On the other hand, I think capital repression has pushed low tier home prices down, making it difficult to trigger new building. It appears that credit conditions have loosened ever so slightly, which may be allowing low tier credit to expand. The initial effect of this may be to raise prices. Possibly prices will need to rise 10% to 20% before they are high enough fund the development of new lots. Maybe that means that the initial expansion of credit has more of an inflationary effect than a real effect because of household balance sheet recovery and credit creation. That may be necessary, but on the other hand, it would probably create a negative Fed reaction.
This still seems like a race between the Fed's policy rate and the neutral rate, and if long rates can continue to stay ahead of short rates, maybe the expansion can continue. If long rates reverse back down, that calls for defense. And, a careful position somewhere in the real estate or construction sectors probably is useful.
In the meantime, I hear the usual talk about how deficit spending is inflationary and how the increase in Treasury supply will drive interest rates higher, etc. It really does make sense, and it would move me if I saw any evidence of it in historical data. Yields will mostly reflect monetary policy and sentiment. Intrinsic value trumps supply and demand.
I don't think the NeoFisherians are correct, but....
ReplyDeleteI am expecting housing costs to flatten on the theory the closed-access cities can't get away with higher rents anymore...
Poor move out, rich move in. Median rent to income stays at 45%, but composition of population raises relative incomes. Rinse and repeat.
DeleteFrom what I saw in L.A., you are correct sir.
ReplyDeleteLong Beach, a big city no one knows about, is going to rent control.
Well, this is night bar-talk type speculation, but here goes:
ReplyDeleteESS ticker is Essex Property Trust, owner of West Coast apartment buildings. They are down in last year.
This downtrends fits with my surmising that rents are topping out in closed-access cities. People are moving out, Amazon is moving out. Business cannot expand anymore.
(Of course, higher interest rates play a role in ESS's ticker)
This flattening or rents may result in another undercut on the CPI or PCE, though it will take some time to factor in.
Thanks for the tip.
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