Housing costs are strongly affected by the availability of cheap money. Housing prices are kept in check when mortgages are more expensive.

>Housing prices are kept in check when mortgages are more expensive.

Housing prices are kept in check when it is expensive to buy housing? This isn't necessarily false, but it is an obvious contradiction that highlights how complicated these issues end up being in reality.

When mortgages are expensive, down payments buy more. Except in the short-term it appears that falling interest rates simply raises the nominal price of housing until it reaches the buyers ability to pay the monthly price + down payment.

Increasing interest rates erodes buyers ability to borrow, which will require prices to fall.

True, but higher housing prices also impede people who save their money instead of taking on 30 year debt. I would definitely prefer higher interest rates and cheaper housing for that reason.

agreed, at the margin there are buyers with a virtually unlimited ability to borrow. If interest rates stay low for long enough I'd expect the majority of housing to be owned by hedge funds and investment banks.

It’s not that complicated really. House prices tend towards the level where a mortgage payment roughly equals a rent payment (since they’re substitutable). So when mortgage rates go down house prices go up commensurately.

>House prices tend towards the level where a mortgage payment roughly equals a rent payment (since they’re substitutable).

No these two are not direct financial substitutions. You are ignoring a down payment (or mortgage insurance), property taxes, maintenance, and the general risk that comes with home ownership. Monthly mortgage payments should be a decent amount cheaper then rent payments on an equivalent property.

Definitely worth properly modelling out both buy and rent scenarios including all related costs, the substantial tax benefits of the mortgage interest deduction, remembering you are paying down principal in the mortgage payment, and the opportunity cost of the down payment. But when I've done this the cutover point is usually fairly close to where mortgage payment = rent.

The other thing that's notable when you model the scenarios is how much of a difference it makes how long you stay in a house given the absurdly high transaction costs of selling in a house in the US. 5% realtor fees! $50k on an SF condo, $75-100k on an SF house.

Renters are paying all the same things you are, and are usually paying through the rent much higher taxes and mortgage interest. The only difference is they don't have variability in expenses (AC goes out) -- but neither does a large landlord.

Maybe not the first few years. Rent payments inflate and mortgage payments don't.

When buying power goes down, prices have to go down to compensate.

No prices do not "have to go down". You are assuming supply is constant but supply also fluctuates depending on interest rates and home prices.

Gotta minimize the generational transfer of wealth as much as possible, and consolidate in groups of entrenched power as much as possible. It's fine that millennials graduated college in debt, into a recession, a decade after the dot-com bust, and a decade before the covid crash. Take a decade to recover, and as soon as middle-class momentum builds they get slapped and put back in their place again. All while China is 996'ing us into irrelevance and eating our lunch.

I think it's silly for them to announce what they're going to do in 2023. There will be a new Fed chair by then. The economic situation is impossible to predict in 2 years. The inflation / employment numbers are impossible to know precisely.

They didn't announce it.

The projected rate increase is the result of the dot plots, which is the assessment of both governors and regional members of the FOMC. It is not binding and it serves merely as a projection.

If you watch the press conference, you can tell how annoyed Powell is at constantly having to answer questions stemming from what the dots show.

Millennials were born with better timing than early genx for example. They were hardly put under the gun, and shouldn't elicit any particular amount of concern. Given their propensity for voting for the greatest threat to Middle class status (expansion of immigration both legal and illegal), I'd say they have themselves to blame for their circumstances.

There are more important factors like the unwillingness to increase the government deficit to compensate for the increased savings preference. It's ruining the Eurozone. The US is pretty much the only country that is doing something.

Unlike boomers immigrants spend money and take on new loans. Also, what are you going to do once you have hit 0 immigration? Are you going to deport people?

Note that there's difference between price and (monthly) cost:

> After adjusting for inflation and interest rates, monthly mortgage payments are now 30% lower than they were in 1989.

* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

Of course the price would effect down payment numbers.