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If only the Fed had cared at all that home prices were appreciating twice as fast as they ever did during the housing bubble. And tapped the breaks, rather tha

If only the Fed had cared at all that home prices were appreciating twice as fast as they ever did during the housing bubble. And tapped the breaks, rather than opening the floodgates to speculative frenzies across the board. They were a big reason for the 90s tech bubble and 2000s housing bubble too due to excessive rate cuts. Pretty clear they should have considered velocity of the economy and not simply point in time employment and inflation values (which are lagging indicators) Oh well...

rufus_foreman 5y ago
Are you sure you're thinking this through? The Fed is actually about to hit the brakes, people are expecting 7 rate increases this year and more next year. The current 30 year mortgage rate is around 3.5%, the median sale price for a house in the bay area is $1.5 million. With 20% down that's $3500 a month for principal and interest. If the Fed follows through and raises rates say 2%, it turns into $5500 a month. Doesn't do much for affordability. And if you're thinking prices will fall when rates rise, that's not what has happened in the past. Over the last 50 years, every time there has been an environment with rising interest rates, housing prices have gone up, not down: https://awealthofcommonsense.com/2022/01/will-higher-mortgage-rates-derail-the-housing-market/ https://awealthofcommonsense.com/2022/01/will-higher-mortgag.... So you will be paying a much higher rate on a more expensive house.
- adam_arthur 5y ago
  Yes, the damage is done at this point. The speculative frenzy is what drove the price increases, and it should've been short circuited early last year. Prices will be stickier than rising rates increases affordability. But at this point it has to be done. Increasing buying power makes inflationary pressures worse, not better. Higher rates will kill the psychology/speculative aspect of rapid price increases. And the Fed is acting far too late. The yield curve is about to invert as investors think that Fed hikes will lead to a recession. They have to do many of them and fast to get inflation under control, which will very likely lead to a bust. Every time in US history that inflation has been over 5%, a recession followed when the Fed took necessary measures to bring it down. It could've been a smooth landing if they had started long ago and done them in slow increments with moderation. Yet they kept emergency level money printing and rates in place for two full years, far after the acute crisis had passed. A recession would basically undo a lot of the quick recovery/good that the fiscal spending brought about. But seems too late to avoid if the Fed is serious about inflation and doesn't let it run unchecked like the 70s. Though it's pretty apparent to me that prices will come down considerably if mortgage rates were to rise 2% in a short period of time. Which may just happen in the end... We'll see. Only ~10% of homeowners have moved at these prices levels, so there are many with much higher equity levels that would be willing to sell for less in a slow market.
- gremlinsinc 5y ago
  what we need to do is replace income taxes with land value taxes...oh your property is worth 3 million now? Well then that'll be 5k taxes per month. What? I can't afford that! Oh, that's sad. I guess you'll have to sell...holding real estate isn't for everybody... and thus --assets will start to be released faster and faster and prices will come down.
  - adam_arthur 5y ago
    Economists generally agree that land taxes are some of the most "efficient" and societally beneficial, because they encourage full utilization of the land. By having a land tax, you push people towards societally more productive outcomes. E.g. a SFH in city center would have a very high tax rate, encouraging redevelopment to multifamily. Income taxes do the opposite somewhat, by discouraging more labor.

rufus_foreman 5y ago

Are you sure you're thinking this through? The Fed is actually about to hit the brakes, people are expecting 7 rate increases this year and more next year. The current 30 year mortgage rate is around 3.5%, the median sale price for a house in the bay area is $1.5 million. With 20% down that's $3500 a month for principal and interest. If the Fed follows through and raises rates say 2%, it turns into $5500 a month. Doesn't do much for affordability. And if you're thinking prices will fall when rates rise, that's not what has happened in the past. Over the last 50 years, every time there has been an environment with rising interest rates, housing prices have gone up, not down: https://awealthofcommonsense.com/2022/01/will-higher-mortgage-rates-derail-the-housing-market/ https://awealthofcommonsense.com/2022/01/will-higher-mortgag.... So you will be paying a much higher rate on a more expensive house.

adam_arthur 5y ago
Yes, the damage is done at this point. The speculative frenzy is what drove the price increases, and it should've been short circuited early last year. Prices will be stickier than rising rates increases affordability. But at this point it has to be done. Increasing buying power makes inflationary pressures worse, not better. Higher rates will kill the psychology/speculative aspect of rapid price increases. And the Fed is acting far too late. The yield curve is about to invert as investors think that Fed hikes will lead to a recession. They have to do many of them and fast to get inflation under control, which will very likely lead to a bust. Every time in US history that inflation has been over 5%, a recession followed when the Fed took necessary measures to bring it down. It could've been a smooth landing if they had started long ago and done them in slow increments with moderation. Yet they kept emergency level money printing and rates in place for two full years, far after the acute crisis had passed. A recession would basically undo a lot of the quick recovery/good that the fiscal spending brought about. But seems too late to avoid if the Fed is serious about inflation and doesn't let it run unchecked like the 70s. Though it's pretty apparent to me that prices will come down considerably if mortgage rates were to rise 2% in a short period of time. Which may just happen in the end... We'll see. Only ~10% of homeowners have moved at these prices levels, so there are many with much higher equity levels that would be willing to sell for less in a slow market.
gremlinsinc 5y ago
what we need to do is replace income taxes with land value taxes...oh your property is worth 3 million now? Well then that'll be 5k taxes per month. What? I can't afford that! Oh, that's sad. I guess you'll have to sell...holding real estate isn't for everybody... and thus --assets will start to be released faster and faster and prices will come down.
- adam_arthur 5y ago
  Economists generally agree that land taxes are some of the most "efficient" and societally beneficial, because they encourage full utilization of the land. By having a land tax, you push people towards societally more productive outcomes. E.g. a SFH in city center would have a very high tax rate, encouraging redevelopment to multifamily. Income taxes do the opposite somewhat, by discouraging more labor.