5 ms·

The people who outbid you for those houses could have outbid you without any monetary stimulus too, yes?

foepys 5y ago
Not necessarily. If the monetary stimulus was like $10,000 per person, it would be totally different than lowering interest rates that mainly benefit the rich that can get even more cheap money now to buy properties off the market.
raducu 5y ago
A lot of those people bid because interest rates are so low or even negative
- majormajor 5y ago
  So? If they could afford an X/month mortgage, so bidded a higher total cash price because X/month suddenly was a higher total purchase price due to lower interest rates, and the original poster could only afford a X-$300/month mortage, the original poster isn't beating them anyway. There has been an extreme shortage of supply due to some combination of people not wanting to move due to Covid because of exposure to lots of people being required, people valuing homes with more space over apartments more than they did in the past, and people not wanting to try to "trade up" because the houses they'd upgrade to were also being hit by the price increase. That shortage is what fucked the original poster here, not stimulus checks.
  - fileeditview 5y ago
    I think one important point is that said people need to invest into properties instead of say government bonds because interest rates are so low or even negative.
dnautics 5y ago
Sure, some of them. But others (institutional investors) are basically able to make outrageous bids due to access to easy money.
nostrademons 5y ago
Not if he has a large pile of cash, which the OP said it did. Say that he's got $500K in cash but can put only $3.8K/month toward the mortgage, while the average person around him has $250K but can put $5K/month toward a mortgage. Average housing prices are $1.25M, so at 4.5% interest rates he's competitive. He puts down $500K and borrows $750K @ $3.8K/month for a $1.25M house, while the average borrower puts down 20% ($250K) and borrows $1M @ $5K/month. If interest rates go down to 2.5% like they did now, the average borrower can now borrow $1.25M, so home prices go up to $1.5M. His cash stash still would require a $1M loan, which would cost around $4K/month, so he has been priced out. If interest rates go up to 20% like in 1980, then the average borrower can only borrow $300K to maintain $5K/month, so home prices drop to around $550K and he can purchase with cash, or a tiny mortgage. All of the homes between $550K-730K (previously, roughly $1.25M-$1.7M) are now unaffordable to the average mortgage buyer, but are well within OP's range. Inflation acts as a tax on savers and a subsidy for debtors.
- hirvi74 5y ago
  > Inflation acts as a tax on savers and a subsidy for debtors. Slightly tangental, but you piqued my interest. If it's clear the Fed can print more money, which causes inflation, which is a tax on savers. Then why do savers or anyone need to pay taxes? Could the Fed just not use inflation as a form of taxes in general? Instead of taking x% of people's income, the dollar could just print the money they need, and inflate the dollar's value to recoup their costs. I'm not saying this is a good idea or anything. I am not knowledgable enough in economics to argue for/against this. It's just a food for thought kind of thing.
  - nostrademons 5y ago
    Heh, you've asked an eternal question which I asked in my intro macroeconomics class, and which I suspect is being asked at the Presidential/Prime Minister and Central Bank levels in many developed countries now. I'll give you both the macroeconomic answer and the historical answer. The macroeconomic answer is yes, assuming that you can control inflation and spend your money in a wise disciplined manner, you can do this. An inflation rate of 10% is basically a wealth tax on currency-denominated assets of 1/1.1 ~= 9%, collected implicitly. And it has many benefits. Administration cost is near-zero, the government just needs to print money and let price levels do the rest. As a wealth tax, it's progressive. It encourages consumer spending, and encourages people to hold productive assets rather than currency-denominated financial instruments. Aside from land & externality taxes, it's one of the best types of tax. The historical reality is much nuanced, and negative. In reality, you never get uniform inflation across all prices; instead you get something called Cantillon Effects [1], where money pools at the places it's injected within the economy and at monopolies, and never makes it to ordinary consumers. This ruins a lot of the progressiveness of inflation: Google and Facebook shareholders will enjoy higher ad prices (which is happening now), but the ordinary service worker on the street still lacks the bargaining power to get a raise. And it's also easier to dodge than governments believe: instead of holding wealth in cash, wealthy individuals will simply hold stocks, cryptocurrency, art, NFTs, and other "floating" assets whose value rises along inflation (this is also happening now). Inflation also acts on a tax on the economic efficiency of businesses and consumers - instead of the government collecting the tax, businesses simply have to re-price all of their items, and consumers may need to find alternate sources if relative prices change. The worst case, though, is that it's unclear whether it's possible to maintain steady, government-controlled inflation at appropriate tax levels (which would have to be about 50% to maintain government spending levels of about 35% of the economy). Looking at incidents of high & hyperinflation [2], it's very difficult to find time periods where inflation exceeded 20% but then did not go on to exceed hundreds of percent. Businessmen seem to have a binary approach to inflation - either they can think of a world of stable prices (where maybe they give 2-3% CoL increases each year), or they must grab all the money they can right now because all their costs are going up too and if they don't they'll go out of business. There are many historical examples where governments thought "Okay, we can tolerate just a few percent higher inflation to fund this one war, and the spoils will pay it back later" and instead they found themselves tipped into hyperinflation and unable to rein the economy back in. [1] https://mattstoller.substack.com/p/the-cantillon-effect-why-wall-street https://mattstoller.substack.com/p/the-cantillon-effect-why-... [2] https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_high_inflation https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hig...

