The Fed Thinks Home Prices Rose Because Of Illegal Immigration

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A single boogeyman doesn’t exist. Politicians have spent money like drunken sailors and the national debt continues to grow towards the sky, which has eroded the dollar’s purchasing power and punished savers. That fact isn’t controversial. But plenty of other theories people have presented have been labeled as conspiracy theories by those trying to protect their narrative. One of those theories has been the rise in illegal immigration over the last few years has led to an increase in home prices. This is no longer a conspiracy theory though. The Federal Reserve of Dallas published an entire paper earlier this year titled “ The Impacts of Unauthorized Immigration on U.S. Labor and Housing Markets: New Evidence from Administrative Microdata .” The paper unsurprisingly finds the unprecedented surge in illegal immigration created higher home prices and rents. Fox Business explains the math : “A 1% increase in unauthorized workers relative to a local labor force corresponded with roughly a 1% increase in overall employment, with no evidence the immigration surge reduced average wages. The same 1% increase, however, was associated with a roughly 2.2% rise in home prices and a 1.4% increase in rents. Researchers found little evidence that homebuilding expanded enough to meet the added demand, concluding the influx acted as a housing demand shock in markets where supply was already constrained.” Some people may read nuanced analysis coming out of the Fed and conclude that these academics have no clue what they are talking about. I am not exactly the biggest fan of the Fed, so I would understand the skepticism. Thankfully, we are starting to see the impact of this trend reversed, which is giving us hard data on the potential positive impact on the housing market. Bloomberg’s Prashant Gopal and Tanaz Meghjani recently put together a great article titled “ H-1B Crackdown on Indian Workers Erodes a Texas Real Estate Boom ” where they write: “Visa holders flocked to the new subdivisions spreading north through the suburbs of Prosper, Frisco and, most of all, Celina, where the population more than tripled in just five years. That helped make Collin and Denton the fastest-growing US counties among those with a population of at least 1 million, the most recent census data show. Collin also had the biggest percentage jump in Indian residents among large counties, climbing to an average of more than 116,000 in the five years through 2024, from 70,000 in the preceding five years. But the momentum is quickly reversing. Indian buyers are disappearing from the market as federal and state governments tighten H-1B restrictions and many of the tech companies that employed the new arrivals fire workers in favor of artificial intelligence. Prices in the Collin County suburbs north of Dallas in February dropped almost 9% from a year earlier, compared with a decline of 4% in the metro area as a whole, according to data from brokerage Redfin. The shift has knocked down home prices, slowed population expansion and risks eroding the tax base needed to fund schools and roads planned during a five-year growth streak. The changes also take a personal toll on immigrants because many have lived in the US for years and have established families and communities. Those on H-1B visas who lose their jobs not only face financial hardship but also risk having to return to their home countries if they can’t get sponsored for another position within 60 days.” This anecdotal example hammers home the argument that widespread immigration, whether legal or illegal, has put persistent pressure on home prices. This is basic supply and demand from your Economics 101 class. Legal immigration is by definition legal. You may or may not agree with various visa programs, but that is a completely different debate. The obvious issue that should have bipartisan support is the prevention of illegal immigration, especially if we want to improve affordability in America. The reason I say it should have bipartisan support is because both Republicans and Democrats have been talking about the negative impact of illegal immigration for decades. You can turn on your TV and see Trump discussing it non-stop every day. You can also watch a clip like this one where President Obama was advocating for more ICE raids at people’s place of work to stamp down on illegal immigration . I was honestly shocked when I saw that clip because so much of the current political conversation has turned into partisan mud slinging. Economics doesn’t care about the blame game though. Supply and demand rules the world. And now the Fed is talking about the potential positive impact of new immigration policy on home prices and the braoder affordability crisis. My guess is that the taboo theories are going to find a home in the mainstream conversation. I know these topics can be sensitive and politically energized, but they are important to understand as investors trying to think about what happens next. If America becomes more affordable, not only is that good for American citizens but it will have a profound impact on our financial markets, political leaders, and sentiment across society. Hope everyone has a great day. I will talk to you next time. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) 🚨 BloFin: Built for Traders Who Want an Edge BloFin is a fast-growing cryptocurrency exchange built for serious crypto and TradFi traders. 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