3 ms·

So the risk needs to be priced in then? Lower housing prices? Yes please

• kbolino 3y ago
  I too want to see housing prices come down, but I think the only "safe" way to do it is to keep interest rates high. Setting aside recessions (and their undesirable/punitive effects), housing affordability seems to be inversely related to credit availability. I think this is explained primarily through two mechanisms: 1. compounding interest drastically penalizes higher principal amounts 2. at lower interest rates, debt is more advantageous than savings I'd argue that interest rates still aren't high enough yet, and they will need to stay high for a decade or more, in order for these mechanisms to really manifest virtuously. We had a great opportunity during the pandemic, when people weren't spending much, they were saving a lot, and they became more focused on taking care of themselves and considering their choices. Sadly, post-pandemic, we went on a ZIRP spree to try to "get the economy back on track" which did employ a bunch of people (for a little while anyway) but put us fiscally in a position even worse than before the pandemic.