5 ms·

They need to go slow. An abrupt rate increase will cause a recession.

by nine_zeros 5y ago

bequanna 5y ago
Could they go any slower? The consensus seems to be that this is far too little way too late.
- chipgap98 5y ago
  Consensus from who?
  - bequanna 5y ago
    Every person in the US who has had their purchasing power destroyed over the past ~18 months. Unfortunately, most people were/are too drunk on (maybe temporary) housing and stock market gains to care. Cheap money, free money and rampant speculation could all have easily been cut off a year ago and we would have had a much “softer landing”. Now we’re in a much more precarious position and may end up fighting stagflation possibly causing years long general economic malaise. …but hey, Zillow said my house is worth $XXX!!!
    - colinmhayes 5y ago
      > Every person in the US who has had their purchasing power destroyed over the past ~18 months. The vast majority of people in the US have no idea what the fed is. Why would you trust their judgement?
    - Loughla 5y ago
      I legitimately want my home value to tank. I'm sick of paying taxes on a 275k home value that will never, ever, ever sell for that much. I wish it could go back to 80-100k, regardless of whatever "equity" that costs me. I'm in my permanent home, not an investment property.
phkahler 5y ago
In particular a bursting of the housing bubble that has been reinflated (and then some) since the last time it popped in '08.
- mikeyouse 5y ago
  There's no evidence at all for this. The exotic mortgage products (e.g. reverse ARMs) have essentially disappeared, people's homes are well capitalized, lending standards are much higher than they were, there's very low levels of home equity debt, overall debt payments as a percent of household income are at very low levels. The people waiting for a housing crash are going to wait a long time. This one chart sums it up well: https://fred.stlouisfed.org/series/MDSP https://fred.stlouisfed.org/series/MDSP Mortgage debt service payments as a percent of disposable income are near all-time lows and at roughly 1/2 the number of the GFC peak. Since the vast majority of home loans are fixed -- what's the mechanism for rate hikes to cause a housing crash?
  - phkahler 5y ago
    The people who should not have been buying houses are now renting. Home prices in my area are higher than they were in 2008. Prices will still drop when interest rates rise - that's how it works. It's good that people will be able to keep their homes this time around, but that doesn't mean it's not a bubble.
  - ameister14 5y ago
    Yeah but that's an overall lowering of debt servicing as a percent of disposable income. The only part that hasn't dropped much is consumer debt. Plus while reverse amortization might be less common, ARMs generally are still very popular and you'll see a hike in overall debt service associated with rising interest rates. I don't know what's gonna happen with the housing market and I don't think it'll crash either but I think part of the reason is because private equity has bought a huge amount of housing - BlackRock bought what, 10-15% of the houses sold in 2020?
    - mikeyouse 5y ago
slaw 5y ago
They need to slowly hike interest rate by 25 bps every week for the next 8 months to match inflation.
- nine_zeros 5y ago
  That is silly. With mere speculation of interest rate increase, housing sales have already started to slow down. With every 25 bps increase, real asset interest rates will go much higher, causing much more slowdown in sales, GDP and inflation. If fed accelerates rate increases, we are very likely to see a recession. Which will automatically reduce demand for goods and services and thus inflation. But reducing inflation by causing mass unemployment will lead to other problems.
  - slaw 5y ago
    You can build houses cheaper. They don't have to be as overpriced as they are.
icedchai 5y ago
They are going slow. It will take years to get back to pre-covid levels (2.5%-ish), which were low as it is. We haven't had a historically "normal" rate since the mid 2000's (4 to 5% ish.) There will no doubt be another crisis before we get anywhere near there.

They need to go slow. An abrupt rate increase will cause a recession.

bequanna 5y ago

Could they go any slower? The consensus seems to be that this is far too little way too late.

chipgap98 5y ago
Consensus from who?
- bequanna 5y ago
  Every person in the US who has had their purchasing power destroyed over the past ~18 months. Unfortunately, most people were/are too drunk on (maybe temporary) housing and stock market gains to care. Cheap money, free money and rampant speculation could all have easily been cut off a year ago and we would have had a much “softer landing”. Now we’re in a much more precarious position and may end up fighting stagflation possibly causing years long general economic malaise. …but hey, Zillow said my house is worth $XXX!!!
  - colinmhayes 5y ago
    > Every person in the US who has had their purchasing power destroyed over the past ~18 months. The vast majority of people in the US have no idea what the fed is. Why would you trust their judgement?
  - Loughla 5y ago
    I legitimately want my home value to tank. I'm sick of paying taxes on a 275k home value that will never, ever, ever sell for that much. I wish it could go back to 80-100k, regardless of whatever "equity" that costs me. I'm in my permanent home, not an investment property.

phkahler 5y ago

In particular a bursting of the housing bubble that has been reinflated (and then some) since the last time it popped in '08.

mikeyouse 5y ago
There's no evidence at all for this. The exotic mortgage products (e.g. reverse ARMs) have essentially disappeared, people's homes are well capitalized, lending standards are much higher than they were, there's very low levels of home equity debt, overall debt payments as a percent of household income are at very low levels. The people waiting for a housing crash are going to wait a long time. This one chart sums it up well: https://fred.stlouisfed.org/series/MDSP https://fred.stlouisfed.org/series/MDSP Mortgage debt service payments as a percent of disposable income are near all-time lows and at roughly 1/2 the number of the GFC peak. Since the vast majority of home loans are fixed -- what's the mechanism for rate hikes to cause a housing crash?
- phkahler 5y ago
  The people who should not have been buying houses are now renting. Home prices in my area are higher than they were in 2008. Prices will still drop when interest rates rise - that's how it works. It's good that people will be able to keep their homes this time around, but that doesn't mean it's not a bubble.
- ameister14 5y ago
  Yeah but that's an overall lowering of debt servicing as a percent of disposable income. The only part that hasn't dropped much is consumer debt. Plus while reverse amortization might be less common, ARMs generally are still very popular and you'll see a hike in overall debt service associated with rising interest rates. I don't know what's gonna happen with the housing market and I don't think it'll crash either but I think part of the reason is because private equity has bought a huge amount of housing - BlackRock bought what, 10-15% of the houses sold in 2020?
  - mikeyouse 5y ago

slaw 5y ago

They need to slowly hike interest rate by 25 bps every week for the next 8 months to match inflation.

nine_zeros 5y ago
That is silly. With mere speculation of interest rate increase, housing sales have already started to slow down. With every 25 bps increase, real asset interest rates will go much higher, causing much more slowdown in sales, GDP and inflation. If fed accelerates rate increases, we are very likely to see a recession. Which will automatically reduce demand for goods and services and thus inflation. But reducing inflation by causing mass unemployment will lead to other problems.
- slaw 5y ago
  You can build houses cheaper. They don't have to be as overpriced as they are.

icedchai 5y ago

They are going slow. It will take years to get back to pre-covid levels (2.5%-ish), which were low as it is. We haven't had a historically "normal" rate since the mid 2000's (4 to 5% ish.) There will no doubt be another crisis before we get anywhere near there.