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The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices

The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. 2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things. We enter a new era of cyberfeudalism, which probably involves some blood in the streets. It seems like they are going with option 2. I am 24 years old and I can't say I'm particularly excited. It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market. All I can do at this point is raise my fist to the sky and say fuck the fed, fuck the financial system, fuck the greedy rich, fuck BlackRock, and fuck you.

polskibus 5y ago
Fed printing operation is affecting the whole world, not just USA. Because international trade is denominated in dollars, every other country is priced out by USA when buying something just because they are farther from the main printer. IMHO, there will be bloodbath with p.2 too.
RappingBoomer 5y ago
the problem is that if inflation continues, then interest rates will go up, whether the fed wants them to or not...once rates go up, money will flow from asset investment to bonds etc...and that will crash asset prices...checkmate...one way or another, asset prices WILL crash
- listenallyall 5y ago
  That's assuming a free market with true price discovery. In reality, we have the Fed buying up financial assets and printing enormous amounts of money, and bailing out companies (which reduces risk, keeping rates low)... the entire thing is specifically engineered to AVOID true price discovery.
  - imtringued 5y ago
    There is no such thing as a global free market with true price discovery in the real world. Foreign markets exist and you can't control them. They also tend to do insane things like selling products to you for money while lending the money back which drives the velocity of money down while simultaneously fueling speculative bubbles. Whatever the Fed is doing is just a side effect of things that happen in the global economy. It has more to go with globalization and China than the US economy.
- uejfiweun 5y ago
  How exactly does this work? I thought that the fed controlled interest rates. Under what circumstances could the interest rate rise independently of the fed?
  - naveen99 5y ago
    Fed controls only nominal interest rates on treasuries. The real / effective rate is set by the market at auction by adjusting the price on the bonds.
    - bradleyjg 5y ago
      That’s the old world. Now the Fed buys unlimited amount of any securities it cares to. So it can manipulate all interest rates.
      - nostrademons 5y ago
        Eventual outcome is the same though. Firms lose confidence in the currency and stop accepting it, and then its value falls to zero. You can say a dollar is worth whatever you want, but unless people believe you, it doesn't matter.
    - User23 5y ago
      No, no it's not. USD denominated interest rates are whatever the Fed wants them to be. The Fed controls the entire USD yield curve, although that control does weaken a little as maturity goes out into the future, but not more than about 10%. Treasury auctions are kabuki theater[1]. Thanks to the Primary Dealer system it's impossible for an auction to fail. While the nominal rate may bounce around a few basis points, at the end of the day the Fed absolutely controls rates. They will literally create reserves and lend them to primary dealers at whatever rate is necessary to assure Treasury sells as many securities as it needs to at something near the target rate. [1] Yes, that does imply artfulness.
      - m348e912 5y ago
- 88913527 5y ago
  Is this so? The price of other assets going up doesn't change the riskiness of the bank's ability to repossess a home, in the chance the borrower becomes delinquent. You're borrowing money for a physical, durable thing in which the bank retains the deed until the debt is paid off. If the benchmark rate remains low, it's hard to imagine mortgage rates going up due to exogenous factors, or you would have expected us to see that in the past 50 years. https://fred.stlouisfed.org/graph/?g=ITPc https://fred.stlouisfed.org/graph/?g=ITPc
mercy_dude 5y ago
Also if they do 1) just imagine how much interest payment that would mean for US Govt and all the dollar denominated debt. I think a mere rate raise to 5% will cause the US Treasury to have to pay for another military.
- mrfusion 5y ago
  I’m wracking my brain trying to figure out how we’ll ever raise interest rates again due to this issue. Does anyone know? Any tricks I’m not aware of? Was there way less gov debt in the early 80s when they massively raised rates?
  - thoughtstheseus 5y ago
    We could have a dual/varied interest rate policy where different rates are set for different policy ”targets”. Tltros - targeted long-term refinancing is one example in Europe. Banks receive extra yields on government debt for lending that money in specified ways.
  - listenallyall 5y ago
    Yes, of course, much less. Regardless, the size of the debt is not an excuse to keep interest rates artificially low. https://images.app.goo.gl/NVYuu3q3rJMVpPRu8 https://images.app.goo.gl/NVYuu3q3rJMVpPRu8
  - Spooky23 5y ago
    Not only less debt, but surplus payroll taxes from Social Security were flowing in and basically landing on the government balance sheet. (Via a special non-marketable bond series) We no longer have a surplus there, and the issues around it were kicked down the road 39 years, when we had a Senate run by adults instead of the current pack of dull knives. The military stuff will just get cut. We separately run 4 of the top ten air forces.
    - post_from_work 5y ago
      >>>We separately run 4 of the top ten air forces. One of my favorite quotes about how massive and redundant our military is: "Your Navy possesses its own Army, which possesses its own Air Force....which is larger than the Air Forces of most countries." https://en.wikipedia.org/wiki/United_States_Marine_Corps_Aviation https://en.wikipedia.org/wiki/United_States_Marine_Corps_Avi... ^close to 350 fixed-wing combat aircraft!
BeFlatXIII 5y ago
What I hope for is someone to create a fiscal black hole. The more money that is spent to delay the bubble busting, the wider the blast radius will be. Once its size is several multiples of the world GDP, that's when the real fun begins.
aeternum 5y ago
As Adam Smith said, the true price of everything is in human labor. Inflation generally raises the cost/price of new labor at the expense of historic labor. Demand for labor is still high, the price will likely continue to increase. Housing is also not a great comparison metric because it was so perturbed by 2008. New unit starts dropped precipitously and still have not fully recovered: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST We know how to build housing quickly and now it's clear there is demand. If the current trend continues it looks like we will again have a housing surplus within the decade.
- bumby 5y ago
  Is there any measures of what percent of those pre-2008 builds were speculative investments vs. occupant-owners? It reminds me of the scene in The Big Short when he knew the system was on a precipice of disaster when the a stripper was telling him about the multiple homes she owns. It seems to me many bubbles are the result of speculation with easy credit and I’m not sure 2008 can be considered a “perturbation” instead of a correction.
  - aeternum 5y ago
    https://fred.stlouisfed.org/series/EOWNOCCUSQ176N https://fred.stlouisfed.org/series/EOWNOCCUSQ176N
    - bumby 5y ago
      Thank you. Maybe you can help me understand this correctly. Your link shows the "owner-occupied" housing was relatively flat during the housing crises. The link below shows new housing units were still increasing during that time.[1] Does that imply most of the new builds were investment properties (i.e. not owner occupied) during this time period? [1]https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
      - aeternum 5y ago
        Vacancies were also (relatively) high during that time. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N I think this is what matters most. It's good to have some vacancies so that people have options but too many likely indicates there's some speculation/over-building going on that the market doesn't support.
deleted 5y ago
[deleted]
Spooky23 5y ago
The die was cast for option 2 30 years ago. Once policy flipped to “we will provide capital to prevent bad things”. Half the economy is based on real estate… people building buildings to avoid taxation (if you have $) and borrowing against equity (joe homeowner). You cannot break equity values without breaking the economy. The people who are getting screwed are the same people who have been getting screwed since the Vietnam era. Go watch “clerks” and read early 90s op/ed pieces - it’s the same cycle.
- A4ET8a8uTh0 5y ago
  In retrospect, it rings true. I think I had my eyes opened during 2008 crisis and FED was effectively buying everything thrown at it. I remember thinking how can government own its own bonds?
  - arcticbull 5y ago
    > I think I had my eyes opened during 2008 crisis and FED was effectively buying everything thrown at it. They definitely did not. [1] The bailouts were largely loans, ones that were repaid to the US government for a pretty substantial profit, not less. And assets the Fed took on were literally that, assets, which the Fed was profitably unwinding before COVID hit. [1] https://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis https://en.wikipedia.org/wiki/Federal_Reserve_responses_to_t...
    - A4ET8a8uTh0 5y ago
      Ok. Buy was not an accurate verb here, but just because it was profitable it does not mean FED did not throw money at it. My main point stands.
    - pjmorris 5y ago
      On the chart shown at your link, Fed-owned assets go from ~.8T to 2.5T (blue line, assuming the MBS (red line) are part of that.) and then grow as QE takes effect and the Fed buys all manner of things. That .8T was all US Treasuries, no longer true of the expanded balance sheet. If you look at the updated chart (https://fred.stlouisfed.org/series/WSHOSHO https://fred.stlouisfed.org/series/WSHOSHO), whatever you make of it, it doesn't look like much in the way of loans getting repaid. Whatever you want to say about loans being repaid, I think that the 1.5T (conservative number) that the Fed spent buying non-UST assets was then spent by the sellers on raising other asset prices not on paying down loans.
purplepatrick 5y ago
It’s not that simple: https://blogs.cfainstitute.org/investor/2021/04/19/myth-busting-money-printing-must-create-inflation/ https://blogs.cfainstitute.org/investor/2021/04/19/myth-bust...
throwvirtever 5y ago
I don't quite understand the obsession with homeownership. If a large enough percentage of people rented from property management companies, there would be more impetus to have strong tenant's rights laws to protect residents, and people would have more flexibility to move around. Moreover everyone would have an interest in increasing supply to keep their own rent down, pushing prices down toward cost-of-materials and upkeep. As it is people willingly submit to homeowners associations that are in many ways worse than the laziest landlord. I don't see what gets worse by just becoming a nation of renters.
- Notanothertoo 5y ago
  Not equity building, lack of control, and sometimes the "incentives" are off. For example a landlord wants the cheapest possible appliances. A renter wants features, quality and efficiency.. Also having no agency in the layout or functionality of the home is going to lead us all into misery. I don't understand how people think this is remotely OK.
- rootsudo 5y ago
  Then you don't have an asset. You paid for the option of living there for the duration of your leas, but you have no control on the property, or your future.
  - mylons 5y ago
    a house isn’t a particularly good investment. it’s just the one everyone, in america, makes because they’re financially illiterate. anyone can buy ETFs now with zero commission and zero gate keeping.
    - setr 5y ago
