banks, reported its monthly index of house prices for July.
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