M10 and the house prices

I have always imagined that M is like the treasure found on Treasure Island. When you open the box you find coins at the top and the family silver at the bottom.

The dominant amount is found in your own house.

The market price of houses has risen a lot.

Banks willing many of us can take out a  second mortgate and Spend, Spend, Spend.

The amounts are staggering.

Other staggering amounnt of more liquid types can be found on the stock market.

Knowing M doesn’t help much in predicting P or Q, because V is highly variable

People’s willingness to borrow, and financial institutions’ willingness to lend, matters as well. 

The circulation of money — its velocity — depends on the actions of a vast array of financial intermediaries and their customers, of which banks are only a small part.

Bill Dudley Bloomberg 28 februari 2023

The total value of US homes peaking at $47.7 trillion in June 2022.

Declined by $2.3 trillion, or 4.9%, in the second half of 2022. 

Bloomberg 22 februari 2023

The US median existing-home price


The median home price almost tripled in the last 22 years

 Markets came to expect monetary conditions would always favor Wall Street. The fact that it distorted markets and prices of assets, commodities, and almost everything, while simply crushing savers and retirees, was seemingly unimportant to Wall Street types. They liked what it did to their portfolios.

John Mauldin 9 December 2022

The median US home price - the first annual drop since 2012


John Authers Bloomberg 10 februari 2023


So what is the conclusion?

So long as interest rates does not deter the owners from borrowing more and/or are being scarred  by falling house prices, they will spend.

Falling house prices will be problem most for the late buyers. 

The others  can laugh all the way to the bank.

And the Fed must increase intetest rates a lot to lower demand to lower inflation.


Most US Mortgage Rates Were Locked in During Pandemic Lows

Bloomberg 3 March 2023


Surprising signs of economic vitality from the U.S. to China and Europe are complicating the fight to bring down high inflation

that resilience may persuade central bankers that they need to raise key interest rates further than anticipated to cool prices—effectively pouring more cold water on an economy that is still running a little too hot. 

This could translate into a slowdown in growth later in the year and into 2024, which had been seen as a recovery year.  

WSJ 3 March 2023



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