Swing Low, But Where’s the Chariot?
A major paper delivered at last week’s Jackson Hole Fed meeting shows – we think conclusively – that it’s not demographics that keep interest rates so, so low, but wealth inequality. Just as old-school models misread macroeconomics in an age of inequality, mortgage-affordability assumptions premised on low rates thanks to agency guarantees also need re-evaluation when rates stay lower for longer and homeownership becomes ever more the privilege of the rich. It may well be that government programs and new forms of credit enhancement aimed at increasing homeownership and thus combating both wealth inequality and racial inequity need now to battle the high cost of low rates: the increasing inability of younger and lower-income households to amass a downpayment.