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Finally, no bid on mortgage-backed securities
- colonwqbang 4y agoThe article is full of jargon and unfamiliar abbreviations, it's quite hard to follow. I wonder what the target group is.
- sideshowb 4y agoWelcome to the financial press. Can't predict the future but will sure try to hide that by explaining things as counterintuitively as possible.
- tylerrobinson 4y agoFor a typical business reader, these are pretty standard terms. Most people became familiar with MBS (mortgage-backed securities) during the last financial crisis, and CPI (consumer price index) is a way of reporting inflation. The article is saying that if inflation is at 8.6%, no one would want to lend money for a lower rate. The real return (which takes into account the purchasing power of the dollars lent) would be negative. The author gives evidence that there was a “no-bid” to buy debt at 5.5%. Buying debt is in effect another way of lending. Therefore, the author shows that no one wanted to lend at 5.5%, but were willing to lend at 6%. He concludes that this shows mortgage interest rates will go even higher. That’s not to say that anyone is born knowing these terms, just that they are not particularly exotic among all the acronyms floating around.
- frgtpsswrdlame 4y agoAs someone who doesn't own a home but would like to in the future, reading this kind of stuff is making me sick.
- bombcar 4y agoRates skyrocketing can be great if you are going to be buying - because prices will usually drop to keep total monthly payments about the same. And even if you have to buy at 18% interest like in the 80s, you can refinance if rates drop.
- deleted 4y ago[deleted]
- Blackthorn 4y agoSeems like that is belated by real estate being purchased in cash by investment firms, driving prices further up.
- dragonwriter 4y ago> Seems like that is belated by real estate being purchased in cash by investment firms, driving prices further up. I wonder how much that is already contributing to the pullback in listings that is driving price increases; I suspect investment firms turn over property a lot less (at least, as individual sales) than owner-occupied.
- deleted 4y ago[deleted]
- ZoomerCretin 4y agoPeople are cashing out of expensive markets and moving to cheaper markets, paying all cash. There will be no price drop.
- SV_BubbleTime 4y agoAmong other reasons I’ve been thinking the same. I have two coworkers looking to buy. They both keep “waiting for the crash”. But I’ve tried to explain to them, they’re getting beat out on every place they look at with over-asking cash offers. If there “is a crash” they will be at the same place they are now. They need new construction to improve availability, or they need a scenario with there is mass unemployment that doesn’t effect their jobs. IDK anything. But I’m not sure I see how they get into a house.
- 01100011 4y agoWhat happens when buyers disappear for the homes in the expensive markets? The prices drop, and the cash available to buy in a cheaper market dries up. You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining.
- toomuchtodo 4y agoStockpile cash for your down payment, rising rates drive down asset prices. (not investing advice)
- krupan 4y agoIf you are buying a home to live in, just make sure you can stick with it for 5 years at least, and you will probably be fine. And the more years the better. As someone else said, you'll be able to refinance if/when rates go down, and the value of the home will go up if the fed and IRS doesn't change things majorly.
- dragonwriter 4y ago> As someone else said, you'll be able to refinance if/when rates go down Not necessarily, especially if valuations go down, as well, and especially if the economic conditions leading to lower rates/valuation—low rates being, after all, a monetary stimulus policy—also adversely effect your own earning potential.
- linguae 4y agoUnfortunately when you’ve been priced out of housing (the pandemic and the recent rise in interest rates priced me out of anything within 2 hours from Silicon Valley), there’s not much you can do other than relocate or find a way to increase income/savings. Housing in Bay Area exurbs like Hollister and Tracy has gone up by over 30% since the pandemic started. I’m currently relying on the latter (I don’t want to move for career and personal reasons), trying to save in the face of high inflation while also trying to level up my career and one day get promotions.
- danielmarkbruce 4y agoDon't worry toooooo much. The total cost of housing moves around less than changes in rates and house prices would suggest. Over time prices, interest rates and supply tend to move such that people spend, give or take, about the same % of their income on housing. Right now it sucks in the US because not enough houses were built for a number of years after the financial crises - then that got exacerbated during covid. It's never been easy to buy a house - looking at prices from a generation ago makes it seem easy, but they were facing high teen mortgage rates.
- fartcannon 4y agoWe're about to face teen mortgage rates with million+ homes, aren't we?
