It’s also why inflation has been so stubborn.

Anyone who owned ANY assets practically doubled their net worth within 2 years. If you owned a house, you likely also refinanced for under 3%. At the same time, wages increased.

How can there be a drop in demand if your house is now worth 50-100%, your 401k is 50% higher, and your wages are 20% higher?

Sure, this doesn’t describe everyone - the bottom 50%ile might not own any assets at all. But it does describe enough Americans that demand can’t crater anytime soon.

It was a massive handout to existing homeowners. If you rent, you got nothing. If you were paying $6000/mth on your mortgage, you could refinance and find yourself paying $3500/mth. Now, until the end of the loan, you find you have an extra $2500/mth extra to spend. No wonder we have inflation

It was pretty much a "screw you" to young people. Home ownership rates for 65+ year olds is nearly 80%. For 45-54 year olds, its 70%.

Statistically, if you were 45 years old, you likely benefited a great deal from the pandemic.

My brother is in that age group. He bought his house for 380k. It's now valued at 750k. He works in tech so his salary increased from 120k to 180k. He refinanced his mortgage at 2.5% and pays iirc ~1100/month. It's the same story for all of his friends.

> Home ownership rates for 65+ year olds is nearly 80%.

Pretty sure most of those people are mortgage free.

When rates fall, prices for assets like homes tend to rise in proportion shortly after, such that the cost to borrowers is approximately constant. The benefit of falling rates goes more to homeowners, even if they don't have mortgages.

And now their fully-owned houses are worth 1.5-2x compared to 2019.

Which is even better. They could take out equity release and spend what they borrowed.

But of course if you refinance to take equity out, now you're back to having a monthly mortage payment again. If you do it today, it will be a high interest mortage. If you're over 65 (as OP mentioned) you're probably soon retiring, so this would be a very bad financial move.

are reverse mortgage interest rates fixed or variable?

If they are fixed, anyone who refinanced in 2021 when rates were dead cheap and prices were sky high made out like bandits

A cash-out refinance (what people would most commonly do in this circumstance) is just a regular refinance, so terms could be anything a refinance can have. Usually fixed rate 30yr.

A reverse mortgage is a different thing, IMO always a bad deal but I guess could be ok in some cases.

Many people move multiple times in their lives. People also take out additional loans on their homes down the line to do remodels/renovations

If you're ascribing that level of intent to the Fed, then what do you say about the current situation? As someone trying to sell my home right now, I can tell that the massive bull run in equity is almost gone already. We issued massive fiscal and monetary stimulus in the face of the steepest recession in history and successfully forestalled economic catastrophe. With the cost being a wild ride for assets and prices that will certainly taper off in the near future. Small price to pay if you ask me. As someone who's lost a ton of (purely notional) net worth in the last year, I think policy makers are doing a really good job.

If you look at the alternative. The ones who said let's keep schools and businesses open during a pandemic and let people die to keep the economy humming along, I'd say we took the right path.

I agree with you, but we had been incredibly lucky with the way covid mutated into much weaker omicron so quickly (no, we didn't get permanent antibodies that can handle it all from now on forever, most folks have almost 0 of those now if they only got vaccines and no real infections).

If it mutates back into more morbidity, we will be in much worse position since I don't think we will have a realistic option to repeat that stimulus without plunging whole world into (not only) economic chaos.

That may be a contributory factor in the US, but inflation is global. As a homeowner in the UK, my house did not appreciate in value more than usual, our salaries have not risen by anywhere near inflation, and our pensions have fallen!

Yes, Americans tend to focus on the monetary side, completely forgetting there's a whole other world outside of their country that had wide varieties of policies to combat Covid, and everyone is experiencing inflation, including Sweden (at 10% annually as of September 2022) that didn't shut down and didn't spend anywhere close to the money spent by other EU countries to prop up jobs and the economy.

Many people, especially Americans, forget the supply side - a pandemic which wrecked global supply lines, and a war which is impacting some of the most important resources (food and energy), globally. No idea why, maybe because they can't blame a politician/party for that part.

In any case, inflation has many complex causes, is global, and may take quite some time to get reigned in. There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics.

> There's no quick fixes to the supply problems nor for the monetary (supply) problems, and if perceptions are that inflation will continue, it will continue regardless of underlying metrics.

Perhaps it is a supply of cheap labor problem that Covid shutdowns allowed a sufficient disruption to low paying labor markets to cause a “phase change”.

Even before Covid, labor prices were trending up (maybe since birthrates have been dramatically falling for a long time), but the sudden, rapid shake up gave people en masse time and excuse to change things up for themselves, causing a chain reaction from the lowest paid labor being harder to fill.

Your house, maybe not. But across the UK, average house prices are up 10% this year compared to 2021. And from 2021 vs 2020 another 8-10%

Yes, althought that's a very big drop.

If you bought a 1.5M house (20% down) at 4.5% your mortgage payment is just about $6K. If you refinanced down to 2.5%, the payment is now $4.7K.

> If you rent, you got nothing

in many states rentoids could stop paying their rent and just pocket it, with evictions halted for >12 months.

there was something for everyone this time around

Ok, renters got $1500/mth for 2 years, maybe, if they decided not to pay rent (almost all my friends are renters and none of them stopped paying rent).

Homeowners got $1500/mth for 30 years.

> How can there be a drop in demand if your house is now worth 50-100%

Note that house value increase (paper value) doesn't generate any disposable cash to the owner.

They could go and refinance (at a higher rate now) to get some equity cash out, but anyone doing that to spend the money on consumables is doing a bad decision.

They all went and bought vacation houses (read: what would have been somebody else's starter house) in flyover states. The money spent on goods is just a figment of them spending all the stuff they need to kit out their extra house.

This is the part that’s hard to capture in data.

Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar.

You might objectively know that you can’t sell your $1M house for its current zillow estimate, but when you’re out at the bar, its easy to justify in your head that you can “afford” that extra drink. After all, didn’t you just become a millionaire?

There is a huge psychological component to money that’s somehow never talked about.

> Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar.

Do you know of research showing this behavior?

I haven't seen research one way or the other, but anecdotally this seems very unlikely. I don't know of anyone who feels that way and we're in silicon valley so everyone we know has houses that have appreciated quite a bit.

But everyone knows both objectively and emotionally that zillow zestimates are not money that can be spent. It might be money a number of decades in the future after retirement and selling the house to move, but that's way too far in time and uncertainty to have any impact on behavior today.

> Do you know of research showing this behavior?

There is extensive research on the wealth effect.

Try "Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data" (IMF)

> biggest problem wasn’t the interest rate

Err...how do you think people get massive mortgages, if not low interest rates?