Where I live, in an affluent town on the east coast, homes have been going for 50%+ over ask. And the asks were high.
Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.
> “Inflation is always and everywhere a monetary phenomenon...” - Milton Friedman
It turns out years of suppressing rates combined with dumping many trillions of dollars onto a supply constrained economy causes a rise in prices. Huh... You'd think the trained professionals at the fed would know this by now, but they continue to believe they can defy reality.
The crux of MMT is the idea that spending creates money and taxing destroys money, so deficits are made up and only inflation matters. Doesn’t seem like a “so much for” moment for MMT, which also predicts this if there’s too much money in the economy. The real question is whether there’s political appetite for the MMT-prescribed treatment here, which is to significantly raise taxes. I’m guessing no.
The government has a money source and a money sink, and the idea that input and output must balance is an anachronism dating to days of physical currency. Under MMT, the government spends the amount it needs to spend to fulfill its obligations, and taxes the amount it needs to tax to prevent inflation. Under this model the purpose of taxation is not to collect money so that it can be spent (since government spending comes from the money source), but rather to collect money so that it can be destroyed by feeding it into the government's money sink. In a growing economy with a growing population it's implausible that balancing inflow and outflow would be ideal, since over long time scales that would result in the number of dollars per person and per unit of economic activity to decrease, leading to deflation.
The essence of MMT as I understand it is that money is made up so the government should spent as much as necessary for infrastructure, essentially creating money, and in order to cut off inflation it should tax money and just... do nothing with it, just destroy it.
I know that MMT is very hated but it seems very compelling.
Asking prices are just advertising to get your foot in the door. If an asking price of $1 were to start a bigger bidding frenzy than one that's 30% underpriced, sellers would list homes for a buck.
What’s the mismatch? Biden got a trillion or two in handouts and Powell bought up all the bonds. Now Biden is taking a step back (not completely but not another trillion) and Powell said he’ll start selling.
Halting rent and college tuition paybacks while also spending trillions for people not to work and businesses to not open while the fed also cut interest rates continuously.
Any landlord who finds themselves so burdened by missed rent payments ought to just sell their properties. The market's never been better. They can use the windfall to start a real business instead.
Pretty sure the covid stimulus passed while trump:Biden was/is president is like 2:1.
Not giving either one a pass though because Biden reappointed Powell and failed to give Powell the political direction to raise rates late last year when it was obvious inflation was anything but transitory.
The Federal Reserve is independent of the executive branch's political aims. Its mandate is to keep inflation and unemployment in check with the tools it has at its disposal (interest rates, balance sheet).
> The Federal Reserve is independent of the executive branch's political aims.
That's the theory anyway.
The fed chair is appointed by the president and still has some accountability to the political machine. It is independent in many ways but it is not truly independent.
> Its mandate is to keep inflation and unemployment in check
Yes and now it is also trying to fight climate change, wealth gaps, and other "ESG" goals.
Even if you’re right that’s kind of misleading. Trump’s stimulus and Powells actions were basically necessary to prevent another 2008style economic collapse. Biden’s came as “voluntary” unemployment was already high and during a recovery. Either way that was another example of the fed and exec branch working together. However anyone’s feelings are about politics and the things said, us policies were quite competent during the pandemic.
For anyone interested trillion dollar triage is a great book.
High immigration + no construction -> High demand + low supply. Then on top of that you have record inflation with stagnant wages.
The market is being completely rational. What "overvalued" here means is "are homes expensive compared to local wages" not "are homes irrationally expensive." Normally this would drive construction but the market is distorted by credit such that new construction is less economical (a result of 2008.)
This also forms a feedback loop: people are giving up on labor since housing consumes more than they make, driving up the price of construction, driving up the price of housing. It's likely the dollar will crash before middle/lower class hosing will.
People keep repeating these statements about underbuilding or lack of supply as if they're backed by data, but it's just he said she said. Number of housing units to households is the same as it was in the year 2000, and in line with historical levels.
Home price gains were driven by a low rate induced speculative frenzy. It's inflationary psychology at work. E.g. people spin narratives about why you need to buy now to avoid being priced out, thus everybody starts to panic buy making the prophecy self fulfilling in the end.
But this never ends well. At the root of every bubble is some collective narrative that "justifies" its existence
High construction in Idaho does nothing for housing in New York. National construction rate averages are pointless. Gotta break it down by geography and locations of (in-person) jobs.
Housing is fungible in a remote work world. So construction in cheaper locales can help reduce costs in HCOL areas. E.g. people migrate from CA to FL, reduces number of households in CA. Not for local jobs of course
But anyway, beyond fungibility, demographic trend is towards population decline. Spread between population growth and rate of new home construction is at an all time high.
And even CA recently passed a law allowing densification on certain SFH plots
As long as going to the same bar as your boss during happy hour leads to a promotion, career progression + economic opportunity will be tied to geography. Barely any companies operate like Gitlab does.
Demographic decline is a much bigger problem to solve, not something that should stop us from taking action.
US immigration is cratering, it's a national crisis nobody cares about.
The supply constraint is old but its not why housing is high - housing prices are high even in places where there is a lot of construction. Monetary policy explains it a lot better, and it predicts that at some point the trend will reverse.
It's not exactly all about supply and I talked about that in my original comment but maybe that needs clarification. Yes the prices are high because supply is limited, normally that would drive construction but because the prices are so extremely high and interest rates so low almost everyone has to buy housing with credit. One of the many problems with this is that lenders get to be picky about what exactly people are allowed to buy and one of the things they don't like is people financing new construction. The result is people who could otherwise afford to construct new housing (and construct it in more efficient ways) for themselves in less populated places being forced to compete for the already short supply.
Perhaps legal immigration is but immigration overall is very high.
I've hit my quota, here's my reply: illegal immigrants still have to live somewhere So they're going to take housing off the market. They manage to rent houses in various ways (employers, government programs, ngos etc.)
I'm places like California, illegal immigrants can get state issued drivers license and open bank accounts, and that ignores the simplicity of renting or owning a house in another's name
Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.