I wish Biden’s DOJ would go after private equity’s monopolistic power in the residential real estate market. That would help bring down home prices and rents that is the main inflation problem now.
PE firms have taken hundreds of billions in assets from pension funds and purchased a vast amount of residential real estate including lower/moderate end apartments. Their economic power in this market allows them to keep supply low which keeps lrices high. They do little upkeep to keep costs low. Break up their stranglehold on supply and prices will go down.
Also, these articles in Forbes, Bloomberg and the Atlantic saying that private equity is just being scapegoated are really imo their fear of antitrust actions being brought against them.
And speaking of rent, OER is 30% of inflation and it has been coming down and will likely hit a -ve print in 2024 As rates drop, we will likely see an unusual phenomena of home prices coming down as more home owners can afford to sell their existing home and afford their next home.
Because most existing home sellers need to buy another place to live in, and 8% mortgages mean they may be doubling or tripling their mortgage payment. The only way new homes are getting sold is by builders buying down the interest cost by 1.5-2%
It will increase the supply by having PE and big investors liquidate their inventory of SF homes, and rents will go down by having the same big RE investors liquidate their inventory of apartments.
Sorry that today was awful. I hope tomorrow is much, much better. Please take care of yourself. You're doing an absolutely essential public service with your blog.
I hope that the knowledge that many of us value the education you provide will buoy your spirits at least a little.
Wow, you laid out the case for your views and it is very impressive. The lack of focus on (the ongoing) COVID effect on world economy is bizarre. In my opinion, the societal denial of the threat it still poses, a barely submerged psychic wound, is part of the underlying negative vibe despite the good numbers.
Unfortunately, the "inflation because of stimulus, never do that again" story is now firmly embedded in the minds of most elite pundits, impervious to the facts. All you can do is continue to pound the facts while they pound the table.
Yes, there will be 2% inflation (or very close) by this time next year and unemployment around (or below) 4%. That's the soft landing, and we are on the glide path to it.
Central bank tries to fight Consumer price inflation with placebo 'medicine' of credit inflation. The idea is making loans (home, auto, creditcard etc) expensive so as to attenuate consumer demand in goods & services area & curtail investment (business loans). If we see the big picture, rate hikes is like shifting pain in legs to pain in arms. The real factors behind inflation are complex and still not fully understood though some prominent factors like supply chain disruptions are readily recognizable. The sellers inflation theory also has merits during pandemic disruption when firms collectively saw opportunity to raise prices.
Mainstream macro has instrumental view of their theories. No matter if their theories are absurd, as long as they can be fit into a narrative, they remain valid. I still see people like Noah Smith boasting how 'rate hikes solved the inflation problem'. BTW, Krugman is sincere enough to admit that rate hikes were supposed to solve inflation problem through raising unemployment (which never happened). So mainstream macro's instrumental view has failed once again but still some people are hanging onto it.
Moving onto next macro picture. I am observing how long Fed drags on with higher rates & how it affects the disparity between credit inflation & consumer inflation. If wages stagnate while consumer debt burden rises in high rate environment, how will it affect growth.
You can lead a horse to water but you can't make him drink it. Other economists and especially politicians will stick to their beliefs and hate on the spending that got us out of a recession in the first place its unfortunate but it is what it is. We can use more people like Claudia that will actually stick up for American families and present the facts about the state of the economy and inflation.
Since #ThePowellMemos managed 2 UNDO the Protective Regs of the New Deal, but this time the Oligarchs planned for the TAKEOVER OF THE MEDIA & LOOPHOLES 4 Wall Street, while Main Street is losing more & More businesses, jobs, savings, assets, etc & as MAIN STREET experiences a 1930s style 2ND GREAT DEPRESION! I think you all need some NEW ANALYTICAL TOOLS, cause we Non- investors, think U R full of it!
Great look back at some of your best writings and analysis of the US economy. Congrats!
I wonder if you are planning to do a similar review of the IRA act. Perhaps it is too soon to measure progress and end results because these are longer term investments into infrastructure and clean energy. I remain very curious and consider the IRA to be absolutely crucial to ensuring the U.S.' global leader position. Cheers!
