4 ms·

Governments printed so much money, everyone knows houses are a hedge against inflation. Its not that they're worth more, its like money is worth less.

UncleOxidant 5y ago
That and we haven't built enough houses to keep up with population growth. Not enough house building was done in the aftermath of the great recession.
willio58 5y ago
I guarantee the average home buyer does not know that houses are a hedge against inflation. There's a good chance the average home buyer doesn't even know what hedge means in that context.
- c7DJTLrn 5y ago
  BlackRock might skew the average there.
  - SomewhatLikely 5y ago
    https://awealthofcommonsense.com/2021/06/is-blackrock-buying-too-many-houses/ https://awealthofcommonsense.com/2021/06/is-blackrock-buying... BlackRock owns around $60 billion in real estate assets. The value of the housing market in the United States is more like $36 trillion.
    - Guest42 5y ago
      Given when they started, I imagine they’ve bid on a fairly high percentage of the sales in the last 5 years and had an impact on the prices and perceived value of the housing market.
- gedy 5y ago
  They know houses "always go up" and "a good investment", which is another way of saying the same thing.
  - throwawayboise 5y ago
    Anyone who was in the market in 2008 knows that houses don't always go up. Over the long term, it's a pretty safe bet that they do, but it's not always a smooth ride. And there are still neighborhoods that are in decline. Opportunity to get in before they gentrify? Maybe, but it's a gamble.
- EpicEng 5y ago
  Yet, how does the fed fight inflation? By raising rates, i.e., home prices will be dropping. By how much, no idea, but sure reeks of bubble territory. Of course the loan itself is worth less to the bank during inflationary times. You make more money, your payment stays the same, and real estate prices will rise somewhat, but it's not as simple as you make it seem. I'd be worried if I were planning to sell within the next few years.
- jollybean 5y ago
  I don't think they know what 'hedge' means, but they understand the concept that the value of the money may be going down. That said, it's probably not a driving sentiment, rather, just the basic overall impetus of inflation and low rates. It could be that there are whispers of increasing rates and everyone is looking to lock in. That said, in around 2006, this was the feeling as well. The major crash. And as soon as things were getting frothy again - COVID and major turmoil. Finally, it should be noted, that there are external factors driving inflation, if even some of it is temporary, which is cost of transport, and supply chain issues in China, and of course, tarriffs. That said, Fed probably needs to raise rates.
- mortenjorck 5y ago
  The average homebuyer is also only putting 5.3% down [1], so even if they know what hedging is, they’re not exactly moving significant amounts of capital around. [1] https://www.housingwire.com/articles/49443-the-average-down-payment-is-much-smaller-than-you-think/ https://www.housingwire.com/articles/49443-the-average-down-...
paulpauper 5y ago
hmm I don't recall QE and trillion-dollar stimulus being a 'thing' in 2004-2006. Or the 80s and 90s. The fed began to raise interest rates a lot in 2004 but the housing boom continued for 2 years later. I think it just comes down to shortages and speculation.
- cm2187 5y ago
  The OP didn’t claim that houses prices only ever go up thanks to money printing. But with the amount of money being printed all asset prices go up, it’s almost mechanical. And we have done more money printing in the last 18m than in 10y of response to the 2008 recession.
harryf 5y ago
Here’s why the prices are going up https://youtu.be/4c-QvcHeNMw https://youtu.be/4c-QvcHeNMw - institutional buyers…
1helloworld1 5y ago
Money is just one factor. I can think of tons of other factors - low interest rates, relatively rich city people moving from smaller apartments to houses to escape Covid, low supply because of construction halts during Covid, high price of lumber (which is slowly coming down).
epistasis 5y ago
House prices are going up because there aren't enough of them. They're only a good hedge against inflation if there aren't enough of them. All the other stuff, like low interest rates in mortgages, just accelerates the underlying cause of the price jumps.
- r00fus 5y ago
  The problem with this logic is that there is literally infinite demand assuming the following premises: 1) Real-estate is a long-term positive return investment 2) The USG will do anything in it's power to keep that premise #1 valid (QE, low/negative interest rates, etc) 3) You can use real-estate equity as part of leverage to buy more real-estate. 4) Foreign investment is allowed, so the system isn't a closed loop It's a bubble and will keep inflating until it pops.
  - matmatmatmat 5y ago
    Also, there will always be limited supply. COVID-19 and remote work changed that a little bit, but there's other reasons people want to live close to population centers: Restaurants, entertainment, shopping, schools, and friends, to name a few. Most people will always want to live not very far (but not too close!) to some group of other people.
  - epistasis 5y ago
    All this is premised on a housing shortage. Without that housing shortage, there is no long-term positive return on investment. There is not infinite demand even when housing is a guaranteed positive investment, because there's limited money and capital. We have let people think that housing is always a positive return investment, instead of a bank account. And to do that, we have limited home building in the in-demand areas. The actual way this is enforced is by home owners restricting development in their neighborhoods, a trend that is likely to continue. Read the prospectus' of the private equity investments in residential housing and you'll see they are saying the same thing.
- IkmoIkmo 5y ago
  > House prices are going up because there aren't enough of them. It's an interesting premise, I'd love to see more data on this. It's a very common claim but at least on a macro level there's a lot of indicators that would make me assume otherwise. Typically if there isn't enough, you'd expect that the general trend has been that the availability per person is decreasing over time. Availability can be measured in a few ways: - Number of persons per home - Number of square feet per home Ceteris paribus, if either are going respectively down and up, you'd see increasing availability and would assume decreasing scarcity. The number of persons per home has been decreasing for 150 years, and dropped from 3.4 to 2.5 (-30%) in the past 60 years. The number of square feet per home has more than doubled in that time. In other words, we have 30% fewer people and 100% more space. The square foot per person has increased by 270% in the past 60 years. Of course you can still not have enough if demand has grown much faster. But instead I think there's good indications (and plenty of studies) that price increases are mostly being driven by low interest rates and a culture around seeing homes as a speculative asset instead of just a home that happens to have some of your capital locked up in it. [0] https://fee.org/media/15199/housing1.png?width=600&height=386.0517435320585 https://fee.org/media/15199/housing1.png?width=600&height=38...

