I’m not sure a single human brain can hold that comprehensive of a picture at once? If it could we wouldn’t need all those channels. The whole point of markets is that they make that process work mostly invisibly to each of us.
For the house example, if I’m a buyer my budget usually isn’t something like “$500,000.” It’s more like “$100,000 plus $2500/month.” Depending on loan terms that could mean a $600k house or a $300k house. The seller determines the listing price, but the buyer decides whether to bid. So a general change in loan terms across the population can mean I bid on the same house at up to $300k or up to $600k. Which, in turn, means that as interest rates go up, sellers drop the price to get a sale at all, or get a sale in a reasonable timeframe. Even if I’m a builder and nothing affects the builders costs at all and the production cost stays fixed at $200k, I’m going to be a lot more aggressive about hiring more crews and buying supplies and equipment if I can net $400k per house rather than $100k per house. It’s less risky: If the successful projects have a 200% ROI instead of 50% ROI, I can afford to borrow to finance up-front expenses for more projects at once (relative to my existing assets) without worrying about paying them back even when some of my projects fall through. In practice, it’s a bigger effect than that, because lower borrowing costs for homeowners tend to also correlate with lower borrowing cost for builders. Also because the same effects ripple through from the earlier parts of the value chain, affecting borrowing, hiring, and scale-up costs in mining, forestry, metallurgy, factories making machines and tools, factories making parts and semi-finished materials, all of it. Alternatively, or concurrently, if people can afford to pay more because of loan terms, a builder may decide to build bigger and more luxurious houses if that gets them better returns. Plus, existing homeowners are more likely to renovate and hire contractors when they can finance it cheaply while they get a windfall in the form of home equity as the market price grows.
I’m not sure a single human brain can hold that comprehensive of a picture at once? If it could we wouldn’t need all those channels. The whole point of markets is that they make that process work mostly invisibly to each of us.
For the house example, if I’m a buyer my budget usually isn’t something like “$500,000.” It’s more like “$100,000 plus $2500/month.” Depending on loan terms that could mean a $600k house or a $300k house. The seller determines the listing price, but the buyer decides whether to bid. So a general change in loan terms across the population can mean I bid on the same house at up to $300k or up to $600k. Which, in turn, means that as interest rates go up, sellers drop the price to get a sale at all, or get a sale in a reasonable timeframe. Even if I’m a builder and nothing affects the builders costs at all and the production cost stays fixed at $200k, I’m going to be a lot more aggressive about hiring more crews and buying supplies and equipment if I can net $400k per house rather than $100k per house. It’s less risky: If the successful projects have a 200% ROI instead of 50% ROI, I can afford to borrow to finance up-front expenses for more projects at once (relative to my existing assets) without worrying about paying them back even when some of my projects fall through. In practice, it’s a bigger effect than that, because lower borrowing costs for homeowners tend to also correlate with lower borrowing cost for builders. Also because the same effects ripple through from the earlier parts of the value chain, affecting borrowing, hiring, and scale-up costs in mining, forestry, metallurgy, factories making machines and tools, factories making parts and semi-finished materials, all of it. Alternatively, or concurrently, if people can afford to pay more because of loan terms, a builder may decide to build bigger and more luxurious houses if that gets them better returns. Plus, existing homeowners are more likely to renovate and hire contractors when they can finance it cheaply while they get a windfall in the form of home equity as the market price grows.
Probably not, but if I try anyway I might still get a better understanding of some things.