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I agree. I wish people understood more of what these "institutional investors" are doing. The Fed has essentially trapped us in a system where the likes of blac

I agree. I wish people understood more of what these "institutional investors" are doing. The Fed has essentially trapped us in a system where the likes of blackrock get access to essentially free Fed printing press money right of the rollers that they then use to buy up real assets at inflated prices, which only drives up the inflation that thereby also drives up the value of previous purchases at near zero rate interest. If you follow that logic to the final conclusion, you will find that these "institutional investors" only have incentive to not only buy up all the assets they can at near zero interest, but that doing so is a kind of self-perpetuating profit machine as inflation creates profits for them. Yes, this is IMMENSELY dangerous. Oh, and I did not mention that if it's not in collusion, the Fed has the tiger by the tail and is paralyzed with fear to such a degree that it simply cannot let go so as to at least have a chance of getting away in time, rather than the guaranteed demise of holding on to the tail and then eventually only getting ever more tired and the chance of survival crashing exponentially.

ok123456 5y ago
Mao was right.
delfinom 5y ago
This is the end game of the baby boomers and economy really. Collectively everyone is hoarding onto property for their nest egg, investment funds get piles of their money from 401ks and pensions as well to invest into areas like real estate. A large chunk of retirement is now predicated on maintaining or increasing property values. The fed is now so fucked it can't even raise rates without immediately causing property value declines as mortgages decrease. There really is no solution and we are in for horrific pain eventually. It's simply a question of how long they can stall it.
- adam_arthur 5y ago
  The solution is simple. Raise rates and let asset prices normalize, regardless of the consequences. There will be pain in the short term, but you're creating opportunity for future generations. Policy right now is all about pulling prosperity from the future into the present. IE higher valuation multiples today enrich current asset holders, but leave little growth for future asset holders It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. It may be partly due to the short term focused political system in the US. China actually is explicitly acting to reduce property values to make homes more affordable for its people. Of course this triggered all sorts of second order effects like the evergrande situation. We will see if they follow through all the way, but so far they aren't backing down, despite what looks like an imminent systemic implosion of the property sector. Sometimes people lose when they invest. That's how it's supposed to work. Removing that element creates mass amounts of moral hazard, which will end badly on its own at some point.
  - throwaway34241 5y ago
    > It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. From the financial crisis to COVID low interest rates (and inflating asset prices) seemed almost a consequence of their inflation+unemployment mandate: even with the interest rate around zero unemployment was slow to come down and inflation was mostly in financial assets and not the consumer price level. Post-COVID seems to be a different story though. I guess we'll see in the next year or so how they react if the inflation pressure turns out to be persistent - personally I wouldn't be surprised if they do raise rates, even though that would obviously lower most asset prices.
    - adam_arthur 5y ago
      Well, it's true that inflation was largely in check over the past decade. But keep in mind that in the 1970's, home prices were actually included in the CPI. If this were still the case today, we would actually see inflation levels similar to what we saw in the 70s. The CPI formula has been changed many times over the years, to suppress inflation numbers. There are strong incentives to do this, as Social Security and many other things are tied to the CPI. There are logical arguments for these changes though. Homes are financed goods, and consumption can be considered the monthly carrying cost and not the value of the asset. However, ignoring "asset inflation" has led to much worse wealth inequality IMO. It would be better to continue to include national average home prices. Nowadays, there's a measure called Owners Equivalent Rents that partially gauge this. But there are tons of methodological flaws in how rent equivalent data is collected for CPI that lead to both underreporting, and a lag of ~12 months. e.g. Rents are up about 20% nationally since the pandemic started, but CPI has shown roughly 3.5% so far. The next few months should start to show the full extent of rental increases. Now that car prices are causing a large increase in CPI, don't be surprised when they alter the measurement of these factors next year. They'll use some measure like average monthly car payment. Also keep in mind that unemployment was around 10% post GFC, and took about 10 years to get close to full employment. That was quite a large shock that took a long while to recover from. The market did fall something like 20% in 2018 as the Fed raised rates to preempt inflation, but they chickened out and reversed course and market immediately rallied back all gains. And as you said, it's pretty clear right now they are dragging their feet on doing anything post COVID. I'm pretty sure Powell is really optimizing for retaining his job, since his term ends very soon... otherwise they really shouldn't care about market movements to such an extent. They will almost certainly announce the taper tomorrow, but expect it to be wrapped in all kinds of dovish language to juice assets/speculation further. Regardless of short term interest rate peg, they should absolutely not be buying bonds to suppress long term rates. They have been continuing an "emergency" bond buying program for a full year beyond what was reasonable to most people. I mean, why are they buying 120B worth of bonds every month, as housing prices have gone up something like 30% nationally? They are terminally afraid that if they can't manipulate long term rates lower through QE, that rates will rise and market or housing will tank. Well, we'll find out soon enough
