By Tim Courtney, Chief Investment Officer
However you measure it, the math hasn’t been working in favor of newer households.
The National Association of Home Builders found that 74.9% of U.S. households could not afford a median-priced new home in 2025.1 This can be attributed to the price of existing homes rising quickly since Covid, higher mortgage costs, the increasing price of construction materials, and rising rents.2
For those just starting in life and trying to form their own households, this has meant spending more time in rentals and having a greater percentage of their income devoted toward housing costs.
Policies have done little to help and sometimes have exacerbated this problem. Consider the Federal Reserve, which had the unenviable task of guiding our monetary and financial systems through an unprecedented economic shutdown.3 They have the responsibility for managing inflation, but also the responsibility to encourage full employment. These two tasks can often be at odds. In an effort to keep unemployment from ballooning post-Covid, they cut interest rates deeply and greatly increased our money supply.4
This was the equivalent of putting the pedal to the metal, and as it turned out, it was way too much gas. In the five years from March 2020 through March 2025, the M2 money supply increased 40% leading to home price increases of 50%.5 The money supply increased much faster than the housing supply over those years, so prices rose. Lower interest rates made borrowing easier, which also tends to drive prices higher, as borrowers could now afford to finance a larger home purchase.6 Increased government spending through stimulus, tax credits, and subsidies also contributed to inflation.7
The point of this is that we are continuously reminded that there is no free lunch. Creating more money without any change in productivity/supply simply means that prices increase. By the way, this applies to investments as well. The excess money that found its way into the housing market has also found its way into the stock market, driving the prices of the most popular companies much faster than their earnings growth.8
We would love to have policies that increase the prices of assets (such as homes and stocks) we already own, while keeping the prices of assets we will buy in the future at the same level or lower. But this is a tension – a free lunch we can’t have. We are in a situation where inflation remains elevated and many share prices remain elevated. Both of these are risks to investors, and as investors we should stay focused on what we can control by managing these risks in portfolios. If you have any questions, please reach out to your Exencial advisor.
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