      It’s money you have to spend (shelter is non-optional), and mortgage is definitely a better investment than renting (you’ll get at least some of it back on selling, unless it dips very far) whereas rent is guaranteed to be burnt. And the difference between rent and mortgage as a monthly payment isn’t that far for same-lifestyle, assuming you can put up the standard up-front capital requirements. As far as I can tell, it’s quite reasonable.
wombatpm 5y ago
In the early 80s a 13% mortgage rate was not uncommon. People survived. Very little blood was spilled
- blip54321 5y ago
  There's a world of difference between high interest rates (which are good and healthy) and rising interest rates (which implode the economy). You gotta look at the derivative. Rising interest rates are really, really bad. Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. I kinda wish I entered the economy when we still had 12% interest rates. Each time a recession hits, we level it off by lowering them a bit, and we've kinda hit the floor. I don't think we can get back to 12% interest within my lifetime without some kind of economic collapse or cataclysmic event.
  - listenallyall 5y ago
    > Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. This is hyperbole. Rising interest rates aren't fun, but they aren't cataclysmic. Rates have gone up and down for decades. Further, if you signal that you're taking the option to raise rates off the table, risk tolerance and asset prices will explode (some would say this has already happened due to Fed signaling).
    - blip54321 5y ago
      I hope you're right. The extent to which you might be right or wrong depends to some extent on how much debt there is in the system (or how leveraged/wound up the economy is). A debt-based economy is much more vulnerable. Last time we raised interest rates rapidly, in the eighties, household debt was less than half of what it is today, adjusted for GDP.
      - listenallyall 5y ago
        Yes, whenever rates eventually rise, it's going to hurt some people. People and companies burdened with debt. Some will in fact go bankrupt (most will not, of course). But that's not a reason not to do it, all that is, is more evidence of fiscal irresponsibility. Any company which is unable to withstand higher debt costs is just as poorly managed as one which is unable to withstand a rise in any other input cost. If McDonald's went bankrupt tomorrow claiming rising beef costs, you'd say their business plan was flawed, being overly reliant on subsidized farming and not planning ahead for contingencies. The same is entirely true for a company that is bankrupted by higher interest rates. Making excuses and accommodating heavy debtors by keeping rates artificially low is one of the most damaging things you can do.
arcticbull 5y ago
This is only part of the problem - and a small part of the problem at that. The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And, families are smaller. Check out Japan housing CPI - a market where supply meets demand thanks to federal zoning rules, and is also centrally banked. Dead ass flat. [3] This chart alone basically debunks the theory the Fed is solely responsible for lower housing affordability. Zoning is the issue, not the Fed. [edit] Yes, the fed contributes a little - monthly affordability of a more expensive house is the same when interest rates are lower, but down payments are not. However, if you want to solve the affordability crisis build more houses. Any houses. Now. Compare the Japan housing CPI in [3] to the US housing CPI in [4] and weep. Housing in the US is driving inflation, not responding to it. [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/ https://fee.org/articles/new-homes-today-have-twice-the-squa... [2] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage https://en.wikipedia.org/wiki/San_Francisco_housing_shortage [3] https://fred.stlouisfed.org/series/JPNCPIHOUMINMEI https://fred.stlouisfed.org/series/JPNCPIHOUMINMEI [4] https://fred.stlouisfed.org/series/CPIHOSNS https://fred.stlouisfed.org/series/CPIHOSNS
- rp1 5y ago
  The idea that zoning is the issue is always funny to me because it’s very easy to disprove. Plenty of paces in the US have permissive zoning (like the NY metro area). If zoning was the issue, then one would expect affordable housing in these areas, but it is still totally out of reach for most.
- noahtallen 5y ago
  Part of the problem with the first item you mentioned is that developers don’t really want to build cheap housing (I guess this is an assumption, but it makes sense financially.) They can make way more money catering to the people who can “afford” to build a $500k home, and people who want a very custom design and lots of space. On the renting end, “luxury” apartments will make more money than really basic cheap units. So most of the new housing stock doesn’t help address the problem for people new to housing. Even if you want to build out a very basic, small house, you have to have cash to DIY without a bank, or find some way to finance a builder (increasing the significant labor cost) without having existing equity. So the part of the market that does want cheap, basic housing doesn’t even have a way to influence those units. There is loads of demand for them (young people without money make up a huge portion of the population), but no developers willing to meet that demand when they can just make expensive units. And not enough developers so that some need to chase the cheap market. And in cities, the lot cost is very prohibitive too, before even getting into building a very basic house.
bufferoverflow 5y ago
We have tons of inflation-proof tools: stocks, gold (to an extent), cryptocurrencies. Just don't store your savings in cash ever. Ideally, get paid in one of the tools I listed.
- listenallyall 5y ago
  Tell me you're under 30 without telling me you're under 30.
- SubiculumCode 5y ago
  Dollars are for spending, not for storing. This is how the economy is built and that is fine.
clairity 5y ago
> "1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets." no, blood and unrest is an unlikely end result of this scenario, though vested interests would really like us to think that. the more likely outcome is a redistribution of wealth toward the lower 99% (concomitantly with a shrunken pie), since the wealthy and powerful have the most, and the most inflated, assets in the first place. that's what they're protecting as if our lives depended on it. that's what the infrastructure+extra spending bills are about, not us little folks. this is why the deflation approach is so threateningly disfavored, because it would flatten the wealth curve.
- vorpalhex 5y ago
  Most of those 99% have retirements of some form or another, and have their wealth trapped in their house.
  - clairity 5y ago
    retirement savings don't affect day-to-day decisions or welfare, and most folks will not be selling their home, especially not in a recession, so those are both non sequiturs. long-term assets, particularly for the middle class, are relatively recession-resistant.
    - vorpalhex 5y ago
      ~17% of people right now are living off their retirement and that percentage will increase as baby boomers hit retirement age. Remember 2008 when a bunch of houses were underwater, cash strapped poor families could neither make payments nor sell to get out, and the whole thing was awful? Yeah that didn't really help wealth inequality.
      - clairity 5y ago
        most households at/near retirement (55+, according to the fed reserve) are doing fine with an average net worth over a million (note that that's all the boomers), and almost none of them are still paying off mortgages. they aren't losing houses nor going without meals. moreover, social security income is inflation protected, as essentially is medicare, so poor elderly are no worse off. again, that's a disingenous argument, the kind often made by politicians seeking political gain, not general welfare.
ab_testing 5y ago
Canada already did #2. Average home prices in almost all metro areas are around 10x yearly income. There is no blood on the streets and it is still considered a destination country.
- kelnos 5y ago
  10x isn't terrible, though, is it? Assuming 20% down on a mortgage, if you're frugal, you can save for a down payment in 4 or 5 years or so. Not ideal, of course, but not impossible. In some places in the US folks could save for a decade or more and still not be able to afford a down payment.
  - hammock 5y ago
    The rule of thumb I have heard is 3x. If you buy a house 10x your income and put 20% down, your monthly payments are 40-45% of your income before tax. That's a lot
    - nostrademons 5y ago
      3x is based on early-80s interest rates (12%). I did out the math [1] for someone on Reddit and it turns out that if you buy 3x your income @ 3% interest, you'll only be spending about 12% of your income on housing. To get to 30% of gross on housing (the other common rule of thumb), house prices need to be about 7x income. [1] https://www.reddit.com/r/investing/comments/oawyqu/is_there_a_correction_looming_in_housing_prices/hjz1zyr/?context=3 https://www.reddit.com/r/investing/comments/oawyqu/is_there_...
      - staticman2 5y ago
        3x is not based on 80s interest rates. And the mortgage is only part of your expenses, you need to budget for home repair, taxes, and insurance. Plus any other savings that are needed, like putting yoyr kids through college or retirement.
        5y ago
runarberg 5y ago
There is another option: The government could buy/build/offer public housing as an alternative to the free market. It was done in the past and in other countries and I see no reason not to do it now. The way I see it (and the way you put it) the free market has failed to provide housing to people, to an extend that there is no free market solution going forward. If the government (federal/state/county/municipal/etc.) provides and alternative to free market housing, they will directly be competing with private housing speculators. Prices on the free market will likely go down as a result (why pay $1,000,000 for a house from a speculator when you can buy a better house from the county for $400,000). These speculators will get angry, (and some bootlickers/sympathetic middle class) but they will not have the masses behind them to generate blood on the street. This is not an alien solution, it is battle tested as it has been done multiple times in most countries several times in history, as recently as the 1960s. The only reason not to go for it (given your two other scenarios) would be that the government is so sympathetic to the few rich that it is willing to let everything else crash and burn in just to cater to the interests of the rich.
- klipt 5y ago
  > the free market has failed to provide housing to people Is it really a free market in places like the Bay Area where zoning is so restrictive and NIMBYs can show up to planning meetings to basically block any new construction? It's been pointed out elsewhere in this thread that Japan also had a free market but less restrictive zoning and housing is much more affordable there. The main argument for government efficiency would be if the government could override the NIMBYs more easily than private developers can.
  - Apocryphon 5y ago
    Eminent domain?
    - PeterisP 5y ago
      Reducing the ability of the neighborhood to prevent you from building housing on your property is probably the opposite of eminent domain; you could argue that enabling excessive NIMBY's is essentially eminent-domain-like taking of your property to do what the (local) government wants instead of what you want.
drdec 5y ago
Inflation can be good for young people. If you really think there will be significant inflation, go buy a house, borrow more than you are comfortable with it necessary. Inflation will make the debt easier to deal with in time.
- bogota 5y ago
  This is wildly irresponsible and terrible advice
  - JamesBarney 5y ago
    It's only bad advice if we don't have a spike in inflation.
    - john_moscow 5y ago
      The way asset prices work, expectations of future growth are already priced in. So you are effectively talking about timing the market.
