Investors brace for turbulence as Fed balance sheet shrinks by $1T | Hacker News Reader

Investors brace for turbulence as Fed balance sheet shrinks by $1T

ft.com

The million dollar question is, how or will it ever affect real estate?

Rents have spiked, and no one in my circles can afford to buy anything because there's no inventory, and the little inventory there is is expensive (800k at 7 percent interest rates versus 750, say, at 3 percent a year ago). No one sells due to the low interest rate they're locked into.

This seems like a big economic headwind.

Doesn't make up for the full rate, but $800k today is $664k in 2020 dollars.

For some people who either got direct bailouts or were in the massive Covid-related windfalls, including direct purchases, loans, and scams. For many others, 2020 664k is still 664k. Massive wealth transfer.

Inflation adjusted, median wages are slightly up over Q4 2019: https://fred.stlouisfed.org/series/LES1252881600Q

It’s interesting to see this and consider if this is real growth. To some extent, a pig-through-the-python phenomenon is observable in various data sets. A less favorable interpretation is that:

1) the initial shock was so great that it massively distorted the median. quarters later, 2) we are now seeing nouveau riche, both corporate and personal, begin to distribute windfalls through consumption. I’d like to see the marginal Gini coefficient, and the change relative to historic rank-ordering.

Because it's impossible to build new housing stock! Impossible!

I'm coming to the belief that the denial of housing construction is willful generational warfare. With so much "wealth" in housing values, the boomer voters resist any reform, and will sacrifice the next generations happily (just like they ALWAYS have).

And well, it's probably just good old rent seeking of the most literal kind by the "ownership society".

What the literal fuck has HUD been doing? This isn't even a project that the government should (theoretically) lose money on. You basically directly fund a shitton of housing construction directly. THEY SHOULD MAKE MONEY IN THE PROCESS!

Could HUD literally build anything it wanted regardless of local building codes and zoning, because the Feds (interstate commerce) can trump local laws?

Yes. Just look at how they demonize commercial real estate decline. Real estate is the new feudal system to extract the values from the serfs

Yes, higher interest rates should depress real estate prices, but in the short term, sellers keep prices high, buyers can't afford them, so transaction volume dries up. Those expensive places stay on the market for a long time.

The exceptions are forced sales, due to death, divorce, unemployment or employment relocation. Even those may delay sale (e.g. bridging loans) if rates are expected to fall soon.

Prices stay high, then collapse when a trickle of sales at lower prices resets expectations in a self-reinforcing downward price spiral.

The overall effect depends on max holding duration of forced sales, compared to future rate expectations (related to the yield curve).

https://archive.is/wjR7n

> Manmohan Singh, a senior economist at the IMF, said a further $1tn of QT would be equivalent to lifting the federal funds rate by another 0.15 to 0.25 percentage points.

For people who aren't aware, there is a metric called Fed Proxy Funds rate that is published by the SF Fed that attempts to take into account the QT/QE conditions as opposed to a simple effective funds rate(it's a little more complicated than that, can read the research paper on the SF fed website).

That rate is at about 6% right now, and has been higher than the effective rate since the start of 2022.

Is there any way to get that proxy rate as an investor? Because short term treasury yields are closer to 5.1% right now.

No, there isn't(unless there are some opaque proxy rate indexed derivatives I am not aware of and that would certainly be OTC and not super accessible ).

0.25 was predicted

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