UncleOxidant 5y ago

That and we haven't built enough houses to keep up with population growth. Not enough house building was done in the aftermath of the great recession.

willio58 5y ago

I guarantee the average home buyer does not know that houses are a hedge against inflation. There's a good chance the average home buyer doesn't even know what hedge means in that context.

c7DJTLrn 5y ago
BlackRock might skew the average there.
- SomewhatLikely 5y ago
  https://awealthofcommonsense.com/2021/06/is-blackrock-buying-too-many-houses/ https://awealthofcommonsense.com/2021/06/is-blackrock-buying... BlackRock owns around $60 billion in real estate assets. The value of the housing market in the United States is more like $36 trillion.
  - Guest42 5y ago
    Given when they started, I imagine they’ve bid on a fairly high percentage of the sales in the last 5 years and had an impact on the prices and perceived value of the housing market.
gedy 5y ago
They know houses "always go up" and "a good investment", which is another way of saying the same thing.
- throwawayboise 5y ago
  Anyone who was in the market in 2008 knows that houses don't always go up. Over the long term, it's a pretty safe bet that they do, but it's not always a smooth ride. And there are still neighborhoods that are in decline. Opportunity to get in before they gentrify? Maybe, but it's a gamble.
EpicEng 5y ago
Yet, how does the fed fight inflation? By raising rates, i.e., home prices will be dropping. By how much, no idea, but sure reeks of bubble territory. Of course the loan itself is worth less to the bank during inflationary times. You make more money, your payment stays the same, and real estate prices will rise somewhat, but it's not as simple as you make it seem. I'd be worried if I were planning to sell within the next few years.
jollybean 5y ago
I don't think they know what 'hedge' means, but they understand the concept that the value of the money may be going down. That said, it's probably not a driving sentiment, rather, just the basic overall impetus of inflation and low rates. It could be that there are whispers of increasing rates and everyone is looking to lock in. That said, in around 2006, this was the feeling as well. The major crash. And as soon as things were getting frothy again - COVID and major turmoil. Finally, it should be noted, that there are external factors driving inflation, if even some of it is temporary, which is cost of transport, and supply chain issues in China, and of course, tarriffs. That said, Fed probably needs to raise rates.
mortenjorck 5y ago
The average homebuyer is also only putting 5.3% down [1], so even if they know what hedging is, they’re not exactly moving significant amounts of capital around. [1] https://www.housingwire.com/articles/49443-the-average-down-payment-is-much-smaller-than-you-think/ https://www.housingwire.com/articles/49443-the-average-down-...