      - jeffreyrogers 5y ago
        Yes, but people were saying this several years ago too. The truth is no one knows what is happening. We're in a new market regime that has not been explored before. Everyone is just guessing what's going to happen. Some of them are going to be right and do very well. Some of them are going to be wrong. People will say the ones who were right were smart and the ones who were wrong were dumb.
      - ubercow13 5y ago
        So, never invest in anything?
        imtringued 5y ago
        In theory you're supposed to invest according to your risk tolerance and yield expectations.
kelnos 5y ago
Is there no middle ground? Like... raise interest rates a little, but not too much, and keep printing money, but slow down on how fast?
- 01100011 5y ago
  The big risk now is that the fed waited too long. They could have already raised rates when the economy started doing better before delta hit. They would have had more ammo this time around, and the supply side driven inflation we're seeing might have been tamer.
- marcosdumay 5y ago
  The OP's #2 is actually an exponential growth in money printing. If the growth stops being exponential, it moves away from the target in an exponential way. If the growth just becomes an exponential with a smaller exponent, it moves away from the target in an exponential way. In theory you could have an exponential that grows in a very slow, controlled way. On practice, it will get out of control, because nobody has any idea what the target actually is, so you either always correct towards it, or deviate.
rayiner 5y ago
Behold, and tremble! https://www-bankrate-com.cdn.ampproject.org/i/s/www.bankrate.com/2020/07/08132337/br-balance-sheet-2.png https://www-bankrate-com.cdn.ampproject.org/i/s/www.bankrate...
- darkerside 5y ago
  This links directly to an unknown attachment. Just FYI for anyone else who would have cared to know that.
elevenoh 5y ago
3. quietly accumulate crypto & default on debt. prepare for war. ;)
epicureanideal 5y ago
> The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things. I’m going to start calling this “generational red-lining”.
clavicat 5y ago
If the permabubble option is so predictable, though, it should be easy to account for. Just empty your bank account and send all your funds to a stock brokerage and go all in on TQQQ (triple-leverage NASDAQ-100 ETF). Your gains should predictably outpace inflation and even real-estate appreciation so long as the Fed doesn’t prick the bubble by hiking interest rates like they did with the dot-com bubble. This is why I think inflation is not as big a deal as it historically once was. It’s never been easier to convert cash to inflation-sensitive assets and back again. We could very well transition to a world where cash simply becomes a short-term medium of exchange and loses all purpose as a store of value. All your wealth could kept in hard assets until the very moment you need to spend it.
- nostrademons 5y ago
  Note that this is exactly how countries undergoing hyperinflation operate. Nobody keeps savings in the national currency, and if they do, they don't have savings for long. They keep their wealth in stocks, gold, foreign currency, bottles of alcohol, bullets, or any other durable liquid asset.
AtlasBarfed 5y ago
It's a bubble. Let the prices crash.
- eloisant 5y ago
  That's what I heard when I bought my house 10 years ago. The 2008 crisis was supposed to put an end to the ever rising housing prices. Now my house is worth nearly 2x what I bought it, I pay less in mortgage than I would in rent for an equivalent house. I imagine we'll have the same discussion again in 10 years.
- imtringued 5y ago
  The underlying reason for the bubble isn't gone. If it crashes it will bounce back up. To be fair, China's real estate sector is dying slowly as we speak.
xenadu02 5y ago
It isn't actually clear if housing is driving inflation or responding to it. Lower mortgage rates can goose prices and demand a bit but can't come close to accounting for current pricing levels. Even at 0% down payments are not trivial... and fed backed mortgage support tops out around the 600-800k mark depending on market. You can try to fight the market, complain about the market, or position yourself to take advantage of it (using the best info available at the time). When everyone was doom-saying the Fed in 2009 and complaining that everything was fake valuation, a new crash was coming soon, etc. I got fed up and ignored them. Piled my retirement account into stocks. That has paid off quite well. Also if you find an opportunity you believe in make a bet. I bet $7k on Tesla's IPO. Last week I sold less than half my holdings for $100,000 and plan to keep the remainder. Lots of people had negative things to say but I took a closer look and put my nickel down. Years ago after Apple hit me 700 it fell by around half. I bought the dips at 450, 400, 350, etc. That also did extremely well for me. Find opportunities and make moves. Fighting the fed and the market means you'll miss huge upside - often so much upside that even when your negative prediction eventually comes true you'd have been better off holding through the downturn when all is said and done. > All I can do at this point is raise my fist to the sky and say fuck the fed, fuck the financial system, fuck the greedy rich, fuck BlackRock, and fuck you. Polish your resume, practice stupid useless whiteboard problems, move to the Bay Area, and work for a FAANG company. Keep the same lifestyle you have now. If you work moderately harder than average you can easily have $2m cash in the bank within 10 years or less - even after paying Bay Area cost of living. Then start writing $20k checks to your house rep's re-election campaign. Guess what? They'll take your calls. Write $50-100k checks and your senator will too. It is surprisingly cheap (in the grand scheme of things) to buy access to political power. That's how the current system got where it is: those hedge fund managers have been writing campaign checks since they were junior associates at a big bank. As a result Congress hears from them and cares about their concerns more than the average rabble. Anyone in Congress who doesn't do that and isn't independently wealthy either fails to get re-elected (no money to spend on events, travel, ads, ground game) or has no actual power because the party won't give them committee assignments since they aren't bringing any money in for the party's own election efforts (this is how parties enforce discipline). Unlike most working Americans it is within the grasp of many HN readers to do this sort of thing and make an actual difference. Do you care enough to move? To change jobs? Full disclosure: I'm just now in a position to start writing checks so I'll let you know how it works out in 10 years.
Robotbeat 5y ago
So, I’m 36, and I promise you don’t want a deep recession. Cheap housing doesn’t matter if you don’t have a job. We dodged a freaking bullet economically with COVID. We recovered quickly. Heck, even in 2008 we did better than the countries that tried fiscal or monetary austerity. And yeah, the real enemy is zoning. It’s fun to blame Blackrock, and they deserve it, but it’s regular homeowners trying to restrict more housing that is the cause.
- alexose 5y ago
  Hello fellow 36 year old! I think graduating into the 2008 mess gives us peculiar point of view. Two years older, we might have already had burgeoning careers. Two years younger, we might have avoided it altogether. I remember so much impending doom from those years. Pretty different than the current sentiment.
  - peignoir 5y ago
    2002 here got into the market right after the 2000 bubble and the second Irak war… my lessons learned since has been to travel and go where the market is better.
  - jurassic 5y ago
    Two years younger reporting in, things were still terrible for the Class of 2010 graduates. New grad unemployment didn't recover until 2012.
    - alexose 5y ago
      Didn't mean to imply that things were back to normal by 2010, only that it was (in theory) possible to prepare for it a little. In my case, there's no way I would have dropped CS in favor of anthropology if I knew what my prospects would look like! But yeah, it was rough for everyone. Even now, young careers are shaped by what happened in 2008.
    - dumdumdumdum 5y ago
      2013 here. I'd say things weren't that great then too.
gbh444g 5y ago
Population grows exponentially, housing grows quadratically (as circles around towns and cities). About 20 years ago the two curves had met and since then they've been rapidly diverging.
- nine_k 5y ago
  Is the US population still growing exponentially?
irrational 5y ago
> permanently priced out of home ownership The baby boomers will all die off during your lifetime. There aren’t enough people left to absorb all of their houses. I assume at some point there will be a tremendous glut of empty houses on the market which should dramatically lower prices.
- lstamour 5y ago
  That seems like a slow, one-time correction given immigration and perhaps even before then, demographic shifts changing what types of houses are needed and boomers retiring off the sale prices of their houses. Yes, things don’t normally go up forever, but it’s shocking how much things have gone up and continue to go up, in all financial asset classes. While renting is still seen as an option for many, there will be a market to buy houses (shrinking the “glut” to buy at the low) and pay a bit extra to then rent the house and make some money before selling it again. More interesting to me is whether business real estate will have any kind of dip, given recent work from home, but I also can’t see how that makes residential any less attractive for investment over the long run, unfortunately.
- sangnoir 5y ago
  > I assume at some point there will be a tremendous glut of empty houses on the market which should dramatically lower prices. If there are no shocks in the housing market, there will be more than enough investor funds to soak up all boomer housing stock. Rentals and AirBnB will be dominant in a self-perpetuating way, as far as I can tell.
- harambae 5y ago
  That's what Ivy Zelman and crowd are predicting as well [0] Predicting future demographics is hard through, because there are so many variables. Current birthrates in America are down but immigration is compensating. However, if the economy starts faltering we could see the desire to move to America go down as well. https://notoriousrob.com/2021/11/ivy-zelman-demographics-and-housing/ https://notoriousrob.com/2021/11/ivy-zelman-demographics-and...
mgh2 5y ago
There seems to be a possible, overlooked cause & effect in the current landscape: If FIRE followers scale the strategy of investing and renting multiple homes, are they not limiting housing supply for other potential homeowners or exacerbating homelessness? It is not just that houses are not being built, but that a shortage of supply is caused by the FIRE generation: buying houses as investments rather places to live, with the goal of living off on other people's rents or Airbnb, not paying taxes and leeching on society for the rest of their lives. https://www.youtube.com/watch?v=j5zndjPZ2Is https://www.youtube.com/watch?v=j5zndjPZ2Is Does anyone see the potential problem of this movement or are we just equally blinded by social media?
- option_greek 5y ago
  > leech the society for the rest of their lives Would these houses even be built if someone is not paying for them. They are not leeching but investing. May be we could call it leeching when they form a cartel and start raising rent prices in unison (which only biggies like black rock can do).
  - lmm 5y ago
    They invest in housing specifically because there's a bunch of tax avoidance loopholes for small-time landlords. There's nothing wrong with honest investing, but tax breaks are for leeches.
    - anonymoushn 5y ago
      This is why I make sure to turn over my portfolio every year, to avoid favorable tax treatment.
      - option_greek 5y ago
        Assuming this is not sarcasm, why not make that extra buck and donate whatever savings you make to what ever cause you see fit. It's odd to trust the government to use your money more prudently than yourself.