- ryanSrich 4y agoAbsolutely. The reason for that is for every person who needs to take out a mortgage for that $1m home, there are 3 buyers that are willing to pay cash, and like 20% over asking price. What many in this thread fail to realize is that there's a larger dynamic to housing right now than anything related to prices and rates. It's purely supply and demand. The demand is just too high for the prices to come down. Having 20% interest rates will curb some of that demand no doubt, but it won't clear it out completely. That means a few dips here and there, but generally, I don't see demand for housing decreasing enough for prices to go down.
- cjbgkagh 4y ago20% interest rates for the US is apocalyptic.
- danielmarkbruce 4y agohttps://www.census.gov/construction/nrc/pdf/newresconst.pdf https://www.census.gov/construction/nrc/pdf/newresconst.pdf Housing starts are trending up. It will take a few years, but supply is coming.
- 4y ago
- 01100011 4y agoIt's great if you're a cash buyer. Of course it will be difficult to raise that cash if the economy dives and/or real wages(after inflation) keep sinking. But, if you have the cash, you may be rewarded with some good deals on housing. You're generally better off paying a higher rate and less for the actual property since you can always refinance down the line but you can't renegotiate what you paid for a property.
- jseliger 4y agoWhat should really make you sick is not interest-rate information, but housing restrictions that drive up the cost of housing: https://www.worksinprogress.co/issue/the-housing-theory-of-everything/ https://www.worksinprogress.co/issue/the-housing-theory-of-e.... That's the true villain.
- smabie 4y agoJust buy in cash
- usrn 4y ago>Just let them eat cake
- baggy_trough 4y agoAccording to the Taylor rule, the fed needs to raise prime rates to inflation plus 2% to avoid spiraling inflation, that is, 11%. Hope you enjoy double digit borrowing rates or spiraling inflation.
- themitigating 4y agoWho do you hope enjoys this? Why are you excited for something bad to happen?
- 300bps 4y agoBad is a matter of perspective isn’t it?
- baggy_trough 4y agoObvious sarcasm is not obvious?
- danielmarkbruce 4y agoIt's a phrase. "hope you enjoy X". It just means "I'm pretty sure X is about to happen". It doesn't mean the person is excited for it.
- SilasX 4y agoIt also has the implication that they think X is bad and expect you to feel the same way, which, as one of the replies says, isn’t guaranteed, like if you’re more lender than borrower.
- codefreeordie 4y agoIf it happens, I will enjoy it. I would be relatively happy to see inflation drop while interest rates are above 10%. I could secure my financial future at much lower risk in that world. I'm not ideally positioned for that eventuality, because I didn't (and still don't) predict that outcome, but it would certainly be an opportunity-filled moment were it to occur. Honestly, "enjoy" is overstating the situation. The macro economy around such a circumstance would probably be miserable, so I would probably be unhappy. But, I would be happy to have the opportunity that such a moment would produce.
- baskethead 4y ago> Those of us fortunate enough to have 30 year fixed rate mortgages at about 3% are about to see our mortgage “debt” give us better returns than our stock holdings. This is incorrect. That's only if house prices go up along with inflation, which I don't think it will. House valuations have been sky high, like the stock market was 6 months ago. There's a lot of room for valuations to pull in, I would say at least 33%, if not 50%. So we could see deflation in house prices, and a net loss even though "real" rates are very negative.
- danielmarkbruce 4y agoRead the quote literally.
- mike_d 4y agoWith 8% inflation if housing took a 50% hit, your stock holdings don't matter because people are fighting over loaves of bread in the street.
- Originami 4y agoRetail mortgages are 6% whilst Blackrock can borrow at 0.75%. Corporations need to banned from owning single-family residential housing.
- deleted 4y ago[deleted]
- baskethead 4y agoI agree with this. Owning apartment buildings are one thing, but buying hundreds of thousands of single family homes and squeezing regular people out is detrimental to the entire country.
- mhluongo 4y agoDo regular people not live in apartment buildings?
- yunohn 4y agoSure, and they pay a multiple + overhead on top of the underlying mortgage. Some might call this unnecessary /rent seeking/.
- gabereiser 4y agoRegular people outgrow the 700sqft apartments pretty easily.
- deleted 4y ago[deleted]
- lmm 4y agoOne weird trick to own the speculators and make housing affordable for young people: build some more homes in desirable areas. BlackRock is only doing the same thing that the boomer generation has been collectively doing for years; but I guess giving young people a way to access that unearned NIMBY rent defeats the point.
