4 ms·

When the fed suppresses interest rates and back stops the mortgage market, residential realestate starts to look like risk free treasuries with a ~9% yield.

swiley 5y ago
God forbid we have a housing market correction.
- voisin 5y ago
  Government forbid we have a housing market correction.
titzer 5y ago
If it looks like either the stock market or the housing market is about to crash, the fed will print unlimited amounts of money to prevent that. The only problem is that the rational action with that knowledge is to buy in as soon as possible, with all your cash, thereby making the bubble even bigger. It's a death spiral of inflation.
- Xcelerate 5y ago
  I agree. Also sounds like a great way to transfer more wealth from the poor to the rich considering only the rich have the ability to quickly funnel most of their wealth between different types of investments.
biasedbrain 5y ago
Where can you get 9% yield on housing? Where I live, you can only buy houses at prices that are above what you can get back in rents. You are very lucky if you can get to 1% yields, which is below inflation and not technically a good investment. The only way it still makes "sense" is by speculating on rising prices for real estate. Which is not risk free at all.
- opportune 5y ago
  If you buy housing all cash the appreciation and rent (net of expenses) could easily hit 9% per year. If you mortgage it you do pay interest which lowers the yield, but also need to factor in the increase in principal, and that the appreciation is net of your down payment + interest, not the entire sticker price (eg a 10% down purchase of a $1m home financed at 3% that appreciates 6% is actually a 30% yield).
  - biasedbrain 5y ago
    No it doesn't. The interest on the mortgage can be as low as 0.5%, so even if you pay in cash, you would only be at 1,5% yields (with my generous example of achieving 1% yields via the rent). The "appreciation" is not a given and not risk free at all. Certainly not 9% per year - for how many years do you think that would continue?
jdhn 5y ago
Yup. Housing is basically being treated as a bond that you can then make additional income off of by having someone live in said bond.

swiley 5y ago

God forbid we have a housing market correction.

voisin 5y ago
Government forbid we have a housing market correction.

titzer 5y ago

If it looks like either the stock market or the housing market is about to crash, the fed will print unlimited amounts of money to prevent that. The only problem is that the rational action with that knowledge is to buy in as soon as possible, with all your cash, thereby making the bubble even bigger. It's a death spiral of inflation.

Xcelerate 5y ago
I agree. Also sounds like a great way to transfer more wealth from the poor to the rich considering only the rich have the ability to quickly funnel most of their wealth between different types of investments.

biasedbrain 5y ago

Where can you get 9% yield on housing? Where I live, you can only buy houses at prices that are above what you can get back in rents. You are very lucky if you can get to 1% yields, which is below inflation and not technically a good investment. The only way it still makes "sense" is by speculating on rising prices for real estate. Which is not risk free at all.

opportune 5y ago
If you buy housing all cash the appreciation and rent (net of expenses) could easily hit 9% per year. If you mortgage it you do pay interest which lowers the yield, but also need to factor in the increase in principal, and that the appreciation is net of your down payment + interest, not the entire sticker price (eg a 10% down purchase of a $1m home financed at 3% that appreciates 6% is actually a 30% yield).
- biasedbrain 5y ago
  No it doesn't. The interest on the mortgage can be as low as 0.5%, so even if you pay in cash, you would only be at 1,5% yields (with my generous example of achieving 1% yields via the rent). The "appreciation" is not a given and not risk free at all. Certainly not 9% per year - for how many years do you think that would continue?

jdhn 5y ago

Yup. Housing is basically being treated as a bond that you can then make additional income off of by having someone live in said bond.