Not necessarily. If the monetary stimulus was like $10,000 per person, it would be totally different than lowering interest rates that mainly benefit the rich that can get even more cheap money now to buy properties off the market.

raducu 5y ago

A lot of those people bid because interest rates are so low or even negative

majormajor 5y ago
So? If they could afford an X/month mortgage, so bidded a higher total cash price because X/month suddenly was a higher total purchase price due to lower interest rates, and the original poster could only afford a X-$300/month mortage, the original poster isn't beating them anyway. There has been an extreme shortage of supply due to some combination of people not wanting to move due to Covid because of exposure to lots of people being required, people valuing homes with more space over apartments more than they did in the past, and people not wanting to try to "trade up" because the houses they'd upgrade to were also being hit by the price increase. That shortage is what fucked the original poster here, not stimulus checks.
- fileeditview 5y ago
  I think one important point is that said people need to invest into properties instead of say government bonds because interest rates are so low or even negative.

dnautics 5y ago

Sure, some of them. But others (institutional investors) are basically able to make outrageous bids due to access to easy money.

nostrademons 5y ago

Not if he has a large pile of cash, which the OP said it did. Say that he's got $500K in cash but can put only $3.8K/month toward the mortgage, while the average person around him has $250K but can put $5K/month toward a mortgage. Average housing prices are $1.25M, so at 4.5% interest rates he's competitive. He puts down $500K and borrows $750K @ $3.8K/month for a $1.25M house, while the average borrower puts down 20% ($250K) and borrows $1M @ $5K/month. If interest rates go down to 2.5% like they did now, the average borrower can now borrow $1.25M, so home prices go up to $1.5M. His cash stash still would require a $1M loan, which would cost around $4K/month, so he has been priced out. If interest rates go up to 20% like in 1980, then the average borrower can only borrow $300K to maintain $5K/month, so home prices drop to around $550K and he can purchase with cash, or a tiny mortgage. All of the homes between $550K-730K (previously, roughly $1.25M-$1.7M) are now unaffordable to the average mortgage buyer, but are well within OP's range. Inflation acts as a tax on savers and a subsidy for debtors.

hirvi74 5y ago
> Inflation acts as a tax on savers and a subsidy for debtors. Slightly tangental, but you piqued my interest. If it's clear the Fed can print more money, which causes inflation, which is a tax on savers. Then why do savers or anyone need to pay taxes? Could the Fed just not use inflation as a form of taxes in general? Instead of taking x% of people's income, the dollar could just print the money they need, and inflate the dollar's value to recoup their costs. I'm not saying this is a good idea or anything. I am not knowledgable enough in economics to argue for/against this. It's just a food for thought kind of thing.
- nostrademons 5y ago
  Heh, you've asked an eternal question which I asked in my intro macroeconomics class, and which I suspect is being asked at the Presidential/Prime Minister and Central Bank levels in many developed countries now. I'll give you both the macroeconomic answer and the historical answer. The macroeconomic answer is yes, assuming that you can control inflation and spend your money in a wise disciplined manner, you can do this. An inflation rate of 10% is basically a wealth tax on currency-denominated assets of 1/1.1 ~= 9%, collected implicitly. And it has many benefits. Administration cost is near-zero, the government just needs to print money and let price levels do the rest. As a wealth tax, it's progressive. It encourages consumer spending, and encourages people to hold productive assets rather than currency-denominated financial instruments. Aside from land & externality taxes, it's one of the best types of tax. The historical reality is much nuanced, and negative. In reality, you never get uniform inflation across all prices; instead you get something called Cantillon Effects [1], where money pools at the places it's injected within the economy and at monopolies, and never makes it to ordinary consumers. This ruins a lot of the progressiveness of inflation: Google and Facebook shareholders will enjoy higher ad prices (which is happening now), but the ordinary service worker on the street still lacks the bargaining power to get a raise. And it's also easier to dodge than governments believe: instead of holding wealth in cash, wealthy individuals will simply hold stocks, cryptocurrency, art, NFTs, and other "floating" assets whose value rises along inflation (this is also happening now). Inflation also acts on a tax on the economic efficiency of businesses and consumers - instead of the government collecting the tax, businesses simply have to re-price all of their items, and consumers may need to find alternate sources if relative prices change. The worst case, though, is that it's unclear whether it's possible to maintain steady, government-controlled inflation at appropriate tax levels (which would have to be about 50% to maintain government spending levels of about 35% of the economy). Looking at incidents of high & hyperinflation [2], it's very difficult to find time periods where inflation exceeded 20% but then did not go on to exceed hundreds of percent. Businessmen seem to have a binary approach to inflation - either they can think of a world of stable prices (where maybe they give 2-3% CoL increases each year), or they must grab all the money they can right now because all their costs are going up too and if they don't they'll go out of business. There are many historical examples where governments thought "Okay, we can tolerate just a few percent higher inflation to fund this one war, and the spoils will pay it back later" and instead they found themselves tipped into hyperinflation and unable to rein the economy back in. [1] https://mattstoller.substack.com/p/the-cantillon-effect-why-wall-street https://mattstoller.substack.com/p/the-cantillon-effect-why-... [2] https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_high_inflation https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hig...