4 ms·

This is kinda the point, though. Higher rates mean that it's more costly to expand with debt, encouraging people and businesses to take on less debt, and thus

This is kinda the point, though. Higher rates mean that it's more costly to expand with debt, encouraging people and businesses to take on less debt, and thus at the margin, decreasing prices. Mind you, higher rates don't appear to have done much for housing prices in a bunch of markets (e.g. the US, Ireland and Israel) so clearly the lags are longer than I was expecting, at least.

tcbawo 3y ago
High rates don’t impact people without mortgages. There are lots of people who bought in ages ago and move their equity between homes. At least according to the WSJ and others, there seems to be a decent chunk of investor-owned real estate. Someone probably has a study comparing real estate in countries that restrict ownership by investors to see how much this distorts prices.
alephnerd 3y ago
Because in the US and Ireland financing for housing collapsed on 2008 and never recovered (so there are no more small and medium sized residential developers in most of the US). In Israel's case there's literally no space (it's the same size and population as the Bay Area)
- disgruntledphd2 3y ago
  > Because in the US and Ireland financing for housing collapsed on 2008 and never recovered Honestly, I can't speak confidently to the US here, but the Irish building rates were entirely unsustainable before 2008. Like, a fifth of national output was construction, which was definitely way too high. The lag before construction started again (without the small builders getting bank financing) probably does explain some of the issue.
  - alephnerd 3y ago
    Usually major building projects (eg. Toll Brothers type tract housing) are financed 7-10 years before the first sale. After 2008-12 happened, the entire financing industry for residential real estate collapsed, so large builders either switched to commercial or folded. > but the Irish building rates were entirely unsustainable before 2008. Like, a fifth of national output was construction, which was definitely way too high. Lotta corruption too on the Anglo Irish side by not doing due dilligence into connected developers like Bernard McNamara
    - disgruntledphd2 3y ago
      > Lotta corruption too on the Anglo Irish side by not doing due dilligence into connected developers like Bernard McNamara Like, the whole nationalisation of Anglo is why I'm paying shed loads of taxes for crummy services, and you can trace basically half the problems of modern ireland back to that decision. Screw FF.
avidphantasm 3y ago
Yeah, but people need to eat, get to work, etc. At some point businesses have to borrow replace aging equipment, etc. You need some base level investment in productive capacity to simply maintain that capacity. At some point it seems higher interest rates will make this investment more expensive.
- disgruntledphd2 3y ago
  Yes, and that's the entire point of manipulating interest rates to impact the economy. It's supposed to make things slow down. Note that I'm not sure this is a good way of managing an economy, but it appears to be what much of the Western world does right now.
dandy23 3y ago
The relationship between interest and inflation is probably not as simple as people and experts seem to think. It's non-linear, involves hysteresis and also time delays. It's probably not possible to model.
- disgruntledphd2 3y ago
  I don't think it's possible to model using simple equations. Given much much better data (which is a total pipe dream), you could probably do much better than the relatively simple models in use today.
  - dandy23 3y ago
    Maybe model the past, but not predict the future.

tcbawo 3y ago

High rates don’t impact people without mortgages. There are lots of people who bought in ages ago and move their equity between homes. At least according to the WSJ and others, there seems to be a decent chunk of investor-owned real estate. Someone probably has a study comparing real estate in countries that restrict ownership by investors to see how much this distorts prices.

alephnerd 3y ago

Because in the US and Ireland financing for housing collapsed on 2008 and never recovered (so there are no more small and medium sized residential developers in most of the US). In Israel's case there's literally no space (it's the same size and population as the Bay Area)

disgruntledphd2 3y ago
> Because in the US and Ireland financing for housing collapsed on 2008 and never recovered Honestly, I can't speak confidently to the US here, but the Irish building rates were entirely unsustainable before 2008. Like, a fifth of national output was construction, which was definitely way too high. The lag before construction started again (without the small builders getting bank financing) probably does explain some of the issue.
- alephnerd 3y ago
  Usually major building projects (eg. Toll Brothers type tract housing) are financed 7-10 years before the first sale. After 2008-12 happened, the entire financing industry for residential real estate collapsed, so large builders either switched to commercial or folded. > but the Irish building rates were entirely unsustainable before 2008. Like, a fifth of national output was construction, which was definitely way too high. Lotta corruption too on the Anglo Irish side by not doing due dilligence into connected developers like Bernard McNamara
  - disgruntledphd2 3y ago
    > Lotta corruption too on the Anglo Irish side by not doing due dilligence into connected developers like Bernard McNamara Like, the whole nationalisation of Anglo is why I'm paying shed loads of taxes for crummy services, and you can trace basically half the problems of modern ireland back to that decision. Screw FF.

avidphantasm 3y ago

Yeah, but people need to eat, get to work, etc. At some point businesses have to borrow replace aging equipment, etc. You need some base level investment in productive capacity to simply maintain that capacity. At some point it seems higher interest rates will make this investment more expensive.

disgruntledphd2 3y ago
Yes, and that's the entire point of manipulating interest rates to impact the economy. It's supposed to make things slow down. Note that I'm not sure this is a good way of managing an economy, but it appears to be what much of the Western world does right now.

dandy23 3y ago

The relationship between interest and inflation is probably not as simple as people and experts seem to think. It's non-linear, involves hysteresis and also time delays. It's probably not possible to model.

disgruntledphd2 3y ago
I don't think it's possible to model using simple equations. Given much much better data (which is a total pipe dream), you could probably do much better than the relatively simple models in use today.
- dandy23 3y ago
  Maybe model the past, but not predict the future.