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The economy is going great, except for the housing market

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Re: The economy is going great, except for the housing market

#61

Post by _heimdall »

dragonwriter wrote: post #59
_heimdall wrote: post #58

Earlier quoted context omitted.

Please don't ask for the goverent to have full control over the entire life cycle of our wealth. They already print the money and set rates that largely define what loans cost us. If the government also directly owns our bank accounts as well we really are entirely at their whims. Not only could the government implement austerity to pay of debt or attempt to reduce inflation, they could directly control approval over…

> they could directly control approval over every digital payment you make. Is it better that this is instead controlled by a narrow set of “private” actors who use their private status to deny everything the government would deny plus things it constitutionally (mostly for first and/or fifth amendment reasons) couldn't?

I've had plenty of issues with PayPal over the years, but I'd still take PayPal over a state-run bank any day.

Unless you find yourself in a political environment where the private and public sectors have merged, the state will always be more powerful. PayPal can block a transaction or even put a hold on my fund for 6 months, but they don't have an army and can't drive a tank down my street. More realistically, they also can't stop another bank down the street from taking my business.

Just look at what the Canadian government did during the trucker rallies. When the protesters wouldn't leave the government forced banks to shut down accounts, blocking protesters from being able to get hotel rooms or buy food and fuel in the middle of winter. And they were able to do that without directly owning protesters' bank accounts. What would they do once the government doesn't have to worry about forcing a private bank to comply? And though it may be reasonable to think today's government wouldn't do that, what about tomorrow's?

Re: The economy is going great, except for the housing market

#62

Post by worstspotgain »

_heimdall wrote: post #57
worstspotgain wrote: post #46

Earlier quoted context omitted.

Prices are not the relevant statistic though, it's housing starts [1]. They dropped from ~1.8M in April 2022 to ~1.3M today. Prices are affected by supply and demand equally, while starts are much more affected by supply. As for how the Treasury and Fed managed the crisis, it was easily the most incredible macro success story since I've been alive. Had you told me in 2022 that they'd manage sub-3% inflation without a…

> Prices are not the relevant statistic though, it's housing starts [1]. They dropped from ~1.8M in April 2022 to ~1.3M today. Prices are affected by supply and demand equally, while starts are much more affected by supply. New construction and prices are always connected, I'm not sure how you could consider one without the other. New builds increases supply, but building them requires buyers willing to pay market pr…

The goal in increasing rates is to cool the economy by reducing construction, i.e. housing starts. Exchanging existing units doesn't affect employment and output as much. Since starts dropped by a third, it follows that prices would have been even higher without the raise in rates.

> we really won't know for sure for at least a decade or so

We absolutely already know. The contractionary effect of a raise in rates is largest in the short term. You can't have a lagging effect after rates are cut if there was no contraction to begin with.

Re: The economy is going great, except for the housing market

#64

Post by _heimdall »

worstspotgain wrote: post #62
_heimdall wrote: post #57

Earlier quoted context omitted.

> Prices are not the relevant statistic though, it's housing starts [1]. They dropped from ~1.8M in April 2022 to ~1.3M today. Prices are affected by supply and demand equally, while starts are much more affected by supply. New construction and prices are always connected, I'm not sure how you could consider one without the other. New builds increases supply, but building them requires buyers willing to pay market pr…

The goal in increasing rates is to cool the economy by reducing construction , i.e. housing starts. Exchanging existing units doesn't affect employment and output as much. Since starts dropped by a third, it follows that prices would have been even higher without the raise in rates. > we really won't know for sure for at least a decade or so We absolutely already know. The contractionary effect of a raise in rates is…

> The goal in increasing rates is to cool the economy by reducing construction, i.e. housing starts

That may be a goal, but it isn't the goal. The fed doesn't directly control interest rates on new construction, they control the fed funds rate. Their changes impact the cost for banks to borrow money regardless of the type of loans they underwrite. Increasing rates should decrease demand for new construction, but it decreases demand for existing homes as well. It also negatively impacts employment and many other areas, basically if your run on debt the higher rates hurt.