I have written some on IRA at Bloomberg Opinion, but there's more to unpack there. I am a huge proponent of the trifecta of infrastructure, CHIPS, and the Inflation Reduction Act.
Agree and it will take perhaps 3-5 years before we can truly measure the impacts and results. e.g. a semiconductor factory takes about 5 years to build, calibrate etc before it starts producing viable product. Love your work and enjoy reading your writings. Cheers!
Let's see how much public infrastructure will be privatized, which isn't so good.
Too bad it takes massive corporate giveaways that greatly benefit a few, so these programs trickle-down effects can be trumpeted to a gullible and uninformed public, kind of like Trumps tax cuts.
Great Predictions.
My POV, inflation was exaggerated due to corporate greed, not supply chain issues.
Inflation in China and Japan was 2 to 3%, and they also had supply chain issues, but not the West's rapacious lust for profits.
Claudia. You were right. You are right.
1. Please don’t ever stop
2. You need a platform and voice (even more than you have already)
3. Thank you
We need you at the helm.
Thank you for the very kind words.
Corporate profits are still 50 percent higher than pre-Covid. If they would return to “normal”, many prices would come down.
The stimulus worked and was necessary. Your read was right. If people don't appreciate that, it's largely because we can't imagine counterfactuals.
Or don't want to.
I wish Biden’s DOJ would go after private equity’s monopolistic power in the residential real estate market. That would help bring down home prices and rents that is the main inflation problem now.
Just Build more housing until the price drops drive them out!
Going after PE firms is going to bring down the price of homes? How?
PE firms have taken hundreds of billions in assets from pension funds and purchased a vast amount of residential real estate including lower/moderate end apartments. Their economic power in this market allows them to keep supply low which keeps lrices high. They do little upkeep to keep costs low. Break up their stranglehold on supply and prices will go down.
Also, these articles in Forbes, Bloomberg and the Atlantic saying that private equity is just being scapegoated are really imo their fear of antitrust actions being brought against them.
Easy to blame the PE firms but the reality is the majority (66%) of single-family homes that are owned by mom-and-pop type investors who own multiple homes. Why? The same reason that institutional investor got in, the search for yields. Here is a study with details: https://www.jchs.harvard.edu/blog/8-facts-about-investor-activity-single-family-rental-market and some more details here: https://www.theatlantic.com/ideas/archive/2023/01/housing-crisis-hedge-funds-private-equity-scapegoat/672839/
And speaking of rent, OER is 30% of inflation and it has been coming down and will likely hit a -ve print in 2024 As rates drop, we will likely see an unusual phenomena of home prices coming down as more home owners can afford to sell their existing home and afford their next home.
Spoken like a true capitalist pretending there is such a thing as a free market.
How do you explain the lack of supply of homes on the market given the increase in prices? That’s usually evidence of monopoly power.
Because most existing home sellers need to buy another place to live in, and 8% mortgages mean they may be doubling or tripling their mortgage payment. The only way new homes are getting sold is by builders buying down the interest cost by 1.5-2%
Here’s some proof of how private equity is driving up rent prices:
https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html?smid=url-share
It will increase the supply by having PE and big investors liquidate their inventory of SF homes, and rents will go down by having the same big RE investors liquidate their inventory of apartments.
Good job Claudia. I’ve enjoyed reading your posts. Keep it up!
Sorry that today was awful. I hope tomorrow is much, much better. Please take care of yourself. You're doing an absolutely essential public service with your blog.
I hope that the knowledge that many of us value the education you provide will buoy your spirits at least a little.
Awww thanks!
Wow, you laid out the case for your views and it is very impressive. The lack of focus on (the ongoing) COVID effect on world economy is bizarre. In my opinion, the societal denial of the threat it still poses, a barely submerged psychic wound, is part of the underlying negative vibe despite the good numbers.
