An Affordability Crisis (EP.196)

Episode Summary

Executive Summary: Animal Spirits covered housing affordability in the context of low rates, remote work, and shifting home demand; debated the true cost of housing after adjusting for rates, inflation, and home quality; discussed the child tax credit, MMT/fiscal policy, ETF flows, Treasury issuance, and market valuations; and ended with cultural recommendations and a broader theme that life, work, and investing choices are changing fast.

Main Topics: Housing affordability vs. affordability optics (Priority: 5/5): The hosts debated whether housing is truly more unaffordable or whether higher prices are partly offset by much lower mortgage rates, better housing quality, and inflation-adjusted income gains. They also noted that affordability varies widely by geography and work flexibility. Remote work and migration effects on housing (Priority: 5/5): They argued that remote work is reshaping demand by letting workers leave expensive metro areas, which may help explain elevated prices in places like Boise and lower relative affordability pressure in cities with less demand. The child tax credit and fiscal policy (Priority: 4/5): They explained the mechanics of the expanded child tax credit, who qualifies, and how it fits into the broader shift toward fiscal policy and away from overreliance on the Fed. MMT, inflation, and the role of government spending (Priority: 4/5): Ben discussed Stephanie Kelton’s MMT framing, emphasizing that taxes and spending should be evaluated through inflation constraints rather than arbitrary budget limits, and that fiscal policy can help households more directly than monetary policy. Wall Street culture and junior banker burnout (Priority: 4/5): The episode covered Goldman Sachs junior bankers’ complaints about crushing hours and declining health, contrasting the prestige of investment banking with newer alternatives in tech and questioning why people still accept these conditions. Markets: ETFs, fixed income, valuations, and Ray Dalio (Priority: 4/5): They reviewed record ETF inflows, massive 2020 fixed-income issuance, high Treasury debt levels, foreign ownership trends, and why valuation models are harder to interpret in a low-rate, intangible-asset-heavy economy. Recommendations and media talk (Priority: 2/5): The hosts briefly discussed movies, books, podcasts, and TV, including Dazed and Confused, Before Sunrise, Operation Varsity Blues, and a book on calorie intake survey errors.

Key Arguments: Housing is more nuanced than headline price growth suggests because monthly mortgage payments are heavily influenced by interest rates, down payments, taxes, and inflation-adjusted income. Remote work may permanently alter housing demand by enabling people to relocate from expensive metros to cheaper, more desirable areas. Home quality has improved materially since the 1970s, so a simple comparison of raw prices across decades understates the value buyers receive today. The child tax credit is a meaningful benefit for lower- and middle-income households, but the phaseout creates sharp cutoff frustrations. Fiscal policy should be used more directly because the Fed’s tools mostly boost asset prices and liquidity rather than helping ordinary households. MMT is often caricatured; Kelton’s actual argument is more about inflation constraints than unlimited spending. Junior bankers’ complaints at Goldman reflect a longstanding industry model that may become less tolerable for younger workers with more options. ETF inflows and the rise of passive investing reflect a structural shift away from active management, likely accelerated by the pandemic and by retail self-directed investing. Government debt issuance creates assets for investors; high issuance alone does not mean the bond market must break immediately. Valuations remain difficult to judge because interest rates, accounting, buybacks, globalization, and intangibles have changed the framework for pricing assets. Some research and model-driven forecasts, such as ARK’s Tesla targets, can be directionally interesting but still invite skepticism when the ranges seem extreme.