> We absolutely already know. The contractionary effect of a raise in rates is largest in the short term. You can't have a lagging effect after rates are cut if there was no contraction to begin with.

What makes you say that? Lagging effects after a rate cut aren't directly controlled by, or limited by, what effects we currently have - they wouldn't be lagging if the effects must have already happened. More importantly in my opinion, contraction isn't an absolute and requires a baseline for comparison.

After rates are cut we can't distinguish between a contraction relative to where we would have been without intervention. Comparing against a gross number isn't particularly helpful.

For example, say we had a house worth $100k and it was on track to be worth $110k next year. If we intervene and now it will only be worth $105k next year, wasn't that functionally a contraction induced by the intervention even though it didn't fall below the present value of $100k?

Re: The economy is going great, except for the housing market

#65

Post by roshin »

smileysteve wrote: post #4

The 2017 tax act had an obfuscated impact on corporate ownership of houses. Capping the personal SALT deduction while simultaneously lowering the corporate tax rate made local tax policies to increase local ownership ineffective.

But only federal corporate taxes went down. Can't local municipalities add a corporate tax for property ownership? The main argument against local corporate tax is that the corporation can just move to a low tax area (Delaware/Ireland). But with land ownership, that doesn't really apply.

Re: The economy is going great, except for the housing market

#66

Post by worstspotgain »

_heimdall wrote: post #64
worstspotgain wrote: post #62

Earlier quoted context omitted.

The goal in increasing rates is to cool the economy by reducing construction , i.e. housing starts. Exchanging existing units doesn't affect employment and output as much. Since starts dropped by a third, it follows that prices would have been even higher without the raise in rates. > we really won't know for sure for at least a decade or so We absolutely already know. The contractionary effect of a raise in rates is…

> The goal in increasing rates is to cool the economy by reducing construction, i.e. housing starts That may be a goal, but it isn't the goal. The fed doesn't directly control interest rates on new construction, they control the fed funds rate. Their changes impact the cost for banks to borrow money regardless of the type of loans they underwrite. Increasing rates should decrease demand for new construction, but it d…

> it decreases demand for existing homes as well. It also negatively impacts employment and many other areas, basically if your run on debt the higher rates hurt

The question is not what's affected. It's how much monetary policy it takes to achieve the desired output and employment effect, and where is the employment effect. We want to stop increasing rates once the effect is achieved.

We raise rates because the economy is overheating. Too much money is chasing too few goods, raising prices. In response to the favorable prices, too many jobs are chasing too few workers, raising wages.

Rising prices and wages (without rising productivity) means inflation. We're at one edge of the Phillips curve [1] and need to move back to the middle.

> That may be a goal, but it isn't the goal.

The goal is actually to raise unemployment. That's what the "cooling the overheating economy" euphemism means. However, we don't have the tools to raise it evenly in all sectors. The only tool we have is the short term interest rate.

Luckily, it affects the long term rate, which affects demand for homes, new and existing. For (say) every 20 fewer homes sold, one realtor and one banker might go unemployed. But for every 20 fewer new homes built (say), 50 laborers might go unemployed. That's why the transmission is primarily through construction [2] [3]. The consumer durables sector (appliances) used to have a large multiplier too, but most of those manufacturing jobs have been automated or moved overseas.

> they wouldn't be lagging if the effects must have already happened

You can model the lag effects as geometric decays of the original impulse. You need a negative original effect (one impulse of high unemployment) that will then regress back to baseline (continued but fading unemployment.) We didn't have any impulse, hence no decay.

The only thing that could really go wrong is a resurgence of inflation if the cuts were too fast, but chances are we would have seen that already too.

> relative to where we would have been without intervention

The problem here is we were at too much output/employment. We had to get through that moment and fix the problem without overshooting in the opposite direction.

