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The Fading American Dream: How Federal Policies Shattered Homeownership Aspirations

The Fading American Dream: How Federal Policies Shattered Homeownership Aspirations

Dec 28, 2023

The Fading American Dream: How Federal Policies Shattered Homeownership Aspirations

In a recent deep-dive analysis by the financial newsletter FX Hedge, the current state of the American housing market has been laid bare, revealing a grim narrative in which the Federal Reserve, influenced by Congressional actions, plays the role of executioner to the once-vibrant American dream of homeownership.

The disquieting tale unfolds with President Lyndon B. Johnson's 1960s policy shift, transforming a house from a hard-earned milestone into a government-bestowed privilege for politically favored groups. Johnson's initial focus on funding apartment housing quickly escalated to single-family homes in impoverished neighborhoods, inadvertently driving up property values and rents, which displaced the very communities they were meant to help.

As inflation spiraled in the 1970s, a consequence of Vietnam War spending and the Great Society welfare program, the Fed's drastic rate hikes to nearly 20% further marginalized the poor. However, the Reagan administration's booming economy offered temporary relief, improving wages and making housing more accessible.

This period of relative stability was upended during George W. Bush's presidency, with a significant expansion of government housing subsidies and a push for loans to high-risk borrowers under the guise of diversity. The resulting concoction of complex financial products, like reverse amortization and interest-only mortgages, laid the groundwork for the catastrophic 2008 housing crash.

In response, the Fed slashed interest rates to near-zero levels for an extended period, inadvertently inflating house prices and widening the wealth gap, as existing homeowners benefited from increased property values while the younger and poorer populations were priced out.

The Trump era brought another brief economic revitalization before the COVID-19 pandemic triggered an $8 trillion government spending spree. This, coupled with lockdown-induced demand, led to a surge in inflation and house prices, while current 8% mortgage rates have left the market in stasis.

FX hedgers grimly prognosticate a future of "modern-day serfdom," where lower rates won't rectify the deep-rooted issues but will only sustain high home prices, stifling income growth and perpetuating economic disparities.

As this housing saga continues to unfold, the dream of homeownership slips further away for many, leaving us to wonder: will the narrative change, or is the American dream irrevocably broken?


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