peter303 5y ago
The aFef is broken and two years behind the open market in terms of interest rates. Its like a broken record to see such mismanagement repeat every decade.
porb121 5y ago
so your worldview is that possible futures split into one scenario of blood in the streets and another of "cyberfeudalism" i wish i were so imaginative!
adrianN 5y ago
You can participate in wildly inflating markets by other means than buying a home. If you have a high income job, invest your money into things that grow with inflation.
- eBombzor 5y ago
  Like what? Stocks?
  - adrianN 5y ago
    Stocks, real estate etfs, probably a dozen other things too.
- deleted 5y ago
  [deleted]
humaniania 5y ago
"The end result will likely be unrest and blood in the streets." "We enter a new era of cyberfeudalism, which probably involves some blood in the streets." What hyperbolic nonsense. New account with the hot takes.
jbigelow76 5y ago
1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. There's zero historical indication that this would happen based on interest rates from the past. In '74 the interest rate was 12%, in '81 it was 19.8%, in 1990 it was 9%. Even going as high as 6% nobody is getting out their seats. If you want to incite violence you need to race bait and then dress it up as "economic anxiety".
- harambae 5y ago
  Yeah and what was the level of government debt that had to be serviced back then? Here I'll save you the search https://fred.stlouisfed.org/series/GFDEBTN https://fred.stlouisfed.org/series/GFDEBTN And the last relevant number is the WAM (Weighted-Average Maturity) and it's around 5 years for that. Now imagine how the numbers change when you go back to 12% interest rates and that debt gets rolled over at the new rate? Starting to see why no one thinks rates are going back there?
m0zg 5y ago
That's what I thought when I was 24. By 34 I bought the house I'm writing this from for what I thought was an extravagant amount of money, and by 44 I'd paid it off. It is now 3.5x the price I paid. That price was 2x of what the original owner paid a decade before me. I did have some money when I bought the house (obviously) but it still seemed insane. And I think that's actually sort of by design. It's the largest purchase most people will make in their lives, and there is one million ways to screw it up, so of course it feels insane and uncomfortable. And yet, people manage to scrounge up enough money and courage to buy real estate somehow. Which is to say, if you're on this site, chances are you'll be able to afford a house, just not at the price you like. Your income will track inflation much better than that of Joe Autoworker or Jim Farmer. The big downside for you is going to be that most tax brackets aren't revised upward with inflation, so you might find yourself paying nutty effective tax rates that you're voting for right now. :-)
teekert 5y ago
I agree your generation is pretty f-ed (even here in "socialist" Netherlands) and I hope they will raise taxes on my generation until something good can happen for yours. At least here they are really cracking down on my generation owning multiple homes and renting them to yours for a super high price, among other things. That said, your generation is digital native, you don't need to live in an expensive city, you can collectively decide to work remote from cheaper (and perhaps more beautiful locations). Our generation will eventually start dying. You need to be creative. I'm sorry. Tell me what to do...
- sweaty 5y ago
  I'm 25, and I live in The Netherlands as well. My parents managed to buy a house for 110k with government subsidies back in the 90s, they didn't need a deposit, they didn't even need any money. All they had to do was earn just above minimum wage, and they could include any costs from the buying process into the mortgage. Their house sold for 475k last year, a 90s starter home for low incomes. My grandparents had it even better, their house cost 40k in the 60s, of which 40% was paid for directly by the government through subsidies. I'm in the top 1.4% of income in the country, yet I cannot buy a house, because I don't have the savings required to overbid by 100k. There's a lot of things causing this overbidding, my parents for example sold their house because they wanted something smaller, but because they now had 475k in the bank, they were able to overbid by 80k on a house listed at 250k which ruins any chances for younger people to buy them. There's no way I can match this, let alone less fortunate people of my generation. I'm currently renting for 1600 a month, my landlord rented the place out to pay for his new house's mortgage. They're unwilling to sell it to me, because they plan to retire here in the next 10 years. The house is worth 300k in the current market, it's a very small starter home, but I literally had no other option because there's absolutely nothing available. And this is in a small town in the east of the country, my commute is over an hour as I work in the west. There's nothing your generation can do, apart from just owning one home. It's not your fault, it's horrible policy making (such as getting rid of the VROM ministry) among other things.
  - teekert 5y ago
    Yeah I'm happy I have a nice home but we also have some annoyances (minor compared to yours), we have been ready to move on to a bigger property for about 5 years now, very little comes up though. And when it does, we are often too late (they cap at 80 viewers for example, this is talking about 500k+ properties, I swear, 10 years ago you got a couple of viewers for each property, the realtor told me back then he negotiates with 1 person/couple at a time (unimaginable now!) and I think the number of properties for sale in my city easily dropped by 60% over the last 10 years). Recently we finally got to view a nice property with some land (more rural, 545k) and someone overbid by 105k without and further reservations on the contract. So we are also pretty stuck. Still it baffled me that when I talked to my bank I can probably sell my 2012 bought house (195k, modernized for 50k) for 330k! And then, I can repurpose my old mortgage to make it repayment-free ("overgangsregeling"), bla bla bla, and I can move to a 600k property with an increase of only 250 euro net per month. It's crazy!!! Yeah your generation doesn't pay transfer-tax but that's a drop in the bucket. Add to that that increasing a bid by 20k only costs you about 60 euro net per month (low rent, 30 years mortgage) and you get into a crazy bidding race really easily. I feel like we need to build many more affordable houses ("starterswoningen", 200-300k). But I guess that 400-700k properties are where the money is at. I'm now thinking about buying land and putting a prefab or standard house on it. Still, land is also not easy to find. Edit: Oh a nice fact about my house: The woman living in it before us bought it for 19500 Guilders (~9k euro's) in the sixties...
ZeroGravitas 5y ago
There are many middle ways possible, but generally these problems arise because a small, connected group gains significantly and now, while everyone else suffers in minor or delayed ways. Those systems then keep to one extreme until things break, and as you say, blood on the streets. But it's worth bearing in mind that there are solutions that'll work for everyone, just that history shows you don't (usually) get to have nice things until things have gone catastrophically wrong and the old system been swept away.
- imtringued 5y ago
  Land value taxes were suggested centuries ago. We didn't learn anything. The housing problem basically solves itself with land value taxes.
5754797 5y ago
>> Raise interest rates and stop printing. This is the one in which the rich lose out. I welcome it. I hope ANZ pray for it. I hope fervently didn’t very high inflation to smash the real estate market to nothing.
pbourke 5y ago
> It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market. Compared to two years ago, it’s much more likely that you can get paid a coastal tech salary yet live in an affordable city. These still exist in America. Here’s one that I just pulled out of a hat: Ames, Iowa. College town. Median house price $265k, which you can have for less than $1k/month with a 30 year mortgage at todays ridiculously low rates. There are hundreds of places like this across the country. You don’t need to live in the Bay Area, Seattle, NYC or Austin anymore.
- ZeroGravitas 5y ago
  Part of the problem is/was, that you probably were going to buy a house anyway. So if you get the high paying job in 'crazy real estate' location, then the bank will loan you money to buy the crazily inflated house, because everyone is gambling on it rising further. Just the asset price rise could rival a full wage in certain areas/times. So the cities were actively pulling people into them because of their stupidly high property prices and so worsening the problem in a bubble like spiral. On the other hand, if this bubble does pop, it'll be the people who just recently bought in that will carry the brunt of it, so maybe now is a good time to not relocate and wait for the pop. Could have said that 10 years ago though.
yobbo 5y ago
> but asset prices crash and we enter a major recession This sort of idea is often posted but rarely do anyone explain why. Asset prices do not have this effect on the brick-and-mortar economy that most people live in.
MomoXenosaga 5y ago
The people who already own property want prices to go up. Unfortunately for you 24 year olds have no power.
imtringued 5y ago
>It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market That should be a strong signal that the supply of housing is not increasing according to demand and that money is not the problem.
dragonwriter 5y ago
> The Fed at this point controls the whole economy No, it doesn't. Congress has a lot more control than the Fed (in fact, a strict superset of the Fed’s powers), and definitely much finer, more targetable control, but they have a little more problems coordinating on action. > and they have two options They have a near infinite spectrum of options between two poles. > Raise interest rates and stop printing Well, the first. “Printing” is just metaphor. > Crazy inflation stops, but asset prices crash and we enter a major recession or depression. There is no real reason (though its a popular unsupported idea from some quarters) to believe that there is no distance between the tight monetary policy sufficient to acheive the first effect and that which will cause the second effect. > Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things Again, very little reason to thibk the last thing is at all true. We had high inflation with a weak economy with stagflation in the 70s, and young people then weren't permanently priced out of hone ownership. More normal, strong-economy inflation isn't going to do that. > It seems like they are going with option 2. Tapering QE is not “doing nothing”, its taking the foot off the accelerator.
sershe 5y ago
There was massive inflation in the 70ies and it appears that what you describe hasn't happened. In fact, at least in theory inflation decimates the savers and helps the borrowers (well, if you borrow before it really picks up I guess). Also, housing-to-income ratio in the USA is (used to be?) one of the lowest in the developed world. Housing is relatively cheap, including in many non-depressing places with jobs (e.g. Chicago, SLC or San Antonio, of the ones I know thru someone who lives/moved there)
parasense 5y ago
Interest rates on treasury notes need to rise, period the end. Yes, I understand the implications and entailment, but don't care about the risks. The cure has side-effects, yes... we get it, but low interest rates is cancer that cannot be allowed to become systemic new-normal nonsense. 10 or 20 years from now is when we see the lagging effects, and of course the problem we have now is short-term thinking.
hndamien 5y ago
Buying Bitcoin might be a potential response since buying a house for protection is probably out of the question for now.

