Tuesday, November 26, 2013

Yet another reason to scrap Help to Sell

Dark side of housing-price appreciation

Higher asset prices increase the value of firms’ collateral, strengthen banks’ balance sheets, and increase households’ wealth. These considerations perhaps motivated the Federal Reserve’s intervention to support the housing market. However, higher housing prices may also lead banks to reallocate their portfolios from commercial and industrial loans to real-estate loans. This column presents the first evidence on this crowding-out effect. When housing prices increase, banks on average reduce commercial lending and increase interest rates, leading related firms to cut back on investment.

Posted by stuartking @ 02:50 PM (1553 views)
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2 thoughts on “Yet another reason to scrap Help to Sell

  • All those experts … First they justify inflation as something positive, rather than a necessary evil. And then they argue on semantics, at a high level. But if it looks like a turd and smells like a turd, then it probably is a turd. We are living in an equilibrium. If prices increase somewhere, balance will need to be restored. One way or the other. If system relevant assets like house prices appreciate, someone else will need to be able to pay the higher prices. Either wages must rise or cost of capital must fall. The net effect will be the same. Our policy makers have opted for the latter. The consequence is wealth re-distribution. Those who have existing wealth/collateral can acquire more. Others have to fight/work harder for a living. Plain and simple. The next logical step is rise in wages or social unrest. And hyperinflation here we come. My recommendation – buy/invest in arable land and livestock. Historically, farmers have fared best in times of duress.

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  • OK. Just had to drop in here and say, that it shows utter lack of economic understanding to call this help to sell, just as it is insincere for government to call it help to buy. It is, help to transact. There is never a seller without a buyer and vice versa. Just goes to show how bad education has got, and neither side truly question whether it actually aids transactions relative to an unsupported market with better price discovery.

    In reality, it is help to buy and sell debt, since the overall impact will be increased debt load and reduced savings ratios, potentially with worse market conditions if prices inflate above their true market value.

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