By Artis Shepherd
President Trump’s recent remarks, that he wants to keep housing prices artificially high to protect the “wealth” built into people’s homes, ignore the economic dislocation that occurs because these policies require inflating the money supply.
All this started with the 30 year fixed rate mortgage. The leverage is insane
Crank it to 50!
If 50 year mortgages were available back when rates dropped to <3% in 2021, I would have jumped on it in an instant.
In this era the credit bubble it make sense. But some poor pension fund will buy this 50 year loan and suffer “real” losses for decades to come.
Just imagine all those institutions clipping 3% off mortgage backed securities. While inflation marches on
I doubt there'd be much demand from private investors for a 50-year mortgage. The only way it happens if the government implicitly backs it through the GSEs.
Well if you live in your home and you don't rent it or sell it then the real value is not the same as the value you could get in an investment property.
Wherever you live, that's just cost. It doesn't generate you any income.
In that case the inflated price just means you’re paying more in property taxes and homeowners insurance.
I think that the "social" issue is:
That's why politicians avoid letting the market run its course.
Which is odd because from where I'm sitting that's the only way out. Just shut up, do nothing and when the market does market things and Karens come Karening at you, you say "I don't understand why you're all making such a mess of our perfect housing market"
Ironically, it would be easier for progressives to embrace the market on this: i.e. "We care about affordability for regular people, not the portfolio values of white millionaires."
Yes, it's about doing the right and moral thing not someone happy. Which in the end will make most people happier as more will be able to have a house and a family.
Homeownership wealth is not a fallacy, but Trump's remarks about wanting to keep house prices is at direct odds with his goals of housing affordability.
Not a strict fallacy, I agree, but people miscategorize housing.
I'd argue that the structure is a depreciating durable good, but the right to use the land could be considered an investment.
That's fine, but is it how people think about their homes?
I'd say the expectation is that it's an appreciating durable capital good.
The problem is that people assume that Trump (or any politician for that matter) actually care about the consequences of their policies.
If instead you view their policies as a means of making statements and virtue signalling, it makes more sense.
Trump says things that he thinks his base wants to hear. He acts on them enough to be able to say more and new things he thinks they want to hear.
Trump does not care whether housing costs more or less. Trump does not care whether housing is a savings vehicle or a depreciating durable good. Just as he does care to defend free speech or any other constitutional principle. This the same for Biden and most of the members of Congress. Lawmaking is a show they put on to wow their constituents into voting.
If we take as given that politicians are dishonest pandering grifters, then it follows that changing the beliefs of regular people will change the behavior of the grifters.
Do we elect the politicians we deserve?
Trump is at least facing up to the reality that USA is an empire in decline and facing an existential threat from China.
He is dealing with a population of voters who still believe the hype from the 1990s about US exceptionalism.
Democracy does not cope well with decline, combined with fiat money its a horror show, because its just too easy to pretend that your economy and empire are not in decline by printing more fiat debt leveraged 'wealth' (frequently in the form of housing), until its too late.
It has been bankers and corporate lobbyists running USA for decades- it may well be too late already.
House prices rose in real terms from 1990 till after Covid.
They have not moved up since 2024.
Why?
Because since the late 1980s the price of debt has been steadily lowered from high teens to close to zero, thus inflating debt leveraged assets including housing.
From here on prices will stagnate if not decline.
The fiat monetary system cannot sustain much higher interest rates or defaults would escalate. Nor can the price of debt lower much more because it is already close to zero in real terms adjusted for inflation.
Owning a home gives security of tenure, as long as you can keep up mortgage payments, but as an investment housing is now in most locations, likely to be less rewarding than most people expect.
With debt leverage, your equity can be wiped out with a modest fall in house prices.
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