The West’s share of overall US population has flattened, and now appears to be falling. We believe relative housing affordability remains a key part of the story. Exhibit 7 shows a fairly close relationship between where a metropolitan statistical area (MSA’s) median mortgage payment in December 2023 stands compared to that of the overall US and the net change in population growth in that MSA over the last year, according to Bank of America internal data. Where an MSA has a relatively high median mortgage payment, its population growth has usually been negative or at best weakly positive. Looking at the MSAs in the Pacific states in the West (red squares in the exhibit), they all tend to have higher-than-average mortgage payments relative to the US. By contrast, in the southern Mountain states (yellow squares), mortgage payments are lower than the US average, so outward migration is potentially a reaction to housing costs.
- Date Posted:
- February 5, 2024
Figure 2 shows that inflation expectations rose just as much or even more than inflation itself during the two inflation waves in the 1970s. Higher inflation expectations fuelled inflation and made it more difficult to bring it down. The contrast with today’s inflation episode is striking. Today, inflation has also skyrocketed, to 8%. However, inflation expectations have remained anchored. At their peak at the end of 2022, inflation expectations were 3%, while inflation itself was at the aforementioned 8%. The fact that inflation expectations have remained low even though inflation has shot up is an important reason why inflation has fallen again. Moreover, the economy would probably have been even stronger and inflation even higher if there had been no rate hikes. Ultimately, this was not just a temporary supply-driven event. Central banks had to raise interest rates. Past experiences with alternative monetary policy responses have proved disastrous.