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Generally house prices are a ~somewhat decent proxy for asset inflation which is driven by monetary policy; I believe the low rates have definitely driven infla

Generally house prices are a ~somewhat decent proxy for asset inflation which is driven by monetary policy; I believe the low rates have definitely driven inflation in housing prices (and the gamma squeeze argument above does not apply to the housing market). Part of the reason we've had an insane housing market valuation growth over the last ~40 years is that cost of capital has gone down from ~15% to 2.5% over that time frame. If rates were near the historical average right now, you would see very different asset prices.

arcticbull 6y ago
Housing prices on an inflation adjusted dollars per square foot basis are the exact same now, on average, as they were in the 1970s across the US. [1] A few things have changed. One is in choice few major metros, like SF, city councils abjectly refuse to allow new construction taller than existing construction to the benefit of landowners. This artificial supply constraint is pretty much solely responsible for the massive increase in pricing in these metros. The other thing that’s changed is minimum setback rules, minimum sizing rules, and various other council ordinances - in addition to what Americans consider a suitable home for their living situation. As such new homes are on average twice as big now as they were in the 1970s. Make no mistake though the average price per square foot for a home in the United States has tracked inflation almost precisely for the last 50 years. This is purely supply, demand and artificial constraints - not monetary policy. Compare to Tokyo where housing downtown is a few hundred thousand dollars. I suspect if interest rates were lower you’d see smaller houses, not cheaper ones - that’s what happened there! [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/amp https://fee.org/articles/new-homes-today-have-twice-the-squa...

arcticbull 6y ago

Housing prices on an inflation adjusted dollars per square foot basis are the exact same now, on average, as they were in the 1970s across the US. [1] A few things have changed. One is in choice few major metros, like SF, city councils abjectly refuse to allow new construction taller than existing construction to the benefit of landowners. This artificial supply constraint is pretty much solely responsible for the massive increase in pricing in these metros. The other thing that’s changed is minimum setback rules, minimum sizing rules, and various other council ordinances - in addition to what Americans consider a suitable home for their living situation. As such new homes are on average twice as big now as they were in the 1970s. Make no mistake though the average price per square foot for a home in the United States has tracked inflation almost precisely for the last 50 years. This is purely supply, demand and artificial constraints - not monetary policy. Compare to Tokyo where housing downtown is a few hundred thousand dollars. I suspect if interest rates were lower you’d see smaller houses, not cheaper ones - that’s what happened there! [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/amp https://fee.org/articles/new-homes-today-have-twice-the-squa...