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House prices in the United States have soared and consumers are paying more for manufactured goods and services-which means that inequality in the world’s largest economy is increasing.
The median house price in the United States is soaring, crowding out the needs of first-time home buyers, while low-income Americans are losing more family budgets due to rising house prices. This is how inequality has increased in the world’s largest economy revealed by the latest batch of data.
The National Association of Realtors (NAR) said on Thursday that in the three months ending in June, the median price of single-family homes reached a record high of $357,000. This is nearly 23% higher than the same period a year ago.
The real estate market is still a hotbed of economic activity this year, as aspiring buyers who want to take advantage of historically low mortgage rates find themselves in a tight market with few homes for sellers to give orders.
While this helps home sellers to accumulate wealth, it is clearly detrimental to renters who are trying to set foot on the housing ladder and increasingly find themselves excluded from the market.
Among first-time home buyers, mortgages requiring a 10% down payment accounted for 25% of their income in the second quarter, up from just over 21% a year ago.
“The housing affordability of first-time home buyers is weakening,” said Lawrence Yun, chief economist at NAR. “Unfortunately, the benefits of historically low interest rates have been overwhelmed by the rapid rise in housing prices, so higher income is needed to become a homeowner.”
As the US Federal Reserve has kept interest rates close to zero, and the economy—especially the job market—has recovered from the COVID-19 disruption last year, the real estate market has been hot for a year.
Another report released by the U.S. Department of Labor (DOL) on Thursday showed that new applications for unemployment benefits from states last week continued to show a downward trend to 375,000. This is the fourth consecutive week that the number of people claiming unemployment benefits (representing layoffs) has fallen. But it is still higher than the pre-pandemic average of about 220,000.
Although low interest rates can help heal the labor market, they can also increase inequality by raising the prices of assets such as houses and stocks.
Low borrowing costs also do not help control inflation-as companies operate on a large scale, inflation continues to rise, causing bottlenecks in raw materials and labor.
Another report released by the Labor Department on Thursday showed that the prices of finished products in July rose by 1% from the previous month.
Compared with a year ago, producer prices rose by 7.8% last month, the highest record since 2010.
Nearly three-quarters of the rise in producer prices in July was driven by demand for services due to rising coronavirus vaccination rates, the removal of COVID-19 restrictions, and consumers rediscovering their enthusiasm for consumption.
The higher-than-expected increases in the producer price index indicate that these increases are being passed on to consumers as companies pay more for raw materials and labor.
Excluding food and energy, which tend to fluctuate, the core producer price index rose 1% month-on-month and 6.2% year-on-year.
But the pain caused by rising prices has not been felt equally. Low-income households have a harder time absorbing price increases—especially for non-delayable basic purchases of food and energy—because it consumes a larger share of their income.
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