Evolution of a Venture Capitalist

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Inflation is here
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Inflation is here

Rob Leclerc
Mar 13, 2021
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I’m worried that we’re heading into a crisis. For the last few weeks, I’ve been haunted by a couple of graphs published in the New York Times article  Where Have All the Houses Gone?

We keep hearing that inflation is not a problem, but it is it’s just not showing up in the CPI (rent is included, investment (mortgages) are not). This will have enormous economic and social consequences if something doesn’t change quickly, and it may already be too late. With 3% mortgage rates inventory is going to zero, every homeowner is refinancing and few want to make major moves during the pandemic. With so little supply, rising rates, and rising prices, who is going risk jumping houses— putting more pressure on the feedback loop.

Of course, the fed will be too late to act, and they’ve likely already done generational damage. Even if rates go back to historical levels, we’ll still see generational pressure on inventories as homeowners may never have sufficient incentive to move. On a $500k loan, a 2% increase in interest rates will increase your mortgage payments by 25% for the same damn loan. The supply-demand squeeze is simple: As inventory goes to zero housing prices go to infinity and this is going to drive inflation.

Refinancings are also going into home equity loans, which is going to push more money back into the system. We could be well into a period of hyperinflation. The rich get richer and the poor get poorer. Boomers win, but it’ll be horrible for Millenials and Gen-Z.

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