Unfortunately, the "inflation because of stimulus, never do that again" story is now firmly embedded in the minds of most elite pundits, impervious to the facts. All you can do is continue to pound the facts while they pound the table.
Elite pundits are wrong, and we have the case to prove it. Plus, many of those pundits are on their way out in their party. Good.
I help plan an economic conference every year in the Pacific Northwest. How do I contact you about potential keynote?
I would love to. claudia.sahm@gmail.com to coordinate.
And another excellent summary!
“We are not out of the woods, but it’s very clear that’s where we are headed. I told you that all along.”
So, where do you think we are headed? Are you in the camp that says we are going to have inflation contained to below 2% without a recession?
Yes, there will be 2% inflation (or very close) by this time next year and unemployment around (or below) 4%. That's the soft landing, and we are on the glide path to it.
The only way we get to 2% inflation is a recession. We shall see.
Central bank tries to fight Consumer price inflation with placebo 'medicine' of credit inflation. The idea is making loans (home, auto, creditcard etc) expensive so as to attenuate consumer demand in goods & services area & curtail investment (business loans). If we see the big picture, rate hikes is like shifting pain in legs to pain in arms. The real factors behind inflation are complex and still not fully understood though some prominent factors like supply chain disruptions are readily recognizable. The sellers inflation theory also has merits during pandemic disruption when firms collectively saw opportunity to raise prices.
Mainstream macro has instrumental view of their theories. No matter if their theories are absurd, as long as they can be fit into a narrative, they remain valid. I still see people like Noah Smith boasting how 'rate hikes solved the inflation problem'. BTW, Krugman is sincere enough to admit that rate hikes were supposed to solve inflation problem through raising unemployment (which never happened). So mainstream macro's instrumental view has failed once again but still some people are hanging onto it.
Moving onto next macro picture. I am observing how long Fed drags on with higher rates & how it affects the disparity between credit inflation & consumer inflation. If wages stagnate while consumer debt burden rises in high rate environment, how will it affect growth.
I am with you 100%.
Noah Smith is a rank apologist for the neoliberal orthodoxy.
You can lead a horse to water but you can't make him drink it. Other economists and especially politicians will stick to their beliefs and hate on the spending that got us out of a recession in the first place its unfortunate but it is what it is. We can use more people like Claudia that will actually stick up for American families and present the facts about the state of the economy and inflation.
I am not alone. And we have reality on our side.
Great post, Claudia!
Since #ThePowellMemos managed 2 UNDO the Protective Regs of the New Deal, but this time the Oligarchs planned for the TAKEOVER OF THE MEDIA & LOOPHOLES 4 Wall Street, while Main Street is losing more & More businesses, jobs, savings, assets, etc & as MAIN STREET experiences a 1930s style 2ND GREAT DEPRESION! I think you all need some NEW ANALYTICAL TOOLS, cause we Non- investors, think U R full of it!
Great look back at some of your best writings and analysis of the US economy. Congrats!
I wonder if you are planning to do a similar review of the IRA act. Perhaps it is too soon to measure progress and end results because these are longer term investments into infrastructure and clean energy. I remain very curious and consider the IRA to be absolutely crucial to ensuring the U.S.' global leader position. Cheers!
I have written some on IRA at Bloomberg Opinion, but there's more to unpack there. I am a huge proponent of the trifecta of infrastructure, CHIPS, and the Inflation Reduction Act.
Agree and it will take perhaps 3-5 years before we can truly measure the impacts and results. e.g. a semiconductor factory takes about 5 years to build, calibrate etc before it starts producing viable product. Love your work and enjoy reading your writings. Cheers!
The Inflation Reduction Act is nothing but hundreds of billions of Corporate SOCIALISM, masquerading is an inflation reduction plan.
It's the first coherent energy policy and massive investments in our infrastructure and R&D. Not perfect by a mile, but it will do good.
Let's see how much public infrastructure will be privatized, which isn't so good.
Too bad it takes massive corporate giveaways that greatly benefit a few, so these programs trickle-down effects can be trumpeted to a gullible and uninformed public, kind of like Trumps tax cuts.