8 ms·
The Fed's Big Problem, There Are Two Economies but Only One Interest Rate
- refurb 3y agoI don't think it's the Fed's job to support the housing market?
- jfengel 3y agoInflation is the Fed's job, and rent is part of that. That doesn't extend into managing the housing market, but managing interest rates is a big thumb on the scale.
- refurb 3y agoTrue, but this article is complaining about the opposite - the housing market can't sustain today's prices because of high interest rates. What you're talking about is what the fed is already try to do - bring inflation down with high interest rates.
- gndk 3y agoPrices will go further up when interest rates go down. Interest rates haven't been raised enough to reign in inflation.
- toomuchtodo 3y agoIt’s a useless thumb for attempting to solve housing inflation. Housing shortages of millions of units means that if you’re priced out of a mortgage, you’re forced to rent with no rent price controls, so instead of mortgage bond investors collecting your housing spend, it’s instead landlords. The only way to fix housing costs is to build baby build, as fast as you can, and the Fed has no power over fiscal policy (and policy in general) to strongly encourage such a build rate. This should be on the scale of the Manhattan Project or the Inflation Reduction Act. https://www.fanniemae.com/research-and-insights/perspectives/us-housing-shortage https://www.fanniemae.com/research-and-insights/perspectives... https://www.npr.org/2024/01/25/1225957874/housing-unaffordable-for-record-half-all-u-s-renters-study-finds https://www.npr.org/2024/01/25/1225957874/housing-unaffordab... https://www.jchs.harvard.edu/americas-rental-housing-2024 https://www.jchs.harvard.edu/americas-rental-housing-2024 https://youtu.be/Jl7vrujr1J4 https://youtu.be/Jl7vrujr1J4
- irjustin 3y agoI'll agree there needs to be a massive supply boost in the form of entry level housing (only for 1st time owners, get rid of corp land grabs). That's what Singapore does quite well (I currently live here). The HDB system isn't a free market - new supply is only allowed for the first time home buyer, priced cheaply and you're not allowed to sell for 5 yrs. Covid had very big problems on supply but SG gov has kept it's promise in creating a lot of new housing in the past 2 yrs. It has a lot of levers to control a housing bubble for its citizens and thusly a big portion of inflation.
- nojvek 3y agoI agree with this move. Tax those who hold single family homes for renting to others and the problems will fix itself. Housing is seen as an investment. If a big portion of rent starts going into taxes, then it doesn’t become a speculative instrument. Have apartment complexes managed by corps with central management. Don’t make single family homes and townhomes a tool of speculative investment. US economy would grow a lot faster if the money sitting on houses went into companies producing goods and services.
- joecot 3y agoBuild baby build doesn't work when Black Rock and so many other private equity companies are content to buy as many houses as they can and then hold them to raise prices further or rent them out. 44% of all Single-Family Home Purchases were from Private Investors in 2023. A huge portion of the problem would be solved immediately by 1) a vacancy tax, 2) banning the purchase of single family homes by corporations.
- toomuchtodo 3y agoI agree this is a component of the solution due to the speed at which capital can move.
- refurb 3y agoThose investors are most individuals buying houses to rent. Blackrocks fund accounted for 0.01% of US housing stock.
- pixl97 3y agoEh.... we forget about that 2008 thing where the housing market crashed the economy and took down a bunch of banks? Also, people need housing and when that gets out of whack people start whispering about replacing the government.
- pessimizer 3y agoNo, we forget about that time when we ran up house prices so fast they doubled in like 10 years before crashing, catching people who had been allowed to borrow massively on the worth of houses, debt marked AAA.
- chrisweekly 3y ago> housing market crashed the economy and took down a bunch of banks or, "a bunch of banks crashed the economy and took down the housing market"
- User23 3y agoThe Fed has two official goals: low inflation and full employment. It also has an existential goal that few people think about who aren’t deep into finance: maintain the integrity of the payment system. That 0th commandment as it were will trump its official goals when they conflict.
- paulddraper 3y ago2008 says otherwise
- senectus1 3y agoarguably this was a finance sector issue... not so much a housing sector issue.
- pessimizer 3y agoImagine if the Fed also pretended it had the duty to keep eggs expensive because egg producers might want refinance their loans.
