America is Headed for a Market Crash. Washington Deserves the Blame | Opinion
Predicting economic booms and busts is often an exercise in futility. Back in the fall of 2019, when the U.S. economy was flying high, who could have foreseen the economic crisis, government lockdowns and fear caused by the COVID-19 pandemic?
There are, however, several key indicators that have reliably warned us when the economy is about to experience a large crisis—and one of the most important just flashed red for the first time in decades.
According to data from U.S. Department of Housing and Urban Development (HUD), the median sales price for houses sold in the United States in the second quarter of 2021 was $374,900, the highest figure ever recorded and a 4.51 percent increase compared to the final quarter of 2020.
At the end of the second quarter of 2020, just one year ago, the median sales price was $322,600. That means the median sales price increased by a whopping $52,300 in only 12 months, a 16 percent increase.
According to HUD data, the last time housing prices increased by 16 percent or more in a single year was in 1987, 34 years ago.
Of course, higher housing prices can often be a positive indicator, reflecting strong economic growth. But when housing prices are increasing as rapidly as they are now, it's typically a sign of severe distortions in the financial system, stock market and/or wider economy.
This doesn't always mean a full-blown recession is right around the corner, but it does typically indicate that, at the very least, a correction is necessary.
Consider the three other times in recent history when housing prices increased at rates similar to today's.
The most important historical example is the 1973–74 crash. That period was marked by high inflation that touched almost every part of the U.S. economy, a problem America is once again facing.
In 1973, median housing prices increased by more than 16 percent over a 12-month period. From the start of 1973 to the end of 1974, the stock market plummeted by 46 percent. Unemployment soared, reaching 8.5 percent in May 1975.
A decade later, in late 1987, the median sales price for houses sold had increased by more than 17 percent from the previous year. During that same period, the stock market experienced one of its largest crashes in history, dropping 22 percent in one day. Housing sales soon went into a steep decline that didn't fully recover until the 1990s.
From the end of 2001 to the first quarter of 2007, housing prices rocketed upward, fueled in large part by loose Federal Reserve monetary policies, regulatory changes and risky lending practices by financial institutions—all of which are concerns again today.
From 2001 to the first quarter of 2007, the median housing sales price increased by $86,300, a 50 percent gain. Housing prices then began to drop at an alarming rate, triggering one of the worst financial crises and stock market crashes since the Great Depression.
One might be tempted to think that today's rapidly rising housing prices are simply bouncing back from the coronavirus and the lockdown-fueled economic crash that occurred in 2020. The data indicate otherwise.
Spurred by huge amounts of money-printing and stimulus programs from the federal government, housing prices increased throughout 2020. They never experienced a large drop that could explain why we're seeing prices shoot up in 2021.
The primary cause of rising housing prices is not a mystery. Since the start of the coronavirus pandemic, the Federal Reserve and federal government have kept interest rates at rock-bottom levels, created trillions of new dollars and encouraged financial institutions to make riskier loans as a way to keep the economy afloat. The Fed and national government have never before created this much money in such a short period.
These policies have resulted in rampant economic distortions across a variety of important industries. These distortions have made homes and everyday goods and services more expensive than ever.
No other explanation can account for the unprecedented housing price increases, stock market gains and large profits for multinational corporations—all of which occurred in the midst of government-enforced lockdowns while millions of people lost employment.
The Federal Reserve, Congress and the Trump and Biden administrations created a large economic bubble, one that history tells us must pop, although no one knows exactly how or when.
And the worst part is, rather than return to fiscal sanity, the Biden administration and congressional Democrats are doing everything in their power to spend trillions of dollars more on new government programs, infrastructure projects, stimulus packages and tax breaks.
The U.S. economy is treading on extremely dangerous ground. It's time for American families to prepare for the worst.
Justin Haskins is the director of the Stopping Socialism Project at The Heartland Institute, where he also serves as a research fellow and editorial director.
The views expressed in this article are the writer's own.
