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A $1 million loan on a 30 year term at 3% interest ($4200/mo) is totally different from say 5% (5300/mo) or 8% (7300/mo) interest. It’s strange to me that the

A $1 million loan on a 30 year term at 3% interest ($4200/mo) is totally different from say 5% (5300/mo) or 8% (7300/mo) interest. It’s strange to me that the principal of the loan is the basis for the policy rather than the monthly payments. If interest rates hit a 30 year high to match our 30 year high in inflation, the share of Americans who can afford a million dollar loan will be a tiny tiny fraction of what it is now.

jjoonathan 5y ago
If they keep rates low, inflation will explode, and buying a house now will be an excellent investment. If they spike rates to fight inflation, like in the late 70s, buying a house now will be a terrible investment. That's why it's a lever of power: it can go both ways.
- ece 5y ago
  Offcourse, it'll be something in the middle which makes sense for the US and global economy.
- throw8932894 5y ago
  You assume low interest rate has no negative effect in long run. In 30 years the house may be worth $100M on paper, but is unsalable and in neighbourhood that look like Detroit .
  - helen___keller 5y ago
    If the house can’t be sold, that’s not the value on paper. Valuations are made based on real sales of comparable properties in the area.
- toomuchtodo 5y ago
  What's US gov debt servicing look like as rates go up? Not so good. Interest rates should rise substantially (to stop inflating assets and allowing zombie companies to continue to operate suboptimally), but there is no appetite. The US government owes ~$280B/year for each percent increase in interest rates. Dollar-weighed maturity of current US debt is 69.1 months. When rates rise, within one year roughly 1/3 debt would be financed at the higher rates. Within three year, >50% would be issued at higher rates. https://www.cbo.gov/publication/56910 https://www.cbo.gov/publication/56910 https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ32021.pdf https://home.treasury.gov/system/files/221/TreasuryPresentat... (this is not investing advice, for educational purposes only)
  - ece 5y ago
    I think everyone knows about paying higher taxes after gov spending, but maybe the rich can pay their fair share like the 70s.

jjoonathan 5y ago

If they keep rates low, inflation will explode, and buying a house now will be an excellent investment. If they spike rates to fight inflation, like in the late 70s, buying a house now will be a terrible investment. That's why it's a lever of power: it can go both ways.

ece 5y ago
Offcourse, it'll be something in the middle which makes sense for the US and global economy.
throw8932894 5y ago
You assume low interest rate has no negative effect in long run. In 30 years the house may be worth $100M on paper, but is unsalable and in neighbourhood that look like Detroit .
- helen___keller 5y ago
  If the house can’t be sold, that’s not the value on paper. Valuations are made based on real sales of comparable properties in the area.
toomuchtodo 5y ago
What's US gov debt servicing look like as rates go up? Not so good. Interest rates should rise substantially (to stop inflating assets and allowing zombie companies to continue to operate suboptimally), but there is no appetite. The US government owes ~$280B/year for each percent increase in interest rates. Dollar-weighed maturity of current US debt is 69.1 months. When rates rise, within one year roughly 1/3 debt would be financed at the higher rates. Within three year, >50% would be issued at higher rates. https://www.cbo.gov/publication/56910 https://www.cbo.gov/publication/56910 https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ32021.pdf https://home.treasury.gov/system/files/221/TreasuryPresentat... (this is not investing advice, for educational purposes only)
- ece 5y ago
  I think everyone knows about paying higher taxes after gov spending, but maybe the rich can pay their fair share like the 70s.