polskibus 5y ago

Fed printing operation is affecting the whole world, not just USA. Because international trade is denominated in dollars, every other country is priced out by USA when buying something just because they are farther from the main printer. IMHO, there will be bloodbath with p.2 too.

RappingBoomer 5y ago

the problem is that if inflation continues, then interest rates will go up, whether the fed wants them to or not...once rates go up, money will flow from asset investment to bonds etc...and that will crash asset prices...checkmate...one way or another, asset prices WILL crash

listenallyall 5y ago
That's assuming a free market with true price discovery. In reality, we have the Fed buying up financial assets and printing enormous amounts of money, and bailing out companies (which reduces risk, keeping rates low)... the entire thing is specifically engineered to AVOID true price discovery.
- imtringued 5y ago
  There is no such thing as a global free market with true price discovery in the real world. Foreign markets exist and you can't control them. They also tend to do insane things like selling products to you for money while lending the money back which drives the velocity of money down while simultaneously fueling speculative bubbles. Whatever the Fed is doing is just a side effect of things that happen in the global economy. It has more to go with globalization and China than the US economy.
uejfiweun 5y ago
How exactly does this work? I thought that the fed controlled interest rates. Under what circumstances could the interest rate rise independently of the fed?
- naveen99 5y ago
  Fed controls only nominal interest rates on treasuries. The real / effective rate is set by the market at auction by adjusting the price on the bonds.
  - bradleyjg 5y ago
    That’s the old world. Now the Fed buys unlimited amount of any securities it cares to. So it can manipulate all interest rates.
    - nostrademons 5y ago
      Eventual outcome is the same though. Firms lose confidence in the currency and stop accepting it, and then its value falls to zero. You can say a dollar is worth whatever you want, but unless people believe you, it doesn't matter.
  - User23 5y ago
    No, no it's not. USD denominated interest rates are whatever the Fed wants them to be. The Fed controls the entire USD yield curve, although that control does weaken a little as maturity goes out into the future, but not more than about 10%. Treasury auctions are kabuki theater[1]. Thanks to the Primary Dealer system it's impossible for an auction to fail. While the nominal rate may bounce around a few basis points, at the end of the day the Fed absolutely controls rates. They will literally create reserves and lend them to primary dealers at whatever rate is necessary to assure Treasury sells as many securities as it needs to at something near the target rate. [1] Yes, that does imply artfulness.
    - m348e912 5y ago
88913527 5y ago
Is this so? The price of other assets going up doesn't change the riskiness of the bank's ability to repossess a home, in the chance the borrower becomes delinquent. You're borrowing money for a physical, durable thing in which the bank retains the deed until the debt is paid off. If the benchmark rate remains low, it's hard to imagine mortgage rates going up due to exogenous factors, or you would have expected us to see that in the past 50 years. https://fred.stlouisfed.org/graph/?g=ITPc https://fred.stlouisfed.org/graph/?g=ITPc

mercy_dude 5y ago

Also if they do 1) just imagine how much interest payment that would mean for US Govt and all the dollar denominated debt. I think a mere rate raise to 5% will cause the US Treasury to have to pay for another military.

mrfusion 5y ago
I’m wracking my brain trying to figure out how we’ll ever raise interest rates again due to this issue. Does anyone know? Any tricks I’m not aware of? Was there way less gov debt in the early 80s when they massively raised rates?
- thoughtstheseus 5y ago
  We could have a dual/varied interest rate policy where different rates are set for different policy ”targets”. Tltros - targeted long-term refinancing is one example in Europe. Banks receive extra yields on government debt for lending that money in specified ways.
- listenallyall 5y ago
  Yes, of course, much less. Regardless, the size of the debt is not an excuse to keep interest rates artificially low. https://images.app.goo.gl/NVYuu3q3rJMVpPRu8 https://images.app.goo.gl/NVYuu3q3rJMVpPRu8
- Spooky23 5y ago
  Not only less debt, but surplus payroll taxes from Social Security were flowing in and basically landing on the government balance sheet. (Via a special non-marketable bond series) We no longer have a surplus there, and the issues around it were kicked down the road 39 years, when we had a Senate run by adults instead of the current pack of dull knives. The military stuff will just get cut. We separately run 4 of the top ten air forces.
  - post_from_work 5y ago
    >>>We separately run 4 of the top ten air forces. One of my favorite quotes about how massive and redundant our military is: "Your Navy possesses its own Army, which possesses its own Air Force....which is larger than the Air Forces of most countries." https://en.wikipedia.org/wiki/United_States_Marine_Corps_Aviation https://en.wikipedia.org/wiki/United_States_Marine_Corps_Avi... ^close to 350 fixed-wing combat aircraft!

BeFlatXIII 5y ago

What I hope for is someone to create a fiscal black hole. The more money that is spent to delay the bubble busting, the wider the blast radius will be. Once its size is several multiples of the world GDP, that's when the real fun begins.

aeternum 5y ago

As Adam Smith said, the true price of everything is in human labor. Inflation generally raises the cost/price of new labor at the expense of historic labor. Demand for labor is still high, the price will likely continue to increase. Housing is also not a great comparison metric because it was so perturbed by 2008. New unit starts dropped precipitously and still have not fully recovered: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST We know how to build housing quickly and now it's clear there is demand. If the current trend continues it looks like we will again have a housing surplus within the decade.

bumby 5y ago
Is there any measures of what percent of those pre-2008 builds were speculative investments vs. occupant-owners? It reminds me of the scene in The Big Short when he knew the system was on a precipice of disaster when the a stripper was telling him about the multiple homes she owns. It seems to me many bubbles are the result of speculation with easy credit and I’m not sure 2008 can be considered a “perturbation” instead of a correction.
- aeternum 5y ago
  https://fred.stlouisfed.org/series/EOWNOCCUSQ176N https://fred.stlouisfed.org/series/EOWNOCCUSQ176N
  - bumby 5y ago
    Thank you. Maybe you can help me understand this correctly. Your link shows the "owner-occupied" housing was relatively flat during the housing crises. The link below shows new housing units were still increasing during that time.[1] Does that imply most of the new builds were investment properties (i.e. not owner occupied) during this time period? [1]https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
    - aeternum 5y ago
      Vacancies were also (relatively) high during that time. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N I think this is what matters most. It's good to have some vacancies so that people have options but too many likely indicates there's some speculation/over-building going on that the market doesn't support.

deleted 5y ago

[deleted]

Spooky23 5y ago

The die was cast for option 2 30 years ago. Once policy flipped to “we will provide capital to prevent bad things”. Half the economy is based on real estate… people building buildings to avoid taxation (if you have $) and borrowing against equity (joe homeowner). You cannot break equity values without breaking the economy. The people who are getting screwed are the same people who have been getting screwed since the Vietnam era. Go watch “clerks” and read early 90s op/ed pieces - it’s the same cycle.

A4ET8a8uTh0 5y ago
In retrospect, it rings true. I think I had my eyes opened during 2008 crisis and FED was effectively buying everything thrown at it. I remember thinking how can government own its own bonds?
- arcticbull 5y ago
  > I think I had my eyes opened during 2008 crisis and FED was effectively buying everything thrown at it. They definitely did not. [1] The bailouts were largely loans, ones that were repaid to the US government for a pretty substantial profit, not less. And assets the Fed took on were literally that, assets, which the Fed was profitably unwinding before COVID hit. [1] https://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis https://en.wikipedia.org/wiki/Federal_Reserve_responses_to_t...
  - A4ET8a8uTh0 5y ago
    Ok. Buy was not an accurate verb here, but just because it was profitable it does not mean FED did not throw money at it. My main point stands.
  - pjmorris 5y ago
    On the chart shown at your link, Fed-owned assets go from ~.8T to 2.5T (blue line, assuming the MBS (red line) are part of that.) and then grow as QE takes effect and the Fed buys all manner of things. That .8T was all US Treasuries, no longer true of the expanded balance sheet. If you look at the updated chart (https://fred.stlouisfed.org/series/WSHOSHO https://fred.stlouisfed.org/series/WSHOSHO), whatever you make of it, it doesn't look like much in the way of loans getting repaid. Whatever you want to say about loans being repaid, I think that the 1.5T (conservative number) that the Fed spent buying non-UST assets was then spent by the sellers on raising other asset prices not on paying down loans.

purplepatrick 5y ago

It’s not that simple: https://blogs.cfainstitute.org/investor/2021/04/19/myth-busting-money-printing-must-create-inflation/ https://blogs.cfainstitute.org/investor/2021/04/19/myth-bust...

throwvirtever 5y ago

I don't quite understand the obsession with homeownership. If a large enough percentage of people rented from property management companies, there would be more impetus to have strong tenant's rights laws to protect residents, and people would have more flexibility to move around. Moreover everyone would have an interest in increasing supply to keep their own rent down, pushing prices down toward cost-of-materials and upkeep. As it is people willingly submit to homeowners associations that are in many ways worse than the laziest landlord. I don't see what gets worse by just becoming a nation of renters.

