6 ms·

The biggest problem wasn’t the interest rate, it was the money printing to gobble up mortgages and bonds. Problem: Covid Solution: $1.5 trillion invested in

The biggest problem wasn’t the interest rate, it was the money printing to gobble up mortgages and bonds. Problem: Covid Solution: $1.5 trillion invested in mortgages! If you don’t own a house and wonder why they’re unaffordable, this is why: https://fred.stlouisfed.org/series/WSHOMCB https://fred.stlouisfed.org/series/WSHOMCB

spaceman_2020 4y ago
It’s also why inflation has been so stubborn. Anyone who owned ANY assets practically doubled their net worth within 2 years. If you owned a house, you likely also refinanced for under 3%. At the same time, wages increased. How can there be a drop in demand if your house is now worth 50-100%, your 401k is 50% higher, and your wages are 20% higher? Sure, this doesn’t describe everyone - the bottom 50%ile might not own any assets at all. But it does describe enough Americans that demand can’t crater anytime soon.
- acchow 4y ago
  It was a massive handout to existing homeowners. If you rent, you got nothing. If you were paying $6000/mth on your mortgage, you could refinance and find yourself paying $3500/mth. Now, until the end of the loan, you find you have an extra $2500/mth extra to spend. No wonder we have inflation
  - paulmd 4y ago
    > If you rent, you got nothing in many states rentoids could stop paying their rent and just pocket it, with evictions halted for >12 months. there was something for everyone this time around
    - acchow 4y ago
      Ok, renters got $1500/mth for 2 years, maybe, if they decided not to pay rent (almost all my friends are renters and none of them stopped paying rent). Homeowners got $1500/mth for 30 years.
  - spaceman_2020 4y ago
    It was pretty much a "screw you" to young people. Home ownership rates for 65+ year olds is nearly 80%. For 45-54 year olds, its 70%. Statistically, if you were 45 years old, you likely benefited a great deal from the pandemic. My brother is in that age group. He bought his house for 380k. It's now valued at 750k. He works in tech so his salary increased from 120k to 180k. He refinanced his mortgage at 2.5% and pays iirc ~1100/month. It's the same story for all of his friends.
    - soperj 4y ago
      > Home ownership rates for 65+ year olds is nearly 80%. Pretty sure most of those people are mortgage free.
      - acchow 4y ago
        Many people move multiple times in their lives. People also take out additional loans on their homes down the line to do remodels/renovations
      - jbay808 4y ago
        When rates fall, prices for assets like homes tend to rise in proportion shortly after, such that the cost to borrowers is approximately constant. The benefit of falling rates goes more to homeowners than new borrowers, even if they don't have mortgages.
      - spaceman_2020 4y ago
        And now their fully-owned houses are worth 1.5-2x compared to 2019.
      - nly 4y ago
        Which is even better. They could take out equity release and spend what they borrowed.
        jjav 4y ago
        But of course if you refinance to take equity out, now you're back to having a monthly mortage payment again. If you do it today, it will be a high interest mortage. If you're over 65 (as OP mentioned) you're probably soon retiring, so this would be a very bad financial move.
  - MattPalmer1086 4y ago
    That may be a contributory factor in the US, but inflation is global. As a homeowner in the UK, my house did not appreciate in value more than usual, our salaries have not risen by anywhere near inflation, and our pensions have fallen!