- yazaddaruvala 5y ago
  I agree institutional investment into homes is a big issue, and based on our current laws it will drive a lot of people into rental agreements that are unlivable and for the few it'll make mortgages obscenely expensive. > This is the end game I disagree with this statement. Firstly, we will likely fix it sooner rather than later. Secondly, if it truly gets horrible, we still have one person one vote. Its not the property owner that gets the vote, its the renter that gets the vote. If you end up in a locality with 100% rentership, they will vote for rental caps, they will increase their living quality through building codes/regulation, and they will vote to remove zoning and the local politicians will follow through because there is no downside to the people in their constituency. There will still be corruption in the form of state level or federal laws to reduce local autonomy (e.g. with municipal broadband), but thats a problem we already have, and people need to learn to vote for their best long-term benefit rather than ideologically and/or their short term benefit. Even today, if you want to stop Big Real-Estate from making rentership horrible and keep making housing prices obscene, vote to remove zoning or at the least, vote for zoning that would let the market increase housing 100x. We are all kinda NIMBY regarding the short term, but need to find a way to vote against our short term best interest for the sake of our long term best interests.
mywittyname 5y ago
I don't think institutionally-owned SFH rentals are viable in the long term. Apartment complexes make sense as rentals because there's a great deal of efficiencies vis-a-vis property maintenance & management. Plus the added benefit of greatly reduced property taxes per unit. The downside is that they don't appreciate as quickly as other real estate can. SFHs make a lot of sense for small-time landlords because they can be bought up in increments. But even small-time landlords pretty quickly realize the value in multi-tenant rentals and move to acquire more of them. Blackrock, et al, will hold onto these so long as they continue to appreciate at double-digit rates. But after a few years of inflation-level appreciation, they will begin to dump these as their profits tumble due to the inherent inefficiencies of SFHs.
- treeman79 5y ago
  Places like Invitation Homes do everything as cheap as possible. Cheap as possible paint minimal repairs no inspections. Shady things like intentionally covering up gas leaks. Source: Family nearly died in multiple different ways. Had an HVAC fall on kids bed In the night, just missed. Massive gas leak they lied about. Walls that were so hot they burned the skin. Many things a home inspection would have uncovered.
wolverine876 5y ago
> The Fed has essentially trapped us in a system where the likes of blackrock get access to essentially free Fed printing press money right of the rollers that they then use to buy up real assets at inflated prices, which only drives up the inflation that thereby also drives up the value of previous purchases at near zero rate interest. It's a trendy thing to say, especially in certain political circles, but could you substantiate it with something from a serious, non-partisan economist? AFAIK, for example, inflation isn't much related to it - rates have been very low for a long time, sans inflation. > the Fed has the tiger by the tail and is paralyzed with fear Again, anything substantive to support this? They are 'paralyzed with fear'?
- pdonis 5y ago
  > could you substantiate it with something from a serious, non-partisan economist? The fact that printed money is fueling the housing market does not require an economist to see; it is obvious from comparing two simple observations: (1) Americans expect to be able to get 30 year mortgages at rates around 3%. (2) Americans expect to be able to invest their retirement savings in stocks and bonds with a long term rate of return of 8% or more. This state of affairs would be impossible in a free market with a money supply that was not being manipulated; in a free market, nobody would be crazy enough to lend money for mortgages at 3% when they could invest the same money in stocks and bonds and make an 8% return over the same time horizon. The only reason #1 above exists at all is that mortgages are made with printed money from the Fed. > rates have been very low for a long time That's because interest rates are not determined by a free market; the Fed has its thumb on the scales (see above), and has for decades.
  - Kkoala 5y ago
    #1 is less risky, since mortgages have to be collateralized. #1 is also less volatile
    - pdonis 5y ago
      > #1 is less risky, since mortgages have to be collateralized. Less risky, yes. Less risky to the tune of 5 or more percentage points? Not so sure. > #1 is also less volatile That depends on the housing market, which can be subject to large fluctuations that have nothing to do with the underlying value of the assets and everything to do with the availability of newly printed money for mortgage loans. The years leading up to and including the 2008 crash showed how volatile a manipulated housing market can be.
notTheAuth 5y ago
[dead]

ok123456 5y ago

Mao was right.