Notanothertoo 5y ago
Not equity building, lack of control, and sometimes the "incentives" are off. For example a landlord wants the cheapest possible appliances. A renter wants features, quality and efficiency.. Also having no agency in the layout or functionality of the home is going to lead us all into misery. I don't understand how people think this is remotely OK.
rootsudo 5y ago
Then you don't have an asset. You paid for the option of living there for the duration of your leas, but you have no control on the property, or your future.
- mylons 5y ago
  a house isn’t a particularly good investment. it’s just the one everyone, in america, makes because they’re financially illiterate. anyone can buy ETFs now with zero commission and zero gate keeping.
  - setr 5y ago
    It’s money you have to spend (shelter is non-optional), and mortgage is definitely a better investment than renting (you’ll get at least some of it back on selling, unless it dips very far) whereas rent is guaranteed to be burnt. And the difference between rent and mortgage as a monthly payment isn’t that far for same-lifestyle, assuming you can put up the standard up-front capital requirements. As far as I can tell, it’s quite reasonable.

wombatpm 5y ago

In the early 80s a 13% mortgage rate was not uncommon. People survived. Very little blood was spilled

blip54321 5y ago
There's a world of difference between high interest rates (which are good and healthy) and rising interest rates (which implode the economy). You gotta look at the derivative. Rising interest rates are really, really bad. Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. I kinda wish I entered the economy when we still had 12% interest rates. Each time a recession hits, we level it off by lowering them a bit, and we've kinda hit the floor. I don't think we can get back to 12% interest within my lifetime without some kind of economic collapse or cataclysmic event.
- listenallyall 5y ago
  > Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. This is hyperbole. Rising interest rates aren't fun, but they aren't cataclysmic. Rates have gone up and down for decades. Further, if you signal that you're taking the option to raise rates off the table, risk tolerance and asset prices will explode (some would say this has already happened due to Fed signaling).
  - blip54321 5y ago
    I hope you're right. The extent to which you might be right or wrong depends to some extent on how much debt there is in the system (or how leveraged/wound up the economy is). A debt-based economy is much more vulnerable. Last time we raised interest rates rapidly, in the eighties, household debt was less than half of what it is today, adjusted for GDP.
    - listenallyall 5y ago
      Yes, whenever rates eventually rise, it's going to hurt some people. People and companies burdened with debt. Some will in fact go bankrupt (most will not, of course). But that's not a reason not to do it, all that is, is more evidence of fiscal irresponsibility. Any company which is unable to withstand higher debt costs is just as poorly managed as one which is unable to withstand a rise in any other input cost. If McDonald's went bankrupt tomorrow claiming rising beef costs, you'd say their business plan was flawed, being overly reliant on subsidized farming and not planning ahead for contingencies. The same is entirely true for a company that is bankrupted by higher interest rates. Making excuses and accommodating heavy debtors by keeping rates artificially low is one of the most damaging things you can do.

arcticbull 5y ago

This is only part of the problem - and a small part of the problem at that. The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And, families are smaller. Check out Japan housing CPI - a market where supply meets demand thanks to federal zoning rules, and is also centrally banked. Dead ass flat. [3] This chart alone basically debunks the theory the Fed is solely responsible for lower housing affordability. Zoning is the issue, not the Fed. [edit] Yes, the fed contributes a little - monthly affordability of a more expensive house is the same when interest rates are lower, but down payments are not. However, if you want to solve the affordability crisis build more houses. Any houses. Now. Compare the Japan housing CPI in [3] to the US housing CPI in [4] and weep. Housing in the US is driving inflation, not responding to it. [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/ https://fee.org/articles/new-homes-today-have-twice-the-squa... [2] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage https://en.wikipedia.org/wiki/San_Francisco_housing_shortage [3] https://fred.stlouisfed.org/series/JPNCPIHOUMINMEI https://fred.stlouisfed.org/series/JPNCPIHOUMINMEI [4] https://fred.stlouisfed.org/series/CPIHOSNS https://fred.stlouisfed.org/series/CPIHOSNS

rp1 5y ago
The idea that zoning is the issue is always funny to me because it’s very easy to disprove. Plenty of paces in the US have permissive zoning (like the NY metro area). If zoning was the issue, then one would expect affordable housing in these areas, but it is still totally out of reach for most.
noahtallen 5y ago
Part of the problem with the first item you mentioned is that developers don’t really want to build cheap housing (I guess this is an assumption, but it makes sense financially.) They can make way more money catering to the people who can “afford” to build a $500k home, and people who want a very custom design and lots of space. On the renting end, “luxury” apartments will make more money than really basic cheap units. So most of the new housing stock doesn’t help address the problem for people new to housing. Even if you want to build out a very basic, small house, you have to have cash to DIY without a bank, or find some way to finance a builder (increasing the significant labor cost) without having existing equity. So the part of the market that does want cheap, basic housing doesn’t even have a way to influence those units. There is loads of demand for them (young people without money make up a huge portion of the population), but no developers willing to meet that demand when they can just make expensive units. And not enough developers so that some need to chase the cheap market. And in cities, the lot cost is very prohibitive too, before even getting into building a very basic house.

bufferoverflow 5y ago

We have tons of inflation-proof tools: stocks, gold (to an extent), cryptocurrencies. Just don't store your savings in cash ever. Ideally, get paid in one of the tools I listed.

listenallyall 5y ago
Tell me you're under 30 without telling me you're under 30.
SubiculumCode 5y ago
Dollars are for spending, not for storing. This is how the economy is built and that is fine.

clairity 5y ago

> "1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets." no, blood and unrest is an unlikely end result of this scenario, though vested interests would really like us to think that. the more likely outcome is a redistribution of wealth toward the lower 99% (concomitantly with a shrunken pie), since the wealthy and powerful have the most, and the most inflated, assets in the first place. that's what they're protecting as if our lives depended on it. that's what the infrastructure+extra spending bills are about, not us little folks. this is why the deflation approach is so threateningly disfavored, because it would flatten the wealth curve.

vorpalhex 5y ago
Most of those 99% have retirements of some form or another, and have their wealth trapped in their house.
- clairity 5y ago
  retirement savings don't affect day-to-day decisions or welfare, and most folks will not be selling their home, especially not in a recession, so those are both non sequiturs. long-term assets, particularly for the middle class, are relatively recession-resistant.
  - vorpalhex 5y ago
    ~17% of people right now are living off their retirement and that percentage will increase as baby boomers hit retirement age. Remember 2008 when a bunch of houses were underwater, cash strapped poor families could neither make payments nor sell to get out, and the whole thing was awful? Yeah that didn't really help wealth inequality.
    - clairity 5y ago
      most households at/near retirement (55+, according to the fed reserve) are doing fine with an average net worth over a million (note that that's all the boomers), and almost none of them are still paying off mortgages. they aren't losing houses nor going without meals. moreover, social security income is inflation protected, as essentially is medicare, so poor elderly are no worse off. again, that's a disingenous argument, the kind often made by politicians seeking political gain, not general welfare.

ab_testing 5y ago

Canada already did #2. Average home prices in almost all metro areas are around 10x yearly income. There is no blood on the streets and it is still considered a destination country.

kelnos 5y ago
10x isn't terrible, though, is it? Assuming 20% down on a mortgage, if you're frugal, you can save for a down payment in 4 or 5 years or so. Not ideal, of course, but not impossible. In some places in the US folks could save for a decade or more and still not be able to afford a down payment.
- hammock 5y ago
  The rule of thumb I have heard is 3x. If you buy a house 10x your income and put 20% down, your monthly payments are 40-45% of your income before tax. That's a lot
  - nostrademons 5y ago
    3x is based on early-80s interest rates (12%). I did out the math [1] for someone on Reddit and it turns out that if you buy 3x your income @ 3% interest, you'll only be spending about 12% of your income on housing. To get to 30% of gross on housing (the other common rule of thumb), house prices need to be about 7x income. [1] https://www.reddit.com/r/investing/comments/oawyqu/is_there_a_correction_looming_in_housing_prices/hjz1zyr/?context=3 https://www.reddit.com/r/investing/comments/oawyqu/is_there_...
    - staticman2 5y ago
      3x is not based on 80s interest rates. And the mortgage is only part of your expenses, you need to budget for home repair, taxes, and insurance. Plus any other savings that are needed, like putting yoyr kids through college or retirement.
      - 5y ago

runarberg 5y ago

There is another option: The government could buy/build/offer public housing as an alternative to the free market. It was done in the past and in other countries and I see no reason not to do it now. The way I see it (and the way you put it) the free market has failed to provide housing to people, to an extend that there is no free market solution going forward. If the government (federal/state/county/municipal/etc.) provides and alternative to free market housing, they will directly be competing with private housing speculators. Prices on the free market will likely go down as a result (why pay $1,000,000 for a house from a speculator when you can buy a better house from the county for $400,000). These speculators will get angry, (and some bootlickers/sympathetic middle class) but they will not have the masses behind them to generate blood on the street. This is not an alien solution, it is battle tested as it has been done multiple times in most countries several times in history, as recently as the 1960s. The only reason not to go for it (given your two other scenarios) would be that the government is so sympathetic to the few rich that it is willing to let everything else crash and burn in just to cater to the interests of the rich.

klipt 5y ago
> the free market has failed to provide housing to people Is it really a free market in places like the Bay Area where zoning is so restrictive and NIMBYs can show up to planning meetings to basically block any new construction? It's been pointed out elsewhere in this thread that Japan also had a free market but less restrictive zoning and housing is much more affordable there. The main argument for government efficiency would be if the government could override the NIMBYs more easily than private developers can.
- Apocryphon 5y ago
  Eminent domain?
  - PeterisP 5y ago
    Reducing the ability of the neighborhood to prevent you from building housing on your property is probably the opposite of eminent domain; you could argue that enabling excessive NIMBY's is essentially eminent-domain-like taking of your property to do what the (local) government wants instead of what you want.

drdec 5y ago

Inflation can be good for young people. If you really think there will be significant inflation, go buy a house, borrow more than you are comfortable with it necessary. Inflation will make the debt easier to deal with in time.

bogota 5y ago
This is wildly irresponsible and terrible advice
- JamesBarney 5y ago
  It's only bad advice if we don't have a spike in inflation.
  - john_moscow 5y ago
    The way asset prices work, expectations of future growth are already priced in. So you are effectively talking about timing the market.
    - jeffreyrogers 5y ago
      Yes, but people were saying this several years ago too. The truth is no one knows what is happening. We're in a new market regime that has not been explored before. Everyone is just guessing what's going to happen. Some of them are going to be right and do very well. Some of them are going to be wrong. People will say the ones who were right were smart and the ones who were wrong were dumb.
    - ubercow13 5y ago
      So, never invest in anything?
      - imtringued 5y ago
        In theory you're supposed to invest according to your risk tolerance and yield expectations.

kelnos 5y ago

Is there no middle ground? Like... raise interest rates a little, but not too much, and keep printing money, but slow down on how fast?

