The economy is going great, except for one huge problem

Amid a recent spate of data showing the economy humming along smoothly, one sector has consistently stayed out of whack and it’s a big one: housing.

On Thursday, a report from the Bureau of Economic Analysis showed rising housing costs have helped core inflation run higher than the Federal Reserve’s target 2% annual rate. A drop-off in homebuilding in the third quarter was a drag on the economy’s overall growth rate, according to a report from the bureau on the Gross Domestic Product Wednesday. Earlier in the month, data showed homebuilding languished and sales of existing houses skidded to their lowest in more than a decade in September.

The beleaguered housing market is a stark contrast to other important pillars of the economy, which are running relatively smoothly: the job market is holding on to an extended winning streak, consumers are spending freely, and inflation is falling.

At the heart of the problem is the fact that high prices and high mortgage rates have pushed the cost of buying a house out of reach for people with typical incomes who previously could afford the payments. A mortgage payment on the typical newly bought home would take up 42% of a household’s median income in August, up from 29% in January 2020, according to a housing affordability monitor created by the Federal Reserve Bank of Atlanta.

 

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