5 ms·

Interest rates NEED to go up now. The housing market in many major cities is a disaster. Toronto seems to have a bubble of epic proportion. You can buy a millio

by tostitos1979 11y ago

Interest rates NEED to go up now. The housing market in many major cities is a disaster. Toronto seems to have a bubble of epic proportion. You can buy a million dollar home at 3K a month. As home buyers, our jaws are on the floor. It is absolutely unfair what has happened to people of my generation. We just had a kid and I'm just sad how bad of a situation we are in wrt housing.

gozur88 11y ago
>As home buyers, our jaws are on the floor. It is absolutely unfair what has happened to people of my generation. I agree interest rates need to go up, but rising rates aren't going to improve the housing market. When I graduated from college the housing market in my area was booming while rates were at 12%. If you think you can't afford a house now, wait until your 3k monthly payment buys you a $150k house.
- tostitos1979 11y ago
  When I factor in taxes, I'd prefer a 150K home with 20% interest rates. Making 200K and 1.5 million houses (with me paying a 50% marginal tax rate), I feel life is impossible.
  - gozur88 11y ago
    Which would you rather be selling after 30 years - a $1.5m house, or a $150k house? Also, house prices do not necessarily go down when interest rates go up. If interest rates are rising because of inflation people rush into the housing market looking for an asset that will hold its value. You may end up with the worst of both worlds - $1.5m houses (in constant dollars) and 12% interest rates. Just because all you can afford is a $150k house doesn't mean one will be available at that price.
    - tostitos1979 11y ago
      Canada has another weirdness, which is most mortgages are 5 years (amortized over 25 years). I agree with your argument that housing may not fall precipitously when interest rates rise. I am REALLY worried what will happen to us in 5 years when we have to refinance the home loan. I guess if things get bad, we'll just have to sell the house (assuming that prices didn't fall). The whole thing makes me feel uneasy.
      - iofj 11y ago
        That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free interest rates, plus a certain amount to do all the admin work on a mortgage. It just doesn't make sense for the banks to do mortgages at the moment. They're losing money on it. A little bit at the moment, but if the default rate were to go up by even 1%, God help us. Banks would be dropping like flies. That's of course what bubbles do : they make the system more unstable. But that's what everybody's denying as well, despite the fact that a trivial excel sheet will tell you the obvious. A tiny problem will crash the system at the moment. Especially in Europe.
        tostitos1979 11y ago
        In Canada, we have something called "CHMC". Basically, the govt will insure mortgages. The banks have little risk IMHO ... majority of the risk is assumed by the taxpayer and the borrower.
        ZoeZoeBee 11y ago
        The US basically did the same when it took over Fannie and Freddie in 2008, it's not something which is spoke of often in the US but for all intents and purposes the US govt and Federal Reserve own most of the mortgages in the US. The US nationalized Fannie and Freddie, under the false premise they would be re-privatized after paying back the government. Instead they paid back the government in full years ago and now the interest from mortgage payments goes right to the treasury. They also for all intents and purposes Nationalized Student Loans with Obamacare and the "Health Care and Education Reconciliation Act of 2010" https://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010 https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco..., where by all of the Interest Rates made off of student loans helps pay for Obamacare. As it stands the US Treasury is profiting to the tune of over $100 Billion a year, though its hardly mentioned, I'd venture to bet 90% of the general population is completely unaware. http://www.wsj.com/articles/fannie-and-freddie-forever-1451520683 http://www.wsj.com/articles/fannie-and-freddie-forever-14515...
Nihilartikel 11y ago
But if interest rates go up companies that are experiencing diminishing profits won't be able to prop up their reported earnings per share with cheap debt leveraged buybacks of their own stock! It would be calamitous!
xyzzy4 11y ago
I disagree. They don't need to go up. Money will keep exchanging hands, which is all that's needed for a living economy, despite what interest rates are. Housing prices will always inflate to the level where people can barely pay them, but will pay because they have to.
- eru 11y ago
  > Housing prices will always inflate to the level where people can barely pay them, but will pay because they have to. That's the case for a limited supply of housing. If not for political problems (read NIMBYs), we could build a lot of housing. The sky's the limit. In any case, higher interest rates would make these levels go down.
meric 11y ago
Don't worry about the kid, by the time he's 18 the bubble would have popped. Don't worry about not having anything for the kid to invest in. There's always assets undervalued out there. Right now it's precious metals equities (undervalued on the way up) & commodity producers (undervalued on the way down), and silver. I know you cringe thinking about those asset types. That's partially why they're undervalued in the first place - Did you buy Vancouver property in 1998-2001 when it was cheap, or in tech stocks at the time?