01100011 5y ago
The big risk now is that the fed waited too long. They could have already raised rates when the economy started doing better before delta hit. They would have had more ammo this time around, and the supply side driven inflation we're seeing might have been tamer.
marcosdumay 5y ago
The OP's #2 is actually an exponential growth in money printing. If the growth stops being exponential, it moves away from the target in an exponential way. If the growth just becomes an exponential with a smaller exponent, it moves away from the target in an exponential way. In theory you could have an exponential that grows in a very slow, controlled way. On practice, it will get out of control, because nobody has any idea what the target actually is, so you either always correct towards it, or deviate.

rayiner 5y ago

Behold, and tremble! https://www-bankrate-com.cdn.ampproject.org/i/s/www.bankrate.com/2020/07/08132337/br-balance-sheet-2.png https://www-bankrate-com.cdn.ampproject.org/i/s/www.bankrate...

darkerside 5y ago
This links directly to an unknown attachment. Just FYI for anyone else who would have cared to know that.

elevenoh 5y ago

3. quietly accumulate crypto & default on debt. prepare for war. ;)

epicureanideal 5y ago

> The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things. I’m going to start calling this “generational red-lining”.

clavicat 5y ago

If the permabubble option is so predictable, though, it should be easy to account for. Just empty your bank account and send all your funds to a stock brokerage and go all in on TQQQ (triple-leverage NASDAQ-100 ETF). Your gains should predictably outpace inflation and even real-estate appreciation so long as the Fed doesn’t prick the bubble by hiking interest rates like they did with the dot-com bubble. This is why I think inflation is not as big a deal as it historically once was. It’s never been easier to convert cash to inflation-sensitive assets and back again. We could very well transition to a world where cash simply becomes a short-term medium of exchange and loses all purpose as a store of value. All your wealth could kept in hard assets until the very moment you need to spend it.

nostrademons 5y ago
Note that this is exactly how countries undergoing hyperinflation operate. Nobody keeps savings in the national currency, and if they do, they don't have savings for long. They keep their wealth in stocks, gold, foreign currency, bottles of alcohol, bullets, or any other durable liquid asset.

AtlasBarfed 5y ago

It's a bubble. Let the prices crash.

eloisant 5y ago
That's what I heard when I bought my house 10 years ago. The 2008 crisis was supposed to put an end to the ever rising housing prices. Now my house is worth nearly 2x what I bought it, I pay less in mortgage than I would in rent for an equivalent house. I imagine we'll have the same discussion again in 10 years.
imtringued 5y ago
The underlying reason for the bubble isn't gone. If it crashes it will bounce back up. To be fair, China's real estate sector is dying slowly as we speak.

xenadu02 5y ago

It isn't actually clear if housing is driving inflation or responding to it. Lower mortgage rates can goose prices and demand a bit but can't come close to accounting for current pricing levels. Even at 0% down payments are not trivial... and fed backed mortgage support tops out around the 600-800k mark depending on market. You can try to fight the market, complain about the market, or position yourself to take advantage of it (using the best info available at the time). When everyone was doom-saying the Fed in 2009 and complaining that everything was fake valuation, a new crash was coming soon, etc. I got fed up and ignored them. Piled my retirement account into stocks. That has paid off quite well. Also if you find an opportunity you believe in make a bet. I bet $7k on Tesla's IPO. Last week I sold less than half my holdings for $100,000 and plan to keep the remainder. Lots of people had negative things to say but I took a closer look and put my nickel down. Years ago after Apple hit me 700 it fell by around half. I bought the dips at 450, 400, 350, etc. That also did extremely well for me. Find opportunities and make moves. Fighting the fed and the market means you'll miss huge upside - often so much upside that even when your negative prediction eventually comes true you'd have been better off holding through the downturn when all is said and done. > All I can do at this point is raise my fist to the sky and say fuck the fed, fuck the financial system, fuck the greedy rich, fuck BlackRock, and fuck you. Polish your resume, practice stupid useless whiteboard problems, move to the Bay Area, and work for a FAANG company. Keep the same lifestyle you have now. If you work moderately harder than average you can easily have $2m cash in the bank within 10 years or less - even after paying Bay Area cost of living. Then start writing $20k checks to your house rep's re-election campaign. Guess what? They'll take your calls. Write $50-100k checks and your senator will too. It is surprisingly cheap (in the grand scheme of things) to buy access to political power. That's how the current system got where it is: those hedge fund managers have been writing campaign checks since they were junior associates at a big bank. As a result Congress hears from them and cares about their concerns more than the average rabble. Anyone in Congress who doesn't do that and isn't independently wealthy either fails to get re-elected (no money to spend on events, travel, ads, ground game) or has no actual power because the party won't give them committee assignments since they aren't bringing any money in for the party's own election efforts (this is how parties enforce discipline). Unlike most working Americans it is within the grasp of many HN readers to do this sort of thing and make an actual difference. Do you care enough to move? To change jobs? Full disclosure: I'm just now in a position to start writing checks so I'll let you know how it works out in 10 years.

Robotbeat 5y ago

So, I’m 36, and I promise you don’t want a deep recession. Cheap housing doesn’t matter if you don’t have a job. We dodged a freaking bullet economically with COVID. We recovered quickly. Heck, even in 2008 we did better than the countries that tried fiscal or monetary austerity. And yeah, the real enemy is zoning. It’s fun to blame Blackrock, and they deserve it, but it’s regular homeowners trying to restrict more housing that is the cause.

alexose 5y ago
Hello fellow 36 year old! I think graduating into the 2008 mess gives us peculiar point of view. Two years older, we might have already had burgeoning careers. Two years younger, we might have avoided it altogether. I remember so much impending doom from those years. Pretty different than the current sentiment.
- peignoir 5y ago
  2002 here got into the market right after the 2000 bubble and the second Irak war… my lessons learned since has been to travel and go where the market is better.
- jurassic 5y ago
  Two years younger reporting in, things were still terrible for the Class of 2010 graduates. New grad unemployment didn't recover until 2012.
  - alexose 5y ago
    Didn't mean to imply that things were back to normal by 2010, only that it was (in theory) possible to prepare for it a little. In my case, there's no way I would have dropped CS in favor of anthropology if I knew what my prospects would look like! But yeah, it was rough for everyone. Even now, young careers are shaped by what happened in 2008.
  - dumdumdumdum 5y ago
    2013 here. I'd say things weren't that great then too.

gbh444g 5y ago

Population grows exponentially, housing grows quadratically (as circles around towns and cities). About 20 years ago the two curves had met and since then they've been rapidly diverging.

nine_k 5y ago
Is the US population still growing exponentially?

irrational 5y ago

> permanently priced out of home ownership The baby boomers will all die off during your lifetime. There aren’t enough people left to absorb all of their houses. I assume at some point there will be a tremendous glut of empty houses on the market which should dramatically lower prices.

lstamour 5y ago
That seems like a slow, one-time correction given immigration and perhaps even before then, demographic shifts changing what types of houses are needed and boomers retiring off the sale prices of their houses. Yes, things don’t normally go up forever, but it’s shocking how much things have gone up and continue to go up, in all financial asset classes. While renting is still seen as an option for many, there will be a market to buy houses (shrinking the “glut” to buy at the low) and pay a bit extra to then rent the house and make some money before selling it again. More interesting to me is whether business real estate will have any kind of dip, given recent work from home, but I also can’t see how that makes residential any less attractive for investment over the long run, unfortunately.
sangnoir 5y ago
> I assume at some point there will be a tremendous glut of empty houses on the market which should dramatically lower prices. If there are no shocks in the housing market, there will be more than enough investor funds to soak up all boomer housing stock. Rentals and AirBnB will be dominant in a self-perpetuating way, as far as I can tell.
harambae 5y ago
That's what Ivy Zelman and crowd are predicting as well [0] Predicting future demographics is hard through, because there are so many variables. Current birthrates in America are down but immigration is compensating. However, if the economy starts faltering we could see the desire to move to America go down as well. https://notoriousrob.com/2021/11/ivy-zelman-demographics-and-housing/ https://notoriousrob.com/2021/11/ivy-zelman-demographics-and...

mgh2 5y ago

There seems to be a possible, overlooked cause & effect in the current landscape: If FIRE followers scale the strategy of investing and renting multiple homes, are they not limiting housing supply for other potential homeowners or exacerbating homelessness? It is not just that houses are not being built, but that a shortage of supply is caused by the FIRE generation: buying houses as investments rather places to live, with the goal of living off on other people's rents or Airbnb, not paying taxes and leeching on society for the rest of their lives. https://www.youtube.com/watch?v=j5zndjPZ2Is https://www.youtube.com/watch?v=j5zndjPZ2Is Does anyone see the potential problem of this movement or are we just equally blinded by social media?

option_greek 5y ago
> leech the society for the rest of their lives Would these houses even be built if someone is not paying for them. They are not leeching but investing. May be we could call it leeching when they form a cartel and start raising rent prices in unison (which only biggies like black rock can do).
- lmm 5y ago
  They invest in housing specifically because there's a bunch of tax avoidance loopholes for small-time landlords. There's nothing wrong with honest investing, but tax breaks are for leeches.
  - anonymoushn 5y ago
    This is why I make sure to turn over my portfolio every year, to avoid favorable tax treatment.
    - option_greek 5y ago
      Assuming this is not sarcasm, why not make that extra buck and donate whatever savings you make to what ever cause you see fit. It's odd to trust the government to use your money more prudently than yourself.