- heartbreak 4y agoThe pingbacks tell an interesting story here. Here’s a choice line referring to O&G prices from the post this one is discussing: > In a rational world, if the party in power in DC were not encumbered by climateers, we would turn on the hose, take every step to unimpede production and delivery. Watch out for FUD. Economic forecasting is extremely political.
- deleted 4y ago[deleted]
- vkou 4y agoIn a rational world, that hose would have had someone trying to strangle it ~two decades ago. In the irrational world we live in today, because of sentiments like what you've quoted, we're heading straight towards a climate catastrophe. The cheapest time to avoid it was by taking action 20 years ago, the next cheapest time to avoid it is today, but unfortunately irrational people aren't very price-conscious.
- ProjectArcturis 4y agoI don't know why this "No Bid" claim is getting so much traction. MBB, an ETF containing only MBS, dropped all the way from 98 to 97 on Friday.
- xeromal 4y agoWhat's the significance of 98 to 97 ?
- ProjectArcturis 4y ago$98 per share to $97 per share.
- browningstreet 4y agoThis reader is still hoping for an explanation of the significance.
- shubhamkrm 4y agoI assume the point the GP is making is that it's not at all significant.
- bjornsing 4y agoWell the OP says the retail rate went from 5.5% to 6% as a consequence. Not very significant either, right? Surprise comes from data that violates your expectations. I guess it’s mostly a matter of expectations here. Also, ETF buyers are probably less knowledgeable / professional / sophisticated than buyers of the underlying asset.
- ProjectArcturis 4y agoThe ETF has a redemption mechanism that keeps its trading price aligned with the underlying net asset value. Thus, the sophistication of the ETF buyers is irrelevant.
- vsskanth 4y agoCan someone explain this a bit more clearly ? > Consider what that means for the home buying market. Those of us fortunate enough to have 30 year fixed rate mortgages at about 3% are about to see our mortgage “debt” give us better returns than our stock holdings. Does this mean we should have borrowed as much as possible to buy a house when rates were low ?
- readthenotes1 4y agoOnly if you believe rates will go higher and that you can take advantage of those higher rates. For example, Having assets on a fixed loan of 3% when you can get a CD of similar duration for 3.5% means you are making money by owing those assets and owing that loan. It is why deflation is such anathema to the financial industry. They don't want anyone but themselves to benefit from financial conditions.
- NhanH 4y agoIn this example, you are borrowing the CD right?
- MikeDelta 4y agoYou buy the CD (and give the issuer your money on deposit against the rate of 3.5%)
- UncleEntity 4y agoWhich is the point of the article, you get 3.5% while the value of your money is -8.6% (or whatever the real rate of inflation is) so in the end you pay the bank to borrow your money.
- ethbr0 4y agoIf I follow the analogy right, the value of your debt is -8.6%. The path to beating inflation is (a) borrowing at fixed low rates before it kicks in & (b) buying some asset that appreciates at greater than inflation rates (or at least paces it).
- outside1234 4y agoYou buy short duration bonds so you have money to buy the crash
- outside1234 4y agoLoan only going to make more than the stock market if the real estate market doesn’t drop by 30% :)
- bjornsing 4y agoSooner or later the inflation will be over though, and this guy may then have a house with no mortgage.
- usrn 4y agoNot going to happen (unless we enter an extremely disintigrative/politically unstable phase where you don't want to live here because there's too much violence.) We're bringing in/birthing more people than we're building houses for and the cost of labor to build new ones is going up.
- vecinu 4y ago> (unless we enter an extremely disintigrative/politically unstable phase where you don't want to live here because there's too much violence.) This is always thrown out as a rule but it's definitely not the only possible outcome. Housing can still massively drop without civil unrest but with hard times due to unemployment. 100 years ago the US was still desirable.
- cudgy 4y agoPopulation is stabilizing and decreasing in US and many other developed countries. Large populations of older people like Boomers in the US are dying. Whose going to buy all these new, smaller, more expensive homes when there are plenty of existing homes at reduced prices in the market? Long term trends are unfavorable for growth in housing.
- usrn 4y agoMaybe long term trends are but short term there's so much inflation the mortgages aren't a big deal. There's no sign of immigration being slowed down either so I'm not even sure the population will stabilize without something serious happening.
- retube 4y agoVery simplistic analysis. Real yield is a function of inflation over the life of the bond. It might be 8% now, but the market is not pricing that over the next 20 or 30 years. And people buy MBS because they have a higher yield than treasuries.
