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re: Powell: Fed can maintain higher rates for "as long as needed"
Posted on 4/17/24 at 11:23 am to VolSquatch
Posted on 4/17/24 at 11:23 am to VolSquatch
quote:
Its not that high when you could buy a nice house for $80k Basically every expense has outpaced earnings. A decent house in many areas is $200-$300k, sometimes more than that. Even a 7.5% mortgage on that is prohibitive to the average earner.
But higher rates are how you in theory get housing back to a more affordable level. The rates lower demand which then lowers prices
Notice I said "in theory". As others have mentioned there's a lot of things going on in this economy that have tested that theory. I do argue though if you raised rates high enough inflation would stop, the question becomes how high would you have to go and how much other damage would you do to the economy in the process?
2
Posted on 4/17/24 at 11:45 am to Wishnitwas1998
quote:
But higher rates are how you in theory get housing back to a more affordable level. The rates lower demand which then lowers prices
That only addresses the demand side and assumes stable/adequate supply.
We have a supply side problem as well that needs to be addressed. The catch is, higher rates means higher cost of capital for builders - meaning it's more financially difficult to increase supply. That increase in CoC goes where? In general terms, costs translate to price (companies might eat a little bit of margin, but they have to remain profitable).
The tension between the supply side and demand side is pretty clear. It's a trick bag without a clear way to get out of without something breaking.
Posted on 4/17/24 at 3:35 pm to Wishnitwas1998
quote:
But higher rates are how you in theory get housing back to a more affordable level. The rates lower demand which then lowers prices
But a house is by far most people's largest investment. So you're teetering between having a chunk of the population not be able to afford a house vs the other chunk being in an upside-down asset. And when houses do become more affordable you're gonna have investors snatching them up as rentals again.
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