Despite the recession, total U.S. personal income was $500 billion HIGHER in August than in March due to the $4 trillion in federal Covid relief grants and loans that went to businesses, individuals, and governments.

Did you know that real disposable personal income in the U.S. actually increased because of the federal response to the pandemic? I didn’t. It sure helps explain the skyrocketing house prices.

I was blaming the sharp house price increases on the Fed’s lower interest rates and, secondarily, on people wanting larger houses indoors and out. But I was still puzzled. This third factor seems hugely important to me.

Obviously, if you worked in tourism, hospitality or travel, you’re hurting. But that increase in U.S. disposable personal income is going somewhere, and that, no doubt, explains some of the increase in the demand for houses.

I learned about this yesterday from this interview of David Rosenberg. He’s a bit of a permabear but I think he makes a great point.

Personal Income vs. GDP

View graph on FRED.

You can see on the graph that GDP tanked due to Covid but personal income skyrocketed at the same time due to the government response. Although falling fast, personal income is still a lot higher than it was before Covid.

We’ll get GDP numbers for the 3rd quarter at the end of October. Many expect to see large increases in GDP growth for the 3rd quarter. That will be important because, as you can see, the impact of Covid relief programs on personal income is fading.

Personal Income vs. Unemployment

View graph on FRED.

Here’s another view of the effect. Unemployment skyrocketed but so did personal income.

Real Estate Mania Factors

The way I’m looking at the housing market is that we have 3 big factors driving the market.

1. Lower Interest Rates

Changes in interest rates have an impact for a long, long time. I’ve seen studies that say the impact can last 3 years. Let’s say lower rates have a diminishing impact over at least 2 years. That’s a tailwind for house sales and price until 2022.

What I don’t know, exactly, is how fast lower interest rates will be capitalized into higher house prices and how fast the impact of lower interest rates fades over those 2-3 years.

2. Changes in Housing Demand

The longer it lasts, the longer Covid will be changing what people want in a house. It seems work-from-home has already become a lot more deeply ingrained into the system.

Certainly, the suburbs of big cities will see more demand – if you only have to commute into work 2 or 3 times a week, living further away from work is fine. In addition, more jobs will be full-time work-from-home so those folks can live pretty much anywhere.

What I don’t exactly know is how strong this change in housing demand will be and how it will play out. We know the general direction but we don’t know how far it will go.

Overall, this factor will probably have the longest impact on housing demand.

3. Impact of Covid Relief

If the increase in personal income has had a big impact on the housing mania, that opens up a whole new area of uncertainty. You have to predict political responses… arghh. You have to predict how the impacts of the earlier programs fade over time.

Overall, this factor will probably have the shortest impact on housing demand which, if true, would make it the most important factor to watch.

Real Monthly Mortgage Payment Price

Here’s the graph again from last week that’s from my national market website, Real Estate Decoded. It’s shows there’s room for house prices to increase.

Full-size, interactive version of graph.

For U.S. real estate market analysis,
go to Real Estate Decoded.

New Listings

Approaching 2019 numbers.

For Sale

Still crazy low.

Under Contract

Very high. Part of this is caused by overwhelmed title and mortgage systems which are taking longer to close but part of it is also because of a high number of closings.


September closed sales were running 10% to 30% higher for single-family houses than during the same weeks in 2019.

Tell me in the “Comments” what you think.

This information can vary a lot in different parts of metro Phoenix. Your real estate agent can find the data for your specific city or zip code at The Cromford Report.

Note. This post was written on October 11, 2020 but the graphs will be continually updated.

Comments ⬇️ ⬇️