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Sure, but high interest rates make money more expensive, meaning less people can afford less house. A factor that impacts people who need to borrow the most (t

Sure, but high interest rates make money more expensive, meaning less people can afford less house. A factor that impacts people who need to borrow the most (the non rich). So what's better, high asset prices or high borrowing costs? Something tells me they both even out painfully.

listenallyall 9y ago
Not true, as home prices key around monthly payment, so high rates put downward pressure on prices to keep the monthly payment relatively constant. When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment. The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else.
- mancerayder 9y ago
  Not true, as home prices key around monthly payment, so high rates put downward pressure on prices to keep the monthly payment relatively constant. When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment. That's just one factor. Another is this. When interests rates go up, the reason why price pressure is down in the first place is that fewer buyers can afford fewer houses; in other words, sales go down. This is already happening today (https://www.bloomberg.com/news/articles/2018-04-25/are-rising-mortgage-rates-a-threat-to-u-s-housing https://www.bloomberg.com/news/articles/2018-04-25/are-risin... <-- today's article). When sales go down, sure, there's downward price pressure. But by that time, contrary to what you seem to be suggesting, the little guy doesn't necessarily benefit (because borrowing costs can be out of reach). And worse: if they go down far enough, it could bring some people underwater, which as we saw from the last cycle disproportionately impacted the lower middle class. And even worse: any home equity line of credit that has a balance is going to be more expensive to pay back. The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else. Yes, the original article was about income inequality. And I've addressed these above, using different factors than the ones you've honed in on (capital concentration). I have news for you, capital concentration still leads to inequality during times of cheaper housing. You're making a mistake by thinking higher interest rates will make a big dent here: Blackstone and American Homes 4 Rent have sources of cash that you and I don't have (IPOs, bonds, to name some, I am sure there are many more).
  - listenallyall 9y ago
    In a capitalist system (that is not collapsing), income inequality will always trend upwards, high interest rates won't stop it. However, low interest rates accelerate the increase in inequality. Income inequality has expanded at an unprecedented pace in the past 10 years, during which, global interest rates have been the lowest they've ever been.

listenallyall 9y ago

Not true, as home prices key around monthly payment, so high rates put downward pressure on prices to keep the monthly payment relatively constant. When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment. The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else.

mancerayder 9y ago
Not true, as home prices key around monthly payment, so high rates put downward pressure on prices to keep the monthly payment relatively constant. When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment. That's just one factor. Another is this. When interests rates go up, the reason why price pressure is down in the first place is that fewer buyers can afford fewer houses; in other words, sales go down. This is already happening today (https://www.bloomberg.com/news/articles/2018-04-25/are-rising-mortgage-rates-a-threat-to-u-s-housing https://www.bloomberg.com/news/articles/2018-04-25/are-risin... <-- today's article). When sales go down, sure, there's downward price pressure. But by that time, contrary to what you seem to be suggesting, the little guy doesn't necessarily benefit (because borrowing costs can be out of reach). And worse: if they go down far enough, it could bring some people underwater, which as we saw from the last cycle disproportionately impacted the lower middle class. And even worse: any home equity line of credit that has a balance is going to be more expensive to pay back. The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else. Yes, the original article was about income inequality. And I've addressed these above, using different factors than the ones you've honed in on (capital concentration). I have news for you, capital concentration still leads to inequality during times of cheaper housing. You're making a mistake by thinking higher interest rates will make a big dent here: Blackstone and American Homes 4 Rent have sources of cash that you and I don't have (IPOs, bonds, to name some, I am sure there are many more).
- listenallyall 9y ago
  In a capitalist system (that is not collapsing), income inequality will always trend upwards, high interest rates won't stop it. However, low interest rates accelerate the increase in inequality. Income inequality has expanded at an unprecedented pace in the past 10 years, during which, global interest rates have been the lowest they've ever been.