peter303 5y ago

The aFef is broken and two years behind the open market in terms of interest rates. Its like a broken record to see such mismanagement repeat every decade.

porb121 5y ago

so your worldview is that possible futures split into one scenario of blood in the streets and another of "cyberfeudalism" i wish i were so imaginative!

adrianN 5y ago

You can participate in wildly inflating markets by other means than buying a home. If you have a high income job, invest your money into things that grow with inflation.

eBombzor 5y ago
Like what? Stocks?
- adrianN 5y ago
  Stocks, real estate etfs, probably a dozen other things too.
deleted 5y ago
[deleted]

humaniania 5y ago

"The end result will likely be unrest and blood in the streets." "We enter a new era of cyberfeudalism, which probably involves some blood in the streets." What hyperbolic nonsense. New account with the hot takes.

jbigelow76 5y ago

1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. There's zero historical indication that this would happen based on interest rates from the past. In '74 the interest rate was 12%, in '81 it was 19.8%, in 1990 it was 9%. Even going as high as 6% nobody is getting out their seats. If you want to incite violence you need to race bait and then dress it up as "economic anxiety".

harambae 5y ago
Yeah and what was the level of government debt that had to be serviced back then? Here I'll save you the search https://fred.stlouisfed.org/series/GFDEBTN https://fred.stlouisfed.org/series/GFDEBTN And the last relevant number is the WAM (Weighted-Average Maturity) and it's around 5 years for that. Now imagine how the numbers change when you go back to 12% interest rates and that debt gets rolled over at the new rate? Starting to see why no one thinks rates are going back there?

m0zg 5y ago

That's what I thought when I was 24. By 34 I bought the house I'm writing this from for what I thought was an extravagant amount of money, and by 44 I'd paid it off. It is now 3.5x the price I paid. That price was 2x of what the original owner paid a decade before me. I did have some money when I bought the house (obviously) but it still seemed insane. And I think that's actually sort of by design. It's the largest purchase most people will make in their lives, and there is one million ways to screw it up, so of course it feels insane and uncomfortable. And yet, people manage to scrounge up enough money and courage to buy real estate somehow. Which is to say, if you're on this site, chances are you'll be able to afford a house, just not at the price you like. Your income will track inflation much better than that of Joe Autoworker or Jim Farmer. The big downside for you is going to be that most tax brackets aren't revised upward with inflation, so you might find yourself paying nutty effective tax rates that you're voting for right now. :-)

teekert 5y ago

I agree your generation is pretty f-ed (even here in "socialist" Netherlands) and I hope they will raise taxes on my generation until something good can happen for yours. At least here they are really cracking down on my generation owning multiple homes and renting them to yours for a super high price, among other things. That said, your generation is digital native, you don't need to live in an expensive city, you can collectively decide to work remote from cheaper (and perhaps more beautiful locations). Our generation will eventually start dying. You need to be creative. I'm sorry. Tell me what to do...

sweaty 5y ago
I'm 25, and I live in The Netherlands as well. My parents managed to buy a house for 110k with government subsidies back in the 90s, they didn't need a deposit, they didn't even need any money. All they had to do was earn just above minimum wage, and they could include any costs from the buying process into the mortgage. Their house sold for 475k last year, a 90s starter home for low incomes. My grandparents had it even better, their house cost 40k in the 60s, of which 40% was paid for directly by the government through subsidies. I'm in the top 1.4% of income in the country, yet I cannot buy a house, because I don't have the savings required to overbid by 100k. There's a lot of things causing this overbidding, my parents for example sold their house because they wanted something smaller, but because they now had 475k in the bank, they were able to overbid by 80k on a house listed at 250k which ruins any chances for younger people to buy them. There's no way I can match this, let alone less fortunate people of my generation. I'm currently renting for 1600 a month, my landlord rented the place out to pay for his new house's mortgage. They're unwilling to sell it to me, because they plan to retire here in the next 10 years. The house is worth 300k in the current market, it's a very small starter home, but I literally had no other option because there's absolutely nothing available. And this is in a small town in the east of the country, my commute is over an hour as I work in the west. There's nothing your generation can do, apart from just owning one home. It's not your fault, it's horrible policy making (such as getting rid of the VROM ministry) among other things.
- teekert 5y ago
  Yeah I'm happy I have a nice home but we also have some annoyances (minor compared to yours), we have been ready to move on to a bigger property for about 5 years now, very little comes up though. And when it does, we are often too late (they cap at 80 viewers for example, this is talking about 500k+ properties, I swear, 10 years ago you got a couple of viewers for each property, the realtor told me back then he negotiates with 1 person/couple at a time (unimaginable now!) and I think the number of properties for sale in my city easily dropped by 60% over the last 10 years). Recently we finally got to view a nice property with some land (more rural, 545k) and someone overbid by 105k without and further reservations on the contract. So we are also pretty stuck. Still it baffled me that when I talked to my bank I can probably sell my 2012 bought house (195k, modernized for 50k) for 330k! And then, I can repurpose my old mortgage to make it repayment-free ("overgangsregeling"), bla bla bla, and I can move to a 600k property with an increase of only 250 euro net per month. It's crazy!!! Yeah your generation doesn't pay transfer-tax but that's a drop in the bucket. Add to that that increasing a bid by 20k only costs you about 60 euro net per month (low rent, 30 years mortgage) and you get into a crazy bidding race really easily. I feel like we need to build many more affordable houses ("starterswoningen", 200-300k). But I guess that 400-700k properties are where the money is at. I'm now thinking about buying land and putting a prefab or standard house on it. Still, land is also not easy to find. Edit: Oh a nice fact about my house: The woman living in it before us bought it for 19500 Guilders (~9k euro's) in the sixties...

ZeroGravitas 5y ago

There are many middle ways possible, but generally these problems arise because a small, connected group gains significantly and now, while everyone else suffers in minor or delayed ways. Those systems then keep to one extreme until things break, and as you say, blood on the streets. But it's worth bearing in mind that there are solutions that'll work for everyone, just that history shows you don't (usually) get to have nice things until things have gone catastrophically wrong and the old system been swept away.

imtringued 5y ago
Land value taxes were suggested centuries ago. We didn't learn anything. The housing problem basically solves itself with land value taxes.

5754797 5y ago

>> Raise interest rates and stop printing. This is the one in which the rich lose out. I welcome it. I hope ANZ pray for it. I hope fervently didn’t very high inflation to smash the real estate market to nothing.

pbourke 5y ago

> It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market. Compared to two years ago, it’s much more likely that you can get paid a coastal tech salary yet live in an affordable city. These still exist in America. Here’s one that I just pulled out of a hat: Ames, Iowa. College town. Median house price $265k, which you can have for less than $1k/month with a 30 year mortgage at todays ridiculously low rates. There are hundreds of places like this across the country. You don’t need to live in the Bay Area, Seattle, NYC or Austin anymore.

ZeroGravitas 5y ago
Part of the problem is/was, that you probably were going to buy a house anyway. So if you get the high paying job in 'crazy real estate' location, then the bank will loan you money to buy the crazily inflated house, because everyone is gambling on it rising further. Just the asset price rise could rival a full wage in certain areas/times. So the cities were actively pulling people into them because of their stupidly high property prices and so worsening the problem in a bubble like spiral. On the other hand, if this bubble does pop, it'll be the people who just recently bought in that will carry the brunt of it, so maybe now is a good time to not relocate and wait for the pop. Could have said that 10 years ago though.

yobbo 5y ago

> but asset prices crash and we enter a major recession This sort of idea is often posted but rarely do anyone explain why. Asset prices do not have this effect on the brick-and-mortar economy that most people live in.

MomoXenosaga 5y ago

The people who already own property want prices to go up. Unfortunately for you 24 year olds have no power.

imtringued 5y ago

>It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market That should be a strong signal that the supply of housing is not increasing according to demand and that money is not the problem.

dragonwriter 5y ago

> The Fed at this point controls the whole economy No, it doesn't. Congress has a lot more control than the Fed (in fact, a strict superset of the Fed’s powers), and definitely much finer, more targetable control, but they have a little more problems coordinating on action. > and they have two options They have a near infinite spectrum of options between two poles. > Raise interest rates and stop printing Well, the first. “Printing” is just metaphor. > Crazy inflation stops, but asset prices crash and we enter a major recession or depression. There is no real reason (though its a popular unsupported idea from some quarters) to believe that there is no distance between the tight monetary policy sufficient to acheive the first effect and that which will cause the second effect. > Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things Again, very little reason to thibk the last thing is at all true. We had high inflation with a weak economy with stagflation in the 70s, and young people then weren't permanently priced out of hone ownership. More normal, strong-economy inflation isn't going to do that. > It seems like they are going with option 2. Tapering QE is not “doing nothing”, its taking the foot off the accelerator.

sershe 5y ago

There was massive inflation in the 70ies and it appears that what you describe hasn't happened. In fact, at least in theory inflation decimates the savers and helps the borrowers (well, if you borrow before it really picks up I guess). Also, housing-to-income ratio in the USA is (used to be?) one of the lowest in the developed world. Housing is relatively cheap, including in many non-depressing places with jobs (e.g. Chicago, SLC or San Antonio, of the ones I know thru someone who lives/moved there)

parasense 5y ago

Interest rates on treasury notes need to rise, period the end. Yes, I understand the implications and entailment, but don't care about the risks. The cure has side-effects, yes... we get it, but low interest rates is cancer that cannot be allowed to become systemic new-normal nonsense. 10 or 20 years from now is when we see the lagging effects, and of course the problem we have now is short-term thinking.

hndamien 5y ago

Buying Bitcoin might be a potential response since buying a house for protection is probably out of the question for now.