Usually inflation occurs when demand is greater than supply and there's so much optimism, spending, over-construction, speculation and access to capital, that the best solution is to make borrowing more expensive to cool such demand, lower inflation in the hopes of preventing an overheating of the economy and a financial implosion.

We experienced a recession of sorts in 2020 with US GDP down an earth-shattering 28% as the US and world basically shut down for COVID. That was followed by 38.3% growth in the third quarter of 2020 and 6.1% in the fourth quarter with this dramatic surge of demand in mid 2020 extending well into 2021 and 2022. The FED tends to look backwards for data, and did not register this GDP growth and its impact on pricing.

Rates stayed low, too long as the Fed was anticipating this was just a temporary blip. The Fed pumped money into the system as did the government. TRILLIONS of dollars in 2020 alone! Add in stay-at-home savings and lowered taxes from 2018, home prices SOARED in the 12 months between mid-2020 and mid-2021 and continued through 2022.

All along there was one thing missing from this massive recession and growth spurt. Usually these moments include a massive oversupply of real estate, homes. This time the exact opposite was true. Worse, with the notably increased demand for homes in areas that people were moving to that could not be met by supply, we saw what is akin to extreme home inflation with home prices soaring in some of these areas.

This fueled inflation in other parts of those local economies. Which fueled inflation around the entire US. So while inflation pushed prices up, up, up, what followed may have made things even worse: higher rates. The only real estate sector that was over-supplied was the office sector, triggered by the pandemic leading to work-from-home and that is in the midst of a deep recession and correction, mostly in larger cities. This was not the traditional market overheating as it relates to home over building at all!

Higher rates are not the solution to housing affordability and supply. Neither are tariffs. Neither are attacking real estate agent commissions. We all know the REAL solutions by now. We ignore these realities at our own peril. (Yet, I see glimmers of hope that more supply will arrive).