delfinom 5y ago

This is the end game of the baby boomers and economy really. Collectively everyone is hoarding onto property for their nest egg, investment funds get piles of their money from 401ks and pensions as well to invest into areas like real estate. A large chunk of retirement is now predicated on maintaining or increasing property values. The fed is now so fucked it can't even raise rates without immediately causing property value declines as mortgages decrease. There really is no solution and we are in for horrific pain eventually. It's simply a question of how long they can stall it.

adam_arthur 5y ago
The solution is simple. Raise rates and let asset prices normalize, regardless of the consequences. There will be pain in the short term, but you're creating opportunity for future generations. Policy right now is all about pulling prosperity from the future into the present. IE higher valuation multiples today enrich current asset holders, but leave little growth for future asset holders It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. It may be partly due to the short term focused political system in the US. China actually is explicitly acting to reduce property values to make homes more affordable for its people. Of course this triggered all sorts of second order effects like the evergrande situation. We will see if they follow through all the way, but so far they aren't backing down, despite what looks like an imminent systemic implosion of the property sector. Sometimes people lose when they invest. That's how it's supposed to work. Removing that element creates mass amounts of moral hazard, which will end badly on its own at some point.
- throwaway34241 5y ago
  > It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. From the financial crisis to COVID low interest rates (and inflating asset prices) seemed almost a consequence of their inflation+unemployment mandate: even with the interest rate around zero unemployment was slow to come down and inflation was mostly in financial assets and not the consumer price level. Post-COVID seems to be a different story though. I guess we'll see in the next year or so how they react if the inflation pressure turns out to be persistent - personally I wouldn't be surprised if they do raise rates, even though that would obviously lower most asset prices.
  - adam_arthur 5y ago
    Well, it's true that inflation was largely in check over the past decade. But keep in mind that in the 1970's, home prices were actually included in the CPI. If this were still the case today, we would actually see inflation levels similar to what we saw in the 70s. The CPI formula has been changed many times over the years, to suppress inflation numbers. There are strong incentives to do this, as Social Security and many other things are tied to the CPI. There are logical arguments for these changes though. Homes are financed goods, and consumption can be considered the monthly carrying cost and not the value of the asset. However, ignoring "asset inflation" has led to much worse wealth inequality IMO. It would be better to continue to include national average home prices. Nowadays, there's a measure called Owners Equivalent Rents that partially gauge this. But there are tons of methodological flaws in how rent equivalent data is collected for CPI that lead to both underreporting, and a lag of ~12 months. e.g. Rents are up about 20% nationally since the pandemic started, but CPI has shown roughly 3.5% so far. The next few months should start to show the full extent of rental increases. Now that car prices are causing a large increase in CPI, don't be surprised when they alter the measurement of these factors next year. They'll use some measure like average monthly car payment. Also keep in mind that unemployment was around 10% post GFC, and took about 10 years to get close to full employment. That was quite a large shock that took a long while to recover from. The market did fall something like 20% in 2018 as the Fed raised rates to preempt inflation, but they chickened out and reversed course and market immediately rallied back all gains. And as you said, it's pretty clear right now they are dragging their feet on doing anything post COVID. I'm pretty sure Powell is really optimizing for retaining his job, since his term ends very soon... otherwise they really shouldn't care about market movements to such an extent. They will almost certainly announce the taper tomorrow, but expect it to be wrapped in all kinds of dovish language to juice assets/speculation further. Regardless of short term interest rate peg, they should absolutely not be buying bonds to suppress long term rates. They have been continuing an "emergency" bond buying program for a full year beyond what was reasonable to most people. I mean, why are they buying 120B worth of bonds every month, as housing prices have gone up something like 30% nationally? They are terminally afraid that if they can't manipulate long term rates lower through QE, that rates will rise and market or housing will tank. Well, we'll find out soon enough
yazaddaruvala 5y ago
I agree institutional investment into homes is a big issue, and based on our current laws it will drive a lot of people into rental agreements that are unlivable and for the few it'll make mortgages obscenely expensive. > This is the end game I disagree with this statement. Firstly, we will likely fix it sooner rather than later. Secondly, if it truly gets horrible, we still have one person one vote. Its not the property owner that gets the vote, its the renter that gets the vote. If you end up in a locality with 100% rentership, they will vote for rental caps, they will increase their living quality through building codes/regulation, and they will vote to remove zoning and the local politicians will follow through because there is no downside to the people in their constituency. There will still be corruption in the form of state level or federal laws to reduce local autonomy (e.g. with municipal broadband), but thats a problem we already have, and people need to learn to vote for their best long-term benefit rather than ideologically and/or their short term benefit. Even today, if you want to stop Big Real-Estate from making rentership horrible and keep making housing prices obscene, vote to remove zoning or at the least, vote for zoning that would let the market increase housing 100x. We are all kinda NIMBY regarding the short term, but need to find a way to vote against our short term best interest for the sake of our long term best interests.