paulpauper 5y ago

hmm I don't recall QE and trillion-dollar stimulus being a 'thing' in 2004-2006. Or the 80s and 90s. The fed began to raise interest rates a lot in 2004 but the housing boom continued for 2 years later. I think it just comes down to shortages and speculation.

cm2187 5y ago
The OP didn’t claim that houses prices only ever go up thanks to money printing. But with the amount of money being printed all asset prices go up, it’s almost mechanical. And we have done more money printing in the last 18m than in 10y of response to the 2008 recession.

harryf 5y ago

Here’s why the prices are going up https://youtu.be/4c-QvcHeNMw https://youtu.be/4c-QvcHeNMw - institutional buyers…

1helloworld1 5y ago

Money is just one factor. I can think of tons of other factors - low interest rates, relatively rich city people moving from smaller apartments to houses to escape Covid, low supply because of construction halts during Covid, high price of lumber (which is slowly coming down).

epistasis 5y ago

House prices are going up because there aren't enough of them. They're only a good hedge against inflation if there aren't enough of them. All the other stuff, like low interest rates in mortgages, just accelerates the underlying cause of the price jumps.

r00fus 5y ago
The problem with this logic is that there is literally infinite demand assuming the following premises: 1) Real-estate is a long-term positive return investment 2) The USG will do anything in it's power to keep that premise #1 valid (QE, low/negative interest rates, etc) 3) You can use real-estate equity as part of leverage to buy more real-estate. 4) Foreign investment is allowed, so the system isn't a closed loop It's a bubble and will keep inflating until it pops.
- matmatmatmat 5y ago
  Also, there will always be limited supply. COVID-19 and remote work changed that a little bit, but there's other reasons people want to live close to population centers: Restaurants, entertainment, shopping, schools, and friends, to name a few. Most people will always want to live not very far (but not too close!) to some group of other people.
- epistasis 5y ago
  All this is premised on a housing shortage. Without that housing shortage, there is no long-term positive return on investment. There is not infinite demand even when housing is a guaranteed positive investment, because there's limited money and capital. We have let people think that housing is always a positive return investment, instead of a bank account. And to do that, we have limited home building in the in-demand areas. The actual way this is enforced is by home owners restricting development in their neighborhoods, a trend that is likely to continue. Read the prospectus' of the private equity investments in residential housing and you'll see they are saying the same thing.
IkmoIkmo 5y ago
> House prices are going up because there aren't enough of them. It's an interesting premise, I'd love to see more data on this. It's a very common claim but at least on a macro level there's a lot of indicators that would make me assume otherwise. Typically if there isn't enough, you'd expect that the general trend has been that the availability per person is decreasing over time. Availability can be measured in a few ways: - Number of persons per home - Number of square feet per home Ceteris paribus, if either are going respectively down and up, you'd see increasing availability and would assume decreasing scarcity. The number of persons per home has been decreasing for 150 years, and dropped from 3.4 to 2.5 (-30%) in the past 60 years. The number of square feet per home has more than doubled in that time. In other words, we have 30% fewer people and 100% more space. The square foot per person has increased by 270% in the past 60 years. Of course you can still not have enough if demand has grown much faster. But instead I think there's good indications (and plenty of studies) that price increases are mostly being driven by low interest rates and a culture around seeing homes as a speculative asset instead of just a home that happens to have some of your capital locked up in it. [0] https://fee.org/media/15199/housing1.png?width=600&height=386.0517435320585 https://fee.org/media/15199/housing1.png?width=600&height=38...