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Soaring housing prices during pandemic may point to split economic recovery

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Posted at 2:04 PM, Feb 17, 2021
and last updated 2021-02-17 14:04:30-05

Housing prices have soared throughout the pandemic, pushing the wealth to income ratio to record highs and pointing to a strong economic recovery in 2021. For example, the price of a median single-family home is up almost 15% in less than 12 months.

“A typical homeowner in 2020, just by being a homeowner, they would have accumulated around $24,000 in housing wealth,” said Dr. Lawrence Yun, a senior economist at the National Association of Realtors.

Dr. Yun explained that the soaring home prices coupled with the stock market surge, also up almost 15% from its pre-pandemic level, both have created a historic highs in the average person’s wealth relative to their income.

“The average American in 2020, believe it or not, in the midst of a recession had higher income than in pre-pandemic conditions,” said Dr. Yun.

Americans have spent more time at home in the past year, saving money they would’ve otherwise spent on traveling or entertainment. So, in fact, "the average American” still working, with a home and/or invested in the markets has enjoyed a higher incomes and wealth.

However, at least 9 million Americans are still unemployed, and many are in forbearance on their mortgages. Some have had to divest out of their position in the stock market to survive after losing their jobs. So, the economic growth or recovery some are experiencing is simultaneous to a continued economic downturn for others.

“I think we have to keep in mind that one of the key features of this recovery is that it is K-shaped,” said Gregory Daco. "Some families are doing relatively well. Others are being left behind.”

Daco is the Chief U.S. Economist at Oxford Economics.

“I think we have to tend to those that are being left behind, with additional support and ongoing support,” he said.

Daco and other economists, even Dr. Yun, believe Congress’s next stimulus package should be keenly targeted to those still struggling. A careful and intentional effort to prop up millions of unemployed Americans would lead to a more equitable recovery and long-term, it avoids further increases in wealth gaps in the U.S.

Dr. Yun, though, sees the housing prices trend as an opportunity to also help with that. He explained that federal action to continue growth in the housing market could also help those currently not benefitting from the trend.

"It will create more U.S. jobs by building more homes, means more workers in local communities adding to the job creation,” said Dr. Yun. “We need to ramp up, and ways to ramp up is to bring Canadian lumber so material costs are manageable for builders.”

A shortage of materials, like lumber, has caused prices to skyrocket and slowed the pace of homebuilding. This week, the biggest U.S. homebuilders’ association began urging the Biden administration to reduce import tariffs on Canadian lumber as a way to increase the pace and create hundreds of thousands of jobs around the country.