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Comment by unchocked | Hacker News Reader

Given that there's nothing forcing the Fed to unload these mortgages, the option of putting them on the market (thus driving commercial mortgage rates higher) seems like a policy lever that will be good to have, cooling real estate inflation selectively separate from the federal funds rate.

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Driving rates higher won't cool inflation except by raising prices - which is inflation.

They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

> rates higher won't cool inflation except by raising prices - which is inflation

Rates rising drives prices down. Of the mortgages on their books. And of the homes collateralizing them.

You're on an island with five chairs. There are four people. Everyone has a chair.

Add six people. There are now five chairs and ten people. How can you manipulate the prices of chairs such that all ten people can have their own chair?

Artificially lowering the prices of chairs does not solve the underlying issue: There are not enough chairs for everyone that needs one.

By treating housing price surges as excessive demand (raising mortgage rates), you lower demand not only for _existing_ homes, but also for creating new homes. If your goal is to ensure that housing prices always go up and affordability/homelessness go in wrong direction, the Federal Reserve's policy is very effective.

They're wrong to prematurely kill demand before it can cause new housing construction to increase, fixing the underlying issue of not enough supply.

You're missing the people who have multiple chairs and are sitting on chairs hoping that price goes up who would be incentivized to sell (look at supply coming online as mortgage rates rise - and any similar pattern - i.e. 2018).

Price always going up makes chairs attractive to hold, which results in misallocation of chairs - ideally you want them to go to whoever wants chairs the most, not whoever grabbed a chair first.

Yes, the best answer is to make more chairs, but that is not something that the FED has much control over (it's federal/state/local zoning policy and regulation which prevent more supply).

The question the FED can address is not "how can we make sure everyone has a chair", but rather "how do we make sure that the existing chairs go to the people that need chairs the most"

Yeah, not really sure what the original commenter was on about... The price of money itself is higher when rates go up, so prices of goods and assets must go down to compensate for reduced demand

Is this what you would do if you wanted certain classes of people to capitulate on their "American Dream" and turn it into "at least I can rent a house from Goldman Sachs" for some reason?

This is already happening in the Bay Area (more or less)

There's another option that the fed isn't considering: let Congress find a way to force businesses out of congested areas where houses aren't and won't be available any time soon. There's also financially incentivising remote work and providing incentives to move away from major cities.

There's still a supply shortage in building homes to deal with, but that'd at least solve a problem for a good chunk of folks.

This doesn't fix the underlying problem. The vast majority of local governments make it very expensive or outright impossible to add significant amounts of housing via zoning and density bans. Pushing businesses into other areas will simply drive up housing prices in other markets, not to mention accelerate suburban climate arson.

The solution is to remove tariffs on imported wood to make new housing cheaper and to punish municipalities with racial segregationist-era housing/zoning policies.

I live in the Bay Area. Where are you going to add houses here that aren't protected land? Zoning isn't even a thing here; I live right behind a Denny's. Some of your assumptions seem vastly off.

There are places like Mountain View that don't allow building above four stories, which is crap, but stuffing people into towering buildings where they're not allowed to own the thing they're living in or immediately priced out of it (which serves as an investment) doesn't solve the housing crisis.

Edit:

I had a bit of a snarky reply, and I apologize if you read that. I pay a little over $3.5k for a house (that allows a big dog); if I lose this place I'll pay over $4k in rent per month and that number goes up by the month. I'm being forced to come into an office, which requires me to live near by. If I can't live near by, then I have to accept a lower paying job. Do you see the complexity of this issue?

Yeah I also don't buy the approach and commentary. Rates need to go up sure, but not with this much funfare. Killing the patient in the process to keep inflation in check makes little sense. And then there is the demand elasticity. How many people here are going stop using gas to go to work or stop eating to push prices down? Similarly with the baby formula -- where they suggested throwing money at the problem of lacking formulas: there is just not enough at retail for people to buy, doesn't matter how much money you have. What is the Federal Reserve going to do: tell babies to not eat?

This is misguided politic theatrics, that causes even more panic and over consuming due to panic, which leads to further stress and supply issues.

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