gozur88 11y ago

>As home buyers, our jaws are on the floor. It is absolutely unfair what has happened to people of my generation. I agree interest rates need to go up, but rising rates aren't going to improve the housing market. When I graduated from college the housing market in my area was booming while rates were at 12%. If you think you can't afford a house now, wait until your 3k monthly payment buys you a $150k house.

tostitos1979 11y ago
When I factor in taxes, I'd prefer a 150K home with 20% interest rates. Making 200K and 1.5 million houses (with me paying a 50% marginal tax rate), I feel life is impossible.
- gozur88 11y ago
  Which would you rather be selling after 30 years - a $1.5m house, or a $150k house? Also, house prices do not necessarily go down when interest rates go up. If interest rates are rising because of inflation people rush into the housing market looking for an asset that will hold its value. You may end up with the worst of both worlds - $1.5m houses (in constant dollars) and 12% interest rates. Just because all you can afford is a $150k house doesn't mean one will be available at that price.
  - tostitos1979 11y ago
    Canada has another weirdness, which is most mortgages are 5 years (amortized over 25 years). I agree with your argument that housing may not fall precipitously when interest rates rise. I am REALLY worried what will happen to us in 5 years when we have to refinance the home loan. I guess if things get bad, we'll just have to sell the house (assuming that prices didn't fall). The whole thing makes me feel uneasy.
    - iofj 11y ago
      That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free interest rates, plus a certain amount to do all the admin work on a mortgage. It just doesn't make sense for the banks to do mortgages at the moment. They're losing money on it. A little bit at the moment, but if the default rate were to go up by even 1%, God help us. Banks would be dropping like flies. That's of course what bubbles do : they make the system more unstable. But that's what everybody's denying as well, despite the fact that a trivial excel sheet will tell you the obvious. A tiny problem will crash the system at the moment. Especially in Europe.
      - tostitos1979 11y ago
        In Canada, we have something called "CHMC". Basically, the govt will insure mortgages. The banks have little risk IMHO ... majority of the risk is assumed by the taxpayer and the borrower.
        ZoeZoeBee 11y ago
        The US basically did the same when it took over Fannie and Freddie in 2008, it's not something which is spoke of often in the US but for all intents and purposes the US govt and Federal Reserve own most of the mortgages in the US. The US nationalized Fannie and Freddie, under the false premise they would be re-privatized after paying back the government. Instead they paid back the government in full years ago and now the interest from mortgage payments goes right to the treasury. They also for all intents and purposes Nationalized Student Loans with Obamacare and the "Health Care and Education Reconciliation Act of 2010" https://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010 https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco..., where by all of the Interest Rates made off of student loans helps pay for Obamacare. As it stands the US Treasury is profiting to the tune of over $100 Billion a year, though its hardly mentioned, I'd venture to bet 90% of the general population is completely unaware. http://www.wsj.com/articles/fannie-and-freddie-forever-1451520683 http://www.wsj.com/articles/fannie-and-freddie-forever-14515...

Nihilartikel 11y ago

But if interest rates go up companies that are experiencing diminishing profits won't be able to prop up their reported earnings per share with cheap debt leveraged buybacks of their own stock! It would be calamitous!

xyzzy4 11y ago

I disagree. They don't need to go up. Money will keep exchanging hands, which is all that's needed for a living economy, despite what interest rates are. Housing prices will always inflate to the level where people can barely pay them, but will pay because they have to.

eru 11y ago
> Housing prices will always inflate to the level where people can barely pay them, but will pay because they have to. That's the case for a limited supply of housing. If not for political problems (read NIMBYs), we could build a lot of housing. The sky's the limit. In any case, higher interest rates would make these levels go down.

meric 11y ago

Don't worry about the kid, by the time he's 18 the bubble would have popped. Don't worry about not having anything for the kid to invest in. There's always assets undervalued out there. Right now it's precious metals equities (undervalued on the way up) & commodity producers (undervalued on the way down), and silver. I know you cringe thinking about those asset types. That's partially why they're undervalued in the first place - Did you buy Vancouver property in 1998-2001 when it was cheap, or in tech stocks at the time?