Data Points: Fed monthly money printing: $120 billion per month - Sponsored ad opening about inflation protection and real assets. Fed projected printing over two years: $2.9 trillion - Sponsored ad opening. Fiscal stimulus spending: $1.9 trillion - Opening ad framing inflation concerns. Potential infrastructure spending: $2 trillion to $3 trillion - Opening ad framing inflation concerns. Art as an asset class: $1.7 trillion - Opening ad discussing Masterworks. Art outperformance vs. S&P 500: 172% from 2000 to 2020 - Opening ad about art investing. Ultra high net worth collectors: 84% - Opening ad claiming most UHNW individuals collect art. Markets analyzed for mortgage affordability: 40 local markets - RBC-based affordability discussion. Markets above long-term affordability average: 32 of 40 - RBC-based affordability discussion. Median home price increase since 1989: 240% - Ben’s housing analysis using YCharts data. Median single-family home price in 1989: under $100,000 - Ben’s housing analysis. Median single-family home price today: about $308,000 - Ben’s housing analysis. Home price increase since 2013: 26% - Ben’s housing analysis. 30-year mortgage rate in 1989: 10% - Ben’s housing analysis. 30-year mortgage rate now: 3% - Ben’s housing analysis. Monthly mortgage payment increase since 1989: 50% higher - Rate-adjusted home payment comparison. Inflation- and rate-adjusted monthly mortgage payment change since 1989: 30% lower - Ben’s adjusted housing affordability analysis. Nominal median family income increase since 1989: 151% - Context for housing affordability and wage growth. Real median family income increase since 1989: 26% - Context for housing affordability and wage growth. Homes with no air conditioning in 1973: 49% - Comparison of housing quality over time. Homes with 1.5 bathrooms or fewer in 1973: 40% - Comparison of housing quality over time. Average household size then vs. now: 3 people vs. 2.5 people - Census-based housing comparison. Average home size then vs. now: 1,500 sq. ft. vs. 2,500 sq. ft. - Census-based housing comparison. Goldman first-year analysts' mental health score: 8.8 to 2.8 - CNBC report on banker burnout. Goldman first-year analysts' physical health score: 9 to 2.3 - CNBC report on banker burnout. Junior realtors' median gross income in 2019: $8,900 - WSJ discussion about how hard it is to succeed in real estate. Experienced realtors' median income: $49,000 - WSJ discussion about realtor economics. Home sales vs realtors: More real estate agents than home sales in January - WSJ statistic cited by the hosts. Homes for sale: about 1 million - WSJ statistic cited by the hosts. Real estate community members: almost 1.5 million - WSJ statistic cited by the hosts. Child tax credit income thresholds: $75,000 single / $150,000 married filing jointly - Explanation of the new credit phaseout. Pre-existing child tax credit threshold: $200,000 single / $400,000 married filing jointly - Comparison with prior rules. Additional child tax credit amount: $1,000 for ages 6-17; $1,600 under age 6 - Explanation of the expanded credit. Top 1.8% taxpayer threshold: $400,000+ income - Discussion of who counts as wealthy. Tax increase for $400k-$700k earners: about 1% or less - Quoted from Center for American Progress fellow. ETF flows: On pace to double prior Q1 record set in 2017 - Discussion of ETF inflows. U.S. debt assets: over $75 trillion - Ray Dalio quote on debt markets. Foreign holder share of U.S. Treasuries: from above 40% to below 30% - Chart discussed in relation to Treasury ownership. Adult calorie intake underreporting: 29% on average - From the book Burn and related survey critique. Tesla share price at 2018 bubble call: $50 split-adjusted - Discussion of Rob Arnott/VCM on Tesla. Tesla share price at time of transcript: about $675 - Used to illustrate the challenge of calling bubbles. Tesla 2025 Ark bear case market cap: $1.4 trillion - Discussion of Ark’s Tesla projections.

Pivotal Quotes: "it appears almost inevitable that we'll hit an affordability-induced indigestion period" — RBC analyst (quoted by hosts): Used to frame the housing affordability debate. "The sharp yearly increases in account balances we experienced during our working years gave her life some sense of momentum that had been since lost since we stopped receiving paychecks." — Quoted from a FIRE-retirement article: Illustrates the psychological tradeoffs of early retirement. "we have asked central banks for too long to do too much" — Stephanie Kelton (as summarized by Ben): Core MMT/fiscal-policy argument discussed on the show.

Implications: Listeners should think about housing, careers, and portfolios in relative rather than absolute terms: rates, flexibility, taxes, and lifestyle matter. The episode suggests fiscal policy and remote work may reshape markets and mobility, while overconfidence in models and benchmarks remains a recurring risk.