We couldn't do better, that's the whole point. It's not like there was potentially more output to be had. The actual problem is that output was too high. That's why there was inflation.

[1] https://en.wikipedia.org/wiki/Phillips_curve

[2] https://www.usnews.com/news/economy/articles/2022-12-20/new-...

[3] https://www.infracapfunds.com/post/why-the-us-is-unlikely-to...

Re: The economy is going great, except for the housing market

#67

Post by the_gipsy »

AnimalMuppet wrote: post #18
the_gipsy wrote: post #11

Earlier quoted context omitted.

Increasing supply in population centers also raises demand. Think about why it's in demand in the first place: it's because there is high density (and more opportunities).

Barring unlimited immigration, we could build enough high-density housing in cities to meet demand. (At least, we could if we fixed zoning.) (Or, we could in most cities. A few, like New York and San Francisco, are very limited in terms of available land.)

You can't build faster than demand is rising (because building increases demand again). Except if demand goes down due to an external crisis. Or if you magically could double housing with a snap, but once again later once that new housing gets occupied... more density means more job means more opportunities.

"Just build more" is not a solution on its own, at all.

Re: The economy is going great, except for the housing market

#68

Post by AnimalMuppet »

Dalewyn wrote: post #35
AnimalMuppet wrote: post #24

Earlier quoted context omitted.

Been hearing that since the 1970s, with more reason. 1979 looked a lot more like hyperinflation than 2023 did, with 14% inflation. By the way, hyperinflation doesn't just mean "large inflation". It's defined as 50% increase in prices per month . Yes, governments often (not always) choose to inflate the money supply rather than pay their debts. No, nobody deliberately chooses hyperinflation. Mind you, you could be rig…

I agree, "The USD/American economy will crash!" and "China will implode!" are perhaps the two textbook examples of yokels yapping baselessly about doomsdays I've consistently heard and turn out wrong over my entire lifetime. Entire foreign countries (read: most of the world worth caring about) invest in and hold the US, whether that's stocks or bonds (Treasury bonds especially) or literal USD. The only way the US cra…

Well, I'm not quite that optimistic. The only way the US crashes is if it stops being the best option out there. If the EU and the euro, or China and the yuan, or India and the rupee become better options than the US and the dollar, then people will stop holding so many dollars, and the US will be in trouble. That is a thing that can happen, even though it hasn't in 80 years.

Re: The economy is going great, except for the housing market

#69

Post by germinalphrase »

_heimdall wrote: post #58
germinalphrase wrote: post #50

Earlier quoted context omitted.

Allowing the post office to do very basic banking sounds like a fine idea to me.

Please don't ask for the goverent to have full control over the entire life cycle of our wealth. They already print the money and set rates that largely define what loans cost us. If the government also directly owns our bank accounts as well we really are entirely at their whims. Not only could the government implement austerity to pay of debt or attempt to reduce inflation, they could directly control approval over…

We’re talking about checking/debit accounts for people who are unhoused/unbanked not “the government having full control over the entire life cycle of our wealth”.

Re: The economy is going great, except for the housing market

#70

Post by dver »

acdha wrote: post #48
Ancalagon wrote: post #16

The SoCal housing market is insane, especially San Diego where the pay to mortgage payment ratio is completely off-kilter. Don’t know how this city is going to function in 10-20 years.

The weird thing is that you could have written that same sentence 20 years ago. I remember around 2005 the Union Tribune ran a map of San Diego showing the percentage of household income spent on housing, with the entire coast red even in the rich neighborhoods where people were getting interest-only mortgages on multi-million dollar homes. At the time I remember being amazed at how many people would take such risky…

I was interviewed by the Union Trib in the late 80's about home affordability.

Between the Sunshine Tax and thin strip of land that everyone wants to live in, and there is no solution to affordability. (Except the usual go So Cal go east until the price drops)

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