4 ms·

Interest rate hikes will continue until inflation subsidies and interest rates will remain high after that. "Restoring price stability will likely require main

Interest rate hikes will continue until inflation subsidies and interest rates will remain high after that. "Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy"

cyberlurker 4y ago
Right, do not expect rates near 0 in the foreseeable future and as a follow on to that, mortgage rates will go up. So if you are locked in for 30 years with a mortgage purchased the last few years, you did well.
- paulmd 4y ago
  > So if you are locked in for 30 years with a mortgage purchased the last few years, you did well. Unless prices go down and you end up losing a bunch of money (or worse, underwater). That's the problem, rates and housing prices don't exist in isolation. People don't generally care about the actual sticker price of the house, they care about what the monthly payment is going to be, so lower interest rates imply willingness to bid higher... and the opposite is also true, higher interest rates mean people can't afford to bid as high and sale prices go down. Essentially, people are locked in at higher principal/lower interest, but now the housing market is moving towards lower principal/higher interest, and that means that a huge amount of housing "net worth" (whether current or future) just evaporated for a lot of people. Your $300k house is now a $250k house again and you just lost all that money you spent years paying down (inflation ain't the only way for value to evaporate). If interest rates double, then so does the interest portion of the mortgage for new homebuyers. It's not quite double, since some of the mortgage goes to principal, but it'll be almost double. And with the interest rate so low... it doesn't make much in "real terms" to make a big relative increase. I refi'd at... 2.75%? So if the fed raises interest rates from 0% to 2%, that nearly doubles my interest rate. Obviously I am not buying today but other people are, and that still determines the value of my asset. I suppose it's the old "don't buy the house as an investment, buy it to lock in a rent that you can afford" but it's definitely been worrying me. Thankfully the last few years have put me far enough ahead that I'm not in any danger even with a big dip. And I suppose the counterargument is that institutional buyers are still making big cash offers, so maybe there won't be that much of a dip. But without the hike, values would have gone higher, it's still a loss of expected value. And the institutional investors aspect of the market is really not a great thing either right now.
  - cyberlurker 4y ago
    Yea, we don't know which way anything is going to go so it might end up being better to wait. As of now though, home prices haven't dropped much in many areas due to lack of supply. I think both positions have merit, but for a variety of reasons I think the lower rate home is the better position. And you also don't really “lose” money, but yes the house value on paper could go down from the historic highs.
deleted 4y ago
[deleted]
crypto420_69 4y ago
Not just that. He mentioned the 1970's and 80's five times, which was a period of high inflation, high rates and civil unrest. From https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_Federal_Reserve https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F...: "Volcker's Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building. US monetary policy eased in 1982, helping lead to a resumption of economic growth" TL;DR it's going to get ugly

cyberlurker 4y ago

Right, do not expect rates near 0 in the foreseeable future and as a follow on to that, mortgage rates will go up. So if you are locked in for 30 years with a mortgage purchased the last few years, you did well.

paulmd 4y ago
> So if you are locked in for 30 years with a mortgage purchased the last few years, you did well. Unless prices go down and you end up losing a bunch of money (or worse, underwater). That's the problem, rates and housing prices don't exist in isolation. People don't generally care about the actual sticker price of the house, they care about what the monthly payment is going to be, so lower interest rates imply willingness to bid higher... and the opposite is also true, higher interest rates mean people can't afford to bid as high and sale prices go down. Essentially, people are locked in at higher principal/lower interest, but now the housing market is moving towards lower principal/higher interest, and that means that a huge amount of housing "net worth" (whether current or future) just evaporated for a lot of people. Your $300k house is now a $250k house again and you just lost all that money you spent years paying down (inflation ain't the only way for value to evaporate). If interest rates double, then so does the interest portion of the mortgage for new homebuyers. It's not quite double, since some of the mortgage goes to principal, but it'll be almost double. And with the interest rate so low... it doesn't make much in "real terms" to make a big relative increase. I refi'd at... 2.75%? So if the fed raises interest rates from 0% to 2%, that nearly doubles my interest rate. Obviously I am not buying today but other people are, and that still determines the value of my asset. I suppose it's the old "don't buy the house as an investment, buy it to lock in a rent that you can afford" but it's definitely been worrying me. Thankfully the last few years have put me far enough ahead that I'm not in any danger even with a big dip. And I suppose the counterargument is that institutional buyers are still making big cash offers, so maybe there won't be that much of a dip. But without the hike, values would have gone higher, it's still a loss of expected value. And the institutional investors aspect of the market is really not a great thing either right now.
- cyberlurker 4y ago
  Yea, we don't know which way anything is going to go so it might end up being better to wait. As of now though, home prices haven't dropped much in many areas due to lack of supply. I think both positions have merit, but for a variety of reasons I think the lower rate home is the better position. And you also don't really “lose” money, but yes the house value on paper could go down from the historic highs.

deleted 4y ago

[deleted]

crypto420_69 4y ago

Not just that. He mentioned the 1970's and 80's five times, which was a period of high inflation, high rates and civil unrest. From https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_Federal_Reserve https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F...: "Volcker's Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building. US monetary policy eased in 1982, helping lead to a resumption of economic growth" TL;DR it's going to get ugly