- exabrial 3y agoOn a side note of the housing crisis: I think a huge problem is the non enforcement of zoning laws. If a property in a residential area is being used 100% of the time to rent, it’s a business. I’m blown away by communities, especially ones like mountain towns where space a is a premium, where they aren’t enforcing this.
- pdonis 3y ago> If a property in a residential area is being used 100% of the time to rent, it’s a business. I don't think that's what zoning laws actually say. My understanding that zoning laws are about the primary use of the property by whoever is actually using it, not who owns it. So a single family home is residential because someone lives there, regardless of whether that person owns the home or is renting it. Also, what about apartments? Those are zoned residential even though the actual owners are almost certainly not living there, and even if they are they aren't occupying more than a tiny portion of the total living space available.
- bombcar 3y agoExactly this. You can get in Trouble for buying a commercial pr industrial property and living in it (though if you’re slick and quiet about it nobody may ever know).
- notatoad 3y ago>though if you’re slick and quiet about it nobody may ever know i'm sure this varies by jurisdiction, but around here the fire marshal will know, because commercial properties get inspected semi-annually to make sure they meet fire code. you'd have to be very sneaky to get past the fire department. and it might not be their job to enforce the zoning laws, but living in a commercial space violates the fire code.
- svieira 3y agoUnless (until?) you do something foolish, which leads to other issues, which leads to a massive fire: https://en.wikipedia.org/wiki/Ghost_Ship_warehouse_fire https://en.wikipedia.org/wiki/Ghost_Ship_warehouse_fire
- stephen_g 3y agoI think the Fed's biggest problem is that setting interest rates has never shown to be a broadly effective way to control inflation, but it's the only tool they currently have. The most provably "effective" way that they can work is to raise rates to the point where it crushes the economy and there is a huge recession (which usually also brings down inflation), but up until that point they really don't seem to work very well. And obviously pushing everyone into recession, while in a way effective at bringing down inflation (because it makes it so most people can't afford to buy anything anyway), it's not a good way of doing it either. So it's altogether just bad policy to try and control the economy that way. We've been running this experiment for a few decades now, and I think people really have to start pointing out that it's entirely failed.
- gndk 3y agoWhy is pushing everyone into recession not a good way of doing it? Recessions are healthy for the economy. We need double digit interest rates for ~5-10 years to clean up the past mismanagement. The longer we delay this, the more painful it will be, peaking at massive civil unrest.
- boppo1 3y agoWe can't afford the payments on the debt. We're basically backed into a corner unless we innovate like we did in the early 1900s again.
- rjbwork 3y agoThe Fed's biggest problem is a gridlocked congress and a categorical reluctance to take money out of existence at the rate it needs to be (e.g. tax the rich). It's tantamount to trying to fly a hot air balloon. You might be able to keep the thing from crashing, but all you've got is one lever and you've got no real control over where it's going.
- boppo1 3y agoTaxing the rich won't fix the fact that centrally planning interest rates doesn't fucking work. Let the treasury auctions decide yields.
- chiefalchemist 3y ago> Those looking to buy a home but cannot afford the record high prices, are not faring well in this economy. This is apples v oranges. Housing prices are the result a years, if not decades of mismanagement, bad decisions, sociopolitical forces, etc. On the other hand, "this economy" is a short term view of the present. That aside The Fed's big problem is The Fed. It creates situations and then has to go to extremer extremes to dig itself out. The fact no one - most importantly, including Uncle Sam - can cut itself off from the addiction to debt certainly doesn't help.
- hehhehaha 3y agoThe real problem is that spending wins votes, austerity does not.
- zrn900 3y agoThe real problem is that none of that spending actually goes to the people.
- rayiner 3y agoVirtually all of it goes “to the people.” Even the military budget is mostly payroll or operations (only 18% is procurement going to defense contractors). Social security is checks to individuals. Medicare is checks to healthcare providers.
- zrn900 3y ago> Even the military budget is mostly payroll or operations (only 18% is procurement going to defense contractors) Not in a privatized defense environment where things are marked up 4000%. Yeah, you read that right.
- tptacek 3y agoA lot of those 4000% markup stories are apparently not real, but rather accounting artifacts; they're cases where, like, a wrench bills out at $20,000, but what's actually happening is that the procurement was for a whole stealth bomber, and the cost gets spread across all the line items pro rata.