Why Won’t Quantitative Tightening Bring Down Real Estate?

I know there is a lot of shit flinging in this sub, and I want to stay away from that. It’s not about the team you’re on, it’s about what you see happening in the future of the market. That being said I have an honest question for those that don’t see price reductions coming:

My opinion is that overstimulation has led to the surge in real estate prices, and the prices are reliant on the stimulus to stay high. That was the point of quantitative easing in the first place…. To stimulate economic activity by providing more liquidity to the financial system. QE increases the money supply (inflation) and reduces the cost to borrow money (more demand). It also provides more access to credit. That is a huge source of homebuying demand and purchasing power… access to cheap credit. Everything QE accomplishes is a big tailwind for the real estate market.

Fast forward to today, and it is well documented that the fed intends on tightening and reversing course on all the money printing. Conventional logic would suggest that it’s effects would be inverse to QE. Less liquidity in the financial system, worse credit conditions, lowering economic activity, and ultimately a decline in asset values as reducing the money supply would have a deflationary effect on the purchasing power of the dollar. This is where I assume we potentially disagree. For those that don’t believe a the RE market is about to come down in line with the rest of the economy, is it because 1) You don’t think the fed will actually follow through with tightening in a meaningful way… or… 2) tightening will not have a deflationary effect on asset prices or reduce demand/purchasing power?

If 2, why wouldn’t it have the inverse effect of QE?

I understand that real estate is mostly local and I am speaking on a macro level. For example certain markets got absolutely hammered in ‘08 by 50% but the US as a whole only declined 19.7%. If we saw a “correction” of 10-15% across the country, that likely means certain cities crashed hard again, while others were mostly unaffected.

submitted by /u/PanchoSeranto
[link] [comments]

I know there is a lot of shit flinging in this sub, and I want to stay away from that. It’s not about the team you’re on, it’s about what you see happening in the future of the market. That being said I have an honest question for those that don’t see price reductions coming: My opinion is that overstimulation has led to the surge in real estate prices, and the prices are reliant on the stimulus to stay high. That was the point of quantitative easing in the first place…. To stimulate economic activity by providing more liquidity to the financial system. QE increases the money supply (inflation) and reduces the cost to borrow money (more demand). It also provides more access to credit. That is a huge source of homebuying demand and purchasing power… access to cheap credit. Everything QE accomplishes is a big tailwind for the real estate market. Fast forward to today, and it is well documented that the fed intends on tightening and reversing course on all the money printing. Conventional logic would suggest that it’s effects would be inverse to QE. Less liquidity in the financial system, worse credit conditions, lowering economic activity, and ultimately a decline in asset values as reducing the money supply would have a deflationary effect on the purchasing power of the dollar. This is where I assume we potentially disagree. For those that don’t believe a the RE market is about to come down in line with the rest of the economy, is it because 1) You don’t think the fed will actually follow through with tightening in a meaningful way… or… 2) tightening will not have a deflationary effect on asset prices or reduce demand/purchasing power? If 2, why wouldn’t it have the inverse effect of QE? I understand that real estate is mostly local and I am speaking on a macro level. For example certain markets got absolutely hammered in ‘08 by 50% but the US as a whole only declined 19.7%. If we saw a “correction” of 10-15% across the country, that likely means certain cities crashed hard again, while others were mostly unaffected. submitted by /u/PanchoSeranto [link] [comments]

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