mywittyname 5y ago

I don't think institutionally-owned SFH rentals are viable in the long term. Apartment complexes make sense as rentals because there's a great deal of efficiencies vis-a-vis property maintenance & management. Plus the added benefit of greatly reduced property taxes per unit. The downside is that they don't appreciate as quickly as other real estate can. SFHs make a lot of sense for small-time landlords because they can be bought up in increments. But even small-time landlords pretty quickly realize the value in multi-tenant rentals and move to acquire more of them. Blackrock, et al, will hold onto these so long as they continue to appreciate at double-digit rates. But after a few years of inflation-level appreciation, they will begin to dump these as their profits tumble due to the inherent inefficiencies of SFHs.

treeman79 5y ago
Places like Invitation Homes do everything as cheap as possible. Cheap as possible paint minimal repairs no inspections. Shady things like intentionally covering up gas leaks. Source: Family nearly died in multiple different ways. Had an HVAC fall on kids bed In the night, just missed. Massive gas leak they lied about. Walls that were so hot they burned the skin. Many things a home inspection would have uncovered.

wolverine876 5y ago

> The Fed has essentially trapped us in a system where the likes of blackrock get access to essentially free Fed printing press money right of the rollers that they then use to buy up real assets at inflated prices, which only drives up the inflation that thereby also drives up the value of previous purchases at near zero rate interest. It's a trendy thing to say, especially in certain political circles, but could you substantiate it with something from a serious, non-partisan economist? AFAIK, for example, inflation isn't much related to it - rates have been very low for a long time, sans inflation. > the Fed has the tiger by the tail and is paralyzed with fear Again, anything substantive to support this? They are 'paralyzed with fear'?

pdonis 5y ago
> could you substantiate it with something from a serious, non-partisan economist? The fact that printed money is fueling the housing market does not require an economist to see; it is obvious from comparing two simple observations: (1) Americans expect to be able to get 30 year mortgages at rates around 3%. (2) Americans expect to be able to invest their retirement savings in stocks and bonds with a long term rate of return of 8% or more. This state of affairs would be impossible in a free market with a money supply that was not being manipulated; in a free market, nobody would be crazy enough to lend money for mortgages at 3% when they could invest the same money in stocks and bonds and make an 8% return over the same time horizon. The only reason #1 above exists at all is that mortgages are made with printed money from the Fed. > rates have been very low for a long time That's because interest rates are not determined by a free market; the Fed has its thumb on the scales (see above), and has for decades.
- Kkoala 5y ago
  #1 is less risky, since mortgages have to be collateralized. #1 is also less volatile
  - pdonis 5y ago
    > #1 is less risky, since mortgages have to be collateralized. Less risky, yes. Less risky to the tune of 5 or more percentage points? Not so sure. > #1 is also less volatile That depends on the housing market, which can be subject to large fluctuations that have nothing to do with the underlying value of the assets and everything to do with the availability of newly printed money for mortgage loans. The years leading up to and including the 2008 crash showed how volatile a manipulated housing market can be.

notTheAuth 5y ago

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