More on the Affordability Crisis and the Midterms

Yesterday I tried to make the case that, like it or not, everyone now agrees the political playing field for the coming midterms is going to be about affordability. You can see it almost everywhere you look. It’s the point behind Democrats shutting down the government and the reason Zohran Mamdani won the mayoral election in New York City despite having no experience doing much of anything. He talked a good game and that was enough for a lot of people.

Since the election last week, President Trump and his economic team do seem to be pivoting to affordability as a central issue. Again today, Kevin Hassett, director of the National Economic Council was out making the case that the White House is focused on it.

Kevin Hassett, director of the National Economic Council, said on Thursday that the government shutdown cost $14 billion per week, or as much as 1.5 percent of gross domestic product. He also estimated that 60,000 non-federal workers lost their jobs because of the economic impact of the shutdown.

Speaking outside the White House, Hassett said that the Trump administration is focusing intensely on affordability, adding that the decline in purchasing power that Americans have experienced in recent years is “something that we’re going to fix, and we’re going to fix it right away.”

The focus is good but the problem is that some of the biggest problems that factor into affordability can’t be fixed right away. For instance, the biggest part of most American’s budget every month is housing. Fewer people feel able to buy a home these days because the average price of a home is so high. For obvious reasons, this is especially hurting young people.

Americans are waiting longer than ever to get into their first home. Many of them are held back by high interest rates, rising home prices and salaries that are barely keeping up with the cost of living. The median age for first-time homebuyers hit 40, according to a report from the National Association of Realtors. That’s up from 38 in the prior year, and it’s the highest since the group began keeping records in 1981. First-time buyers also accounted for 21% of all buyers, which the association said is a “historic low.”

Rising costs of everything from rent and child care make it difficult for would-be buyers to save up for a home, said Jessica Lautz, vice president of research at the National Association of Realtors. Many younger people are also weighed down by expenses such as student loan debt, credit cards and car payments.

“We’re continuing to see home prices grow, and with home price growth, we’re also seeing interest rates at a higher level, as well,” she said. “So, the overall housing affordability is difficult for a buyer to come in.”

The median home price was more than $415,000 in September, according to the National Association of Realtors, up 2.3% from last year. Data from the group shows that prices for existing homes have jumped more than 33% nationwide since 2020.

“Because of interest rates being high, it’s caused a lot of homebuyers, who are your younger homebuyers, not to be able to afford places, just because the prices have been so high,” said Jeff Lichtenstein, a broker and president of Echo Fine Properties in Palm Beach Gardens, Florida.

If you’re in your 20s and just starting out, there’s no way you can afford a home that costs $415,000, especially not with today’s interest rates. This is a big part of the affordability problem people want fixed.

Detouring back to Mamdani for a moment, he offered a terrible solution to this problem: rent freezes. That solution appeals to people because it can be done right away, but it does nothing about the underlying problem which is one of supply and demand. In order to bring prices down, you need either less demand (which could happen if enough people flee the city) or more supply.

Getting back to the Trump administration, an actual fix for this problem would be to do something about the short supply. But homes obviously take time to build. Big apartment buildings even more so. So the idea that this problem can be fixed quickly seems unlikely.

Alternatively, monthly payments on new home purchases would go down if interest rates continued to drop, but as we’ve all seen this year, that’s not something the President has control over. He can badmouth the Fed chairman all he wants but he can’t set lower rates.

And there are other problems. Democrats didn’t focus on health care costs in the shutdown by accident. They correctly identified that this was an issue people are worried about. The Trump administration doesn’t want to a) give in to the hostage takers or b) prop up Obamacare, but behind the scenes there is agreement that something needs to be done. This story was published today.

President Donald Trump’s Domestic Policy Council and senior health officials have been meeting privately for preliminary conversations on how to address the expiration of health insurance tax credits, according to a White House official and another person familiar with the talks.

Conversations about a White House alternative to Affordable Care Act subsidies, which will expire at year’s end, are in the “early ideation phase,” said a third person familiar with the talks. Like others, these people were granted anonymity to discuss private conversations. Options that administration officials have publicly teased in recent days include giving money directly to Americans to cover health expenses and subsidizing out-of-pocket costs for low-income people enrolled in the ACA…

“It’s all eyes on the midterms. If it makes sense for the midterms, then it’s moving,” the person said.

This shows that the White House has taken a lesson from last week’s elections. Affordability is the key to winning and the midterms are in the balance. If they can make progress on some of these issues a blue wave can still be avoided. But given the scale of these problems, a year is not a lot of time to show progress. That’s especially the case because it will take us some time just to crawl out of the hole the Schumer shutdown put us in.

U.S. consumer sentiment slumped to near a 3-1/2-year low in early November as households across the political spectrum worried about the economic fallout from the longest government shutdown in history, which has caused disruptions ranging from food benefit payments to grounded flights.

Still, the University of Michigan’s Surveys of Consumers on Friday confirmed what economists describe as a K-shaped economy, where the higher-income households are doing well and lower-income consumers are struggling. Sentiment increased among consumers with large stock holdings, which the University of Michigan attributed to “continued strength in stock markets.”…

The decline in sentiment occurred among consumers who described themselves as Democrats, Republicans and independents and was spread across all age and income groups, with the exception of those with the largest tercile of stock holdings.

In short, the top third of consumers are feeling good but everyone else is feeling pretty worried about the economy. There’s more to say but for now I’ll wrap this up with Kevin Hassett talking about affordability on Fox News today.