- UncleEntity 4y agoOr perhaps the market knows that the official rate of inflation is nowhere close to the real rate of inflation and are pricing that in? Also, I saw an article the other day where the Fed is no longer buying MBS as part of QE <mark whatever> as of last month (I believe, could have been march) so a major buyer has left the market. A buyer who bought for no other reason other than to prop up the market I might add.
- pas 4y agohow does the market know what's the true inflation rate? if they use a sampling (basket of goods as proxy) method like other statistical agencies then why do we think the stats agencies are worse?
- jzymbaluk 4y agoI've joked since 2014 that I was born at the perfect time (1993) to never be able to buy a house, and this seems to prove that my patience in waiting out the market was not in fact a wise move. Very cool
- chrisco255 4y agoReal estate prices will fall in a high interest rate, cash poor environment. More than most people appreciate. Since real estate is at all time highs relative to median incomes, something has to give.
- ryathal 4y agoTrying to time a market always fails, and a first house isn't really an investment in the traditional sense. It's always the best time to buy first home, from a market perspective. The big factor is picking somewhere you plan to live for 5+ years.
- favflam 4y ago1 short cut to cutting demand is to copy everyone else around the world. Let cities get rid of single family zoning. Let go of pride and commute by bicycle. The energy consumption will drop by a magnitude. People's health will improve. We as members of society will see each other face to face more often, closing the polarization. Make the police walk and cycle around town, not sit aloof in their metal tanks. The US would get explosive growth by not forcing such enormously inefficient car-centric cities.
- irrational 4y agoHow long would that take to happen? It’s not like all of the current building and infrastructure can be torn down and rebuilt in the European model overnight. Could it even happen within one person’s lifetime?
- Anderkent 4y agoBuilding is fast if you allow people to do it. You could have a new apartment building in around a year, and that's without really pushing it. Zoning and permits are what's holding construction back
- ryathal 4y agoLack of construction workers is also holding things back, this could be a lit of a licensing issue, but there aren't enough workers to do all the projects that are funded now.
- favflam 4y agoNo pain, no gain. We just suck it up for a few years. Our future generations will thank us. You get immediate savings by stopping road expansion and cutting fuel demand (close lanes on big roads, replace with bicycle lanes). You get 3-10 years of pain from bicycle/walk-commuting in a city designed for cars. To compensate, let people build supermarkets and stores in single family zoned areas. Subsidize rent-a-bike companies with funds from gas taxes and frozen road construction projects. This is basically the only sure-fire way to let poor people generate free cash flow to survive the recession without having to helicopter them money. This has worked for developing countries like China. Also, this is a way to keep cities financially solvent by letting the tax revenue to land area ratio increase naturally as people adjust to human-powered commuting.
- rigelbm 4y agoIn London it's common for people to take 25y~30y loans that are fixed for only 2y~5y. 5 years ago interest rates were 2.5%. If rates go above 10% this year, does that mean a sudden influx of houses in the market because people can't pay their houses anymore? Edit: Wrong fixed interest rate.
- reuben_scratton 4y agoDoes anyone (UK) even offer fixed rate more than 5 years ahead?
- kioleanu 4y agoI am watching the markets in Romania and Germany and they are completely opposites: in Romania, most people I know went for a no fixed rate loan, meaning they change interest every 3 months. The banks are advertising this as the "cheaper" option - you get 4,8% variable interest now instead of 5,5% fixed. And people go into it with a "how bad could it get" attitude. Meanwhile, there are tens of thousands of new units entering the market (Romania tends to expand cities upwards, building 8-10 stories high buildings). I am really curious about how that market is going to develop. Meanwhile in Germany, I don't see this option at all, and banks have now started pushing* for fixed rates for 30 years at 3% or save/loan accounts where you save for 10 years and they will give you a house loan in 10 years for 1,8% interest. * we've got letters from all the banks where we have accounts promoting this
- prirun 4y ago> Make the police walk and cycle around town, not sit aloof in their metal tanks. This is such a good idea. Remember the old police shows where there were always 2 partner cops in the car? That doesn't happen anymore. Now every cop gets his own personal car that they drive home at night. If there is a wreck - even a small fender bender - about 4 cop cars show up with sirens blazing, completely disrupting traffic. It's crazy.
- AlleyTrotter 4y ago