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recursivedoubts

Blackrock is buying homes at above market rates.

If interest rates go up, home values crash.

So one of three things is true:

- Blackrock knows something you are not being told.

- Blackrock is stupid.

- Blackrock is being told to buy homes and that their losses will be covered.

Whatever else I think of them, I do not think Blackrock is stupid.

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Blackrock? Look it's way simpler than that. Interest rates aren't going up, and will not be going up appreciably in 2023 or any other year, because we simply can not afford to pay higher interest on the debt.

Wouldn't housing be a safe place to put assets in case negative interest rates are put in place like some countries? In Switzerland you will pay negative interest already on savings of 100k.

I'm sorry but the problem is the exact opposite...

Governments must increase their deficits so that the private sector can save more.

A lot of countries just export the responsibility to take on debt to other countries. Germany refuses to take on debt and expects the rest of the Eurozone and the US to go into debt so it can pretend to be financially responsible.

As long as the private sector has a preference to increase its net savings, interest rates will be at 0%. If it suddenly decides to spend all that money (to call this a good thing is an understatement) the resulting inflation would make the raise in interest rates irrelevant.

There seems to be a built in assumption here that people / companies / countries are wrong for not spending money. I haven't seen sufficient historical evidence this is absolutely necessary for a healthy economy.

Also, I'm not sure how Germany is forcing anything on anyone here. Care to explain?

Blackrock is buying homes to rent, right? If 90% of home buyers can afford $x per month, sure higher interest rates mean that the $x will have to include more interest, and the home prices drop.

However, that only matters if you sell a house. If you are buying houses to decrease housing supply, and increase the rental prices you shouldn't care about the interest rates.

So waiting a year and a half, buying in at a much lower price and then earning a much larger ongoing return on capital would be the smart play. You are arguing that Blackrock is stupid. Which is fine, but I don't believe that.

They're probably buying on credit, so their purchase price doesn't really change if rising interest rates are the cause of the price drop.

Only if the rise in interest rates is offset by the price drop. With interest rates so low, that's almost certainly not the case: home prices will crater. End of the day, home cost matters and blackrock isn't stupid. They are paying a 20% premium over today's insane market. Think about that. They either expect hyperinflation and/or low rates forever or they are being told to buy the homes.

Another option is that Black rock believes the government, when push comes to shove, won't let housing prices fall dramatically, since a large portion of the electorate has nearly all their net worth tied up in their homes.

You are now arguing that Blackrock knows something we don't know. Which is fine, and I think there is a good chance that's true.

Knows vs believes. For an investor, belief with an estimation of confidence is sufficient. There's never really a "knows for sure" even with insider trading.

For what it's worth, I'm of the same belief. I think it's politically infeasible to allow house prices to decrease significantly throughout the whole United States.

“The role of BlackRock alumni in the Biden administration is the latest chapter in a decadelong rise in both Washington and on Wall Street. BlackRock is the largest asset manager in the world with $7.8 trillion under management as of September. As it has grown, it has both boosted its operations in Washington and hired government officials.”

https://www.wsj.com/amp/articles/blackrock-emerges-as-wall-s...

Traditionally, houses (mortgages) are usually considered as a hedge against inflation.

Sorta. They're a hedge against low real returns in the stock market, which is slightly different than inflation by itself.

My macro economic understanding is that real estate is a debt that hedge against inflation. Since inflation will cause raising cost, your mortgage is locked in while cost of everything is going up. Inflation punishes savings but help debtors.

Yes, but if inflation also pushes up asset prices, you might have been better off investing in the stock market.

They don't protect against a war though. The importance of this is a bit difficult to understand because political inaction can cause a situation where there are no good solutions left but the population is angry and wants to take that anger out on someone. Prominent example: The nazis came up with an anti semitic conspiracy.

I mean, nothing protects you from act of war or act of god. But that’s not what we are talking about here right? Risk of inflation in peacetime is something BlackRock has to considered. I’m not saying they are right or wrong, just that real estate is a hedge play as far as I can tell.

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