The housing boom’s mortgage rate threat is worse than it seems

This is Bloomberg Opinion Today, a Protagonist of Reality of Bloomberg Opinion’s opinions. Sign up here.Today’s Agenda Higher mortgage rates [Bloomberg]( Follow Us [Get the newsletter]( This is Bloomberg Opinion Today, a Protagonist of Reality of Bloomberg Opinion’s opinions. [Sign up here](. Today’s Agenda - Higher mortgage [rates are hurting supply.]( - Putin [keeps getting our attention](. - Beware [crypto schemes promising high returns](. - Walmart is [totally cool with inflation](. Housing’s New Problem In most of our minds — or at least in mine, and let’s assume for the sake of this newsletter that my mind is just like all of yours, for I am the [Protagonist of Reality]( — the economy is a simple engine. If demand is too high, it makes inflation too high, so you push up interest rates until demand goes bye-bye, taking prices and inflation with it. Once demand gets too low, you lower interest rates again until the demand comes back. Lather, rinse, repeat. Simple. The Fed is now in the “push up interest rates” phase of this cycle, and we — or at least I — expect that to crush demand until inflation improves. But the world is not always so simple. For one thing, as [serious as John Authers says they sound]( about raising rates, central bankers [may not be willing to go Full Volcker]( and cause a deep recession to fight inflation, writes Dan Moss. Then there are mortgage rates. Lately they’ve risen with other interest rates. “[Soared](,” you might even say. You’d think this would hurt demand for houses (at least once all the panicked last-minute buyers close their deals), which would finally make house prices less ridiculous. And maybe they will. But they will also make a lot of people in starter homes think twice about trading up to bigger, more expensive houses, writes Conor Sen. That will leave [first-time buyers with even less potential inventory](. At the same time, rising mortgage rates could also be [discouraging]( homebuilders from building new houses. So, oops, instead of just crushing demand, higher interest rates might also crush supply. What will this do to prices? Answering that requires a better mind than mine. Bonus Central Banker Reading: - Central bankers [can’t just watch models and futures]( to predict commodities prices. —  Javier Blas and Marcus Ashworth - Higher rates mean [the government will stop making money on QE](. — Bill Dudley Schrödinger’s Ukraine Andreas Kluth recently [likened]( the Ukraine crisis to Erwin Schrödinger’s famous brain teaser, the one with the cat in a box that is both dead and alive at the same time. In this case, the cat is Ukraine, and it is both being invaded by Russia and not being invaded by Russia. When Andreas made that comparison on Jan. 26, he doubted Vladimir Putin could maintain such a state of quantum superposition forever. At some point, like Morgan Freeman in “Se7en,” you have to open the box. But here we are on Feb. 17, and the cat is still boxed. Russia insists it won’t invade, while the U.S. says an [invasion is imminent](. Russia claims it’s pulling troops from the Ukrainian border, while the U.S. claims it’s sending more. Russia says it wants a diplomatic solution, while Russia also kicked America’s deputy ambassador out of Moscow. Meanwhile, Russia-friendly separatists are shelling Ukrainian troops (and a kindergarten). What does Putin want? As always, writes Clara Ferreira Marques, [he wants attention from the West](. And through bad behavior and a perpetual fog of war/just kidding it’s not war/or is it, he just keeps getting that attention. Every parent knows this isn’t sustainable. But there are enough spoiled children around to prove it can be maintained for longer than anybody finds pleasant. Money Is Not Free Fans of Larry David and LeBron James were [grossed out]( by their appearances in Super Bowl ads touting crypto gambling trading platforms. Both men have built reputations as siding with underdogs, but they risked them for a big payday — all in crypto, presumably — from an industry building a reputation for taking underdogs to the kill shelter. David and James are wealthy enough to dabble in crypto, but many of us schlubs watching the game on TV were not. But still the enticements keep coming hard and heavy. When they’re not paying celebrities to tell us to stop being wussies, they use more traditional come-ons such as the promise of exorbitant returns, often in things called “crypto interest-bearing accounts.” As Tae Kim warns us, this term is kind of an oxymoron. It may sound like a Treasury bond or boring old bank account, except with interest rates sometimes in the double digits. But these are [unregulated, risky black boxes]( in which your money is either alive or dead, but very likely dead. Local politicians have joined the hype machine, too, with big, showboaty promises to take paychecks or collect taxes in crypto. Bloomberg’s editorial board suggests [this is mostly harmless](, as these people typically have less popular influence than, say, LeBron James. None of this hype is likely to make crypto an important part of our lives. Unless we lose all of our money on it. Bonus Bad-Finance Reading: [Buy now/pay later plans will get more enticing]( as rates rise, but they’re dangerous. — Alexis Leondis Telltale Charts [MOAR INFLATION, shouts Walmart]( (it does not actually shout this). As Andrea Felsted notes, the discounter is thriving as prices rise, thanks to its bargaining power and budget reputation. Wait times for [NHS appointments are growing interminable](, threatening public health and the already anemic popularity of Boris Johnson, writes Therese Raphael. Further Reading Despite promoting Nick Clegg, [Mark Zuckerberg still has far too much power]( at Facebook Meta. — Parmy Olson [New antiviral drugs are in the pipeline](, hopefully more effective and easier to use than the ones we have now. — Lisa Jarvis The Durham report and other [made-up scandals may seem like jokes](, but they undermine democracy. — Jonathan Bernstein [Democracy works in Latin America](, but only to a point; new leaders too often lack the tools to govern. — Shannon O’Neil In trying to fix the electoral count, Congress must [make sure it doesn’t set other traps](. — Ramesh Ponnuru You can kind of understand [why people pay bribes](. — Matt Levine ICYMI Elon Musk [compared Justin Trudeau to Hitler]( and claimed the [SEC is stifling his free speech](. [New phishing method]( just dropped. [Enjoy that guacamole]( while you can. Kickers Never read the comments. [OK, just this once](. (h/t Jessica Karl) Area kid uses [artificial nose to diagnose pneumonia](. “Columbo” shows the benefits of [asking just one more thing](. Yes, today, Satan: [Quordle, or four Wordles]( in one. Notes:  Please send artificial noses and complaints to Mark Gongloff at mgongloff1@bloomberg.net. [Sign up here]( and follow us on [Instagram](, [TikTok](, [Twitter]( and [Facebook](. Like Bloomberg Opinion Today? [Subscribe to Bloomberg All Access and get much, much more](. You’ll receive our unmatched global news coverage and two in-depth daily newsletters, The Bloomberg Open and The Bloomberg Close. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. You received this message because you are subscribed to Bloomberg's Bloomberg Opinion Today newsletter. 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