    - acchow 4y ago
      Your house, maybe not. But across the UK, average house prices are up 10% this year compared to 2021. And from 2021 vs 2020 another 8-10%
    - sofixa 4y ago
      Yes, Americans tend to focus on the monetary side, completely forgetting there's a whole other world outside of their country that had wide varieties of policies to combat Covid, and everyone is experiencing inflation, including Sweden (at 10% annually as of September 2022) that didn't shut down and didn't spend anywhere close to the money spent by other EU countries to prop up jobs and the economy. Many people, especially Americans, forget the supply side - a pandemic which wrecked global supply lines, and a war which is impacting some of the most important resources (food and energy), globally. No idea why, maybe because they can't blame a politician/party for that part. In any case, inflation has many complex causes, is global, and may take quite some time to get reigned in. There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics.
      - lotsofpulp 4y ago
        > There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics. Perhaps it is a supply of cheap labor problem that Covid shutdowns allowed a sufficient disruption to low paying labor markets to cause a “phase change”. Even before Covid, labor prices were trending up (maybe since birthrates have been dramatically falling for a long time), but the sudden, rapid shake up gave people en masse time and excuse to change things up for themselves, causing a chain reaction from the lowest paid labor being harder to fill.
  - jjav 4y ago
    Yes, althought that's a very big drop. If you bought a 1.5M house (20% down) at 4.5% your mortgage payment is just about $6K. If you refinanced down to 2.5%, the payment is now $4.7K.
- jjav 4y ago
  > How can there be a drop in demand if your house is now worth 50-100% Note that house value increase (paper value) doesn't generate any disposable cash to the owner. They could go and refinance (at a higher rate now) to get some equity cash out, but anyone doing that to spend the money on consumables is doing a bad decision.
  - dsfyu404ed 4y ago
    They all went and bought vacation houses (read: what would have been somebody else's starter house) in flyover states. The money spent on goods is just a figment of them spending all the stuff they need to kit out their extra house.
  - spaceman_2020 4y ago
    This is the part that’s hard to capture in data. Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. You might objectively know that you can’t sell your $1M house for its current zillow estimate, but when you’re out at the bar, its easy to justify in your head that you can “afford” that extra drink. After all, didn’t you just become a millionaire? There is a huge psychological component to money that’s somehow never talked about.
    - jjav 4y ago
      > Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. Do you know of research showing this behavior? I haven't seen research one way or the other, but anecdotally this seems very unlikely. I don't know of anyone who feels that way and we're in silicon valley so everyone we know has houses that have appreciated quite a bit. But everyone knows both objectively and emotionally that zillow zestimates are not money that can be spent. It might be money a number of decades in the future after retirement and selling the house to move, but that's way too far in time and uncertainty to have any impact on behavior today.
triceratops 4y ago
> biggest problem wasn’t the interest rate Err...how do you think people get massive mortgages, if not low interest rates?

spaceman_2020 4y ago

It’s also why inflation has been so stubborn. Anyone who owned ANY assets practically doubled their net worth within 2 years. If you owned a house, you likely also refinanced for under 3%. At the same time, wages increased. How can there be a drop in demand if your house is now worth 50-100%, your 401k is 50% higher, and your wages are 20% higher? Sure, this doesn’t describe everyone - the bottom 50%ile might not own any assets at all. But it does describe enough Americans that demand can’t crater anytime soon.

acchow 4y ago
It was a massive handout to existing homeowners. If you rent, you got nothing. If you were paying $6000/mth on your mortgage, you could refinance and find yourself paying $3500/mth. Now, until the end of the loan, you find you have an extra $2500/mth extra to spend. No wonder we have inflation
- paulmd 4y ago
  > If you rent, you got nothing in many states rentoids could stop paying their rent and just pocket it, with evictions halted for >12 months. there was something for everyone this time around
  - acchow 4y ago
    Ok, renters got $1500/mth for 2 years, maybe, if they decided not to pay rent (almost all my friends are renters and none of them stopped paying rent). Homeowners got $1500/mth for 30 years.
- spaceman_2020 4y ago
  It was pretty much a "screw you" to young people. Home ownership rates for 65+ year olds is nearly 80%. For 45-54 year olds, its 70%. Statistically, if you were 45 years old, you likely benefited a great deal from the pandemic. My brother is in that age group. He bought his house for 380k. It's now valued at 750k. He works in tech so his salary increased from 120k to 180k. He refinanced his mortgage at 2.5% and pays iirc ~1100/month. It's the same story for all of his friends.
  - soperj 4y ago
    > Home ownership rates for 65+ year olds is nearly 80%. Pretty sure most of those people are mortgage free.
    - acchow 4y ago
      Many people move multiple times in their lives. People also take out additional loans on their homes down the line to do remodels/renovations
    - jbay808 4y ago
      When rates fall, prices for assets like homes tend to rise in proportion shortly after, such that the cost to borrowers is approximately constant. The benefit of falling rates goes more to homeowners than new borrowers, even if they don't have mortgages.
    - spaceman_2020 4y ago
      And now their fully-owned houses are worth 1.5-2x compared to 2019.
    - nly 4y ago
      Which is even better. They could take out equity release and spend what they borrowed.
      - jjav 4y ago
        But of course if you refinance to take equity out, now you're back to having a monthly mortage payment again. If you do it today, it will be a high interest mortage. If you're over 65 (as OP mentioned) you're probably soon retiring, so this would be a very bad financial move.
- MattPalmer1086 4y ago
  That may be a contributory factor in the US, but inflation is global. As a homeowner in the UK, my house did not appreciate in value more than usual, our salaries have not risen by anywhere near inflation, and our pensions have fallen!
  - acchow 4y ago
    Your house, maybe not. But across the UK, average house prices are up 10% this year compared to 2021. And from 2021 vs 2020 another 8-10%
  - sofixa 4y ago
    Yes, Americans tend to focus on the monetary side, completely forgetting there's a whole other world outside of their country that had wide varieties of policies to combat Covid, and everyone is experiencing inflation, including Sweden (at 10% annually as of September 2022) that didn't shut down and didn't spend anywhere close to the money spent by other EU countries to prop up jobs and the economy. Many people, especially Americans, forget the supply side - a pandemic which wrecked global supply lines, and a war which is impacting some of the most important resources (food and energy), globally. No idea why, maybe because they can't blame a politician/party for that part. In any case, inflation has many complex causes, is global, and may take quite some time to get reigned in. There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics.
    - lotsofpulp 4y ago
      > There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics. Perhaps it is a supply of cheap labor problem that Covid shutdowns allowed a sufficient disruption to low paying labor markets to cause a “phase change”. Even before Covid, labor prices were trending up (maybe since birthrates have been dramatically falling for a long time), but the sudden, rapid shake up gave people en masse time and excuse to change things up for themselves, causing a chain reaction from the lowest paid labor being harder to fill.
- jjav 4y ago
  Yes, althought that's a very big drop. If you bought a 1.5M house (20% down) at 4.5% your mortgage payment is just about $6K. If you refinanced down to 2.5%, the payment is now $4.7K.
jjav 4y ago
> How can there be a drop in demand if your house is now worth 50-100% Note that house value increase (paper value) doesn't generate any disposable cash to the owner. They could go and refinance (at a higher rate now) to get some equity cash out, but anyone doing that to spend the money on consumables is doing a bad decision.
- dsfyu404ed 4y ago
  They all went and bought vacation houses (read: what would have been somebody else's starter house) in flyover states. The money spent on goods is just a figment of them spending all the stuff they need to kit out their extra house.
- spaceman_2020 4y ago
  This is the part that’s hard to capture in data. Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. You might objectively know that you can’t sell your $1M house for its current zillow estimate, but when you’re out at the bar, its easy to justify in your head that you can “afford” that extra drink. After all, didn’t you just become a millionaire? There is a huge psychological component to money that’s somehow never talked about.
  - jjav 4y ago
    > Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. Do you know of research showing this behavior? I haven't seen research one way or the other, but anecdotally this seems very unlikely. I don't know of anyone who feels that way and we're in silicon valley so everyone we know has houses that have appreciated quite a bit. But everyone knows both objectively and emotionally that zillow zestimates are not money that can be spent. It might be money a number of decades in the future after retirement and selling the house to move, but that's way too far in time and uncertainty to have any impact on behavior today.

triceratops 4y ago

> biggest problem wasn’t the interest rate Err...how do you think people get massive mortgages, if not low interest rates?