11 ms·

It is weird, they say history does not repeat but it rhymes. What is troubling about this good news about GDP growth is the fed's course of raising interest rat

It is weird, they say history does not repeat but it rhymes. What is troubling about this good news about GDP growth is the fed's course of raising interest rates will continue on and interest rates will keep getting higher and higher. This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs. In addition growth companies will be hit hard by rates being high as we have seen since early this year. Basically the fed will do anything in its power to stop inflation and I expect the only thing to get it back to the target of 2% is to have interest rates in the low teens. I know that sounds crazy but comparing this to the 70's it took Volker raising rates to 20% to tame the bad inflation of that period[1]. We are not seeing peaks of 11%-13%(like the 70's) but 8%+ is very high and is costing Americans dearly. [1] - https://www.npr.org/2022/09/29/1125462240/inflation-1970s-volcker-nixon-carter-interest-rates-fed https://www.npr.org/2022/09/29/1125462240/inflation-1970s-vo...

ericmay 4y ago
> This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs Yea and outside of just absolutely ultraviolet kind of hot markets this will mitigate downward pressure on prices now and in the future because home builders (though that's another problem) won't be building homes. Coupled with people who have locked in interest rates, the market seems to me to be poised to grind to a halt and prices to remain quite high.
UncleOxidant 4y ago
Mortgage rates at 7% is pretty much the average mortgage rate going back 70 years or so. We're basically at the average mortgage rate now. The Fed screwed up by keeping rates too low for too long which juiced home prices such that a huge chunk of people who would like to be able to buy a home are priced out of the market. The problem, though, is that home building needs to continue in order to improve the housing supply problem (caused at least in part by the dearth of home-building during the '08-'12 period) and thus help with affordability. I tend to think that the government needs to step in here and do something to either incentivize home-building and/or at the very least do something to streamline permitting/zoning. Building codes need to be examined to see if there might be innovations that could lead to lower building costs which are currently being precluded. But keeping mortgage rates artificially low isn't the answer, that led to prices getting out of hand.
- subsubzero 4y ago
  100% agree: > But keeping mortgage rates artificially low isn't the answer I don't know what the solution is for the housing issue, on one hand you have people (like myself) who bought at high prices(and at low interest rates). My house will be a money loser if I try to sell, and this includes the thousands/millions? of people also in my boat(we are essentially trapped in our house and unable to move). On the other hand houses that will need to be built and houses on the market now are not selling, the cost to build a house and interest rates are too high in terms of affordability given current prices of houses. This leads to less mobility for Americans, and for those that are locked in their low rates right now(and bought in the past 7 years or so, and at lower levels pre-pandemic) would be crazy to sell which is another factor driving down supply.
  - jerf 4y ago
    "I don't know what the solution is for the housing issue" To the extent that there is are "solutions", they all exist in the past now. The best solution is to stop trying to "fix" the market and take the pain now, because the efforts to avoid pain now involve lots of pain later. Unfortunately, it's already "later", and quite a bit later at that, after several previous rounds of "oh crap, we can't have rich people being slightly less rich, better goose the market again!"
- Auracle 4y ago
  [flagged]
  - theGnuMe 4y ago
    What is your hypothesis exactly? Are you saying those 5m folks took the 3m houses?
    - dsfyu404ed 4y ago
      He's saying that while the numbers make it look like we're building homes slightly faster than the population is growing that's not the case once you count off the books immigration. So the housing deficit is getting worse, not better.
cwkoss 4y ago
Perhaps the housing market is obese from low interest rates, and will be healthier after a bit of dieting. Society would be healthier if the housing market wasn't managed to be a retirement fund. Would likely end homelessness.
- lotsofpulp 4y ago
  I keep reading this house as a retirement fund comment online, and I have no idea what it means. Are reverse mortgages a common part of people’s retirement? https://www.urban.org/urban-wire/reverse-mortgage-use-differs-race-and-ethnicity-heres-why-it-matters https://www.urban.org/urban-wire/reverse-mortgage-use-differ... > At a time when seniors are sitting on a mountain of housing wealth and have anxiety about their finances, this should be a well-used program. Instead, despite rising senior population, participation decreased between 2011 and 2018, from 73,112 to 33,000 mortgages. Does not seem like a popular part of peoples’ retirement plans. Even downsizing a house does not seem like it would yield enough of a profit to be a major component of retirement, unless you go from super popular area to middle of nowhere. But I doubt that is people’s retirement plan either. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
  - cwkoss 4y ago
    Many middle class seniors sell their homes to pay medical or long term care expenses.
    - lotsofpulp 4y ago
      I would like to see stats on that because the Medicaid asset test excludes $636k of one’s home value. https://www.medicaidlongtermcare.org/basics/home-ownership-impact-eligibility/ https://www.medicaidlongtermcare.org/basics/home-ownership-i... There should be no need to sell a home for almost everyone to receive healthcare or long term care (which would be covered by Medicaid/Medicare). And if people wanted to move to higher end facilities, those cost $10k+ per month, so selling a median house to live in one does not buy you much.
wwweston 4y ago
> This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs. Construction should be an industry that people care about and policymakers watch out for. But making housing purchases dependent on cheap credit may have been a poor decision, and it's possible that as a result large swathes of real estate as a sector are based on problematic incentives. The housing market needs several resets, and much as it pains me to say it as someone who'd like my own mortgages to be cheap as much as anyone else, it might need years of high interest rates to start getting things back in line -- on top of aggressive vacancy taxes, property taxes scaling on single-family rental volume + inventory scarcity, and anything else that nudges capital towards construction vs operation on existing inventory. > Basically the fed will do anything in its power to stop inflation I'm not sure what the limits of the fed's will here are, but what worries me is that monetary policy is not the sole or even primary cause of inflation: big supply shocks and demand shifts in the last 2-3 years are the bigger issue. Monetary policy can only go so far in addressing it.
jfengel 4y ago
The reversals in the housing market will be unpleasant, but they go hand in hand with all of the overpriced housing we've had for the last decade. The Fed failed to follow its own policy, of taking the punch bowl away when the party gets going. It allowed the economy to heat up for too long, and thus the inevitable reversals. Averaged over a few decades it will be the same 3-4% GDP growth that we would have gotten if they'd taken a stronger hand in taming the business cycle. Their goal is to contain the booms so that the busts aren't so bad. Having let the boom go on, there is no choice but for a bad bust to happen. It would be nice if they'd learn their own lesson for next time, a decade or so away... but unfortunately, everybody loves low interest rates and a roaring economy.
- banannaise 4y ago
  I hate the use of the term "housing" when what we mean is "land". Building materials haven't gotten obscenely more expensive. Building labor hasn't gotten obscenely more expensive. Land has gotten obscenely more expensive. We are also reaching a point where consumers drive the price of residential land less and less. How much difference does the mortgage rate make when the market is increasingly driven by commercial buyers, who don't use mortgages?
- imtringued 4y ago
  There is no karma system in economics. There is no such thing as having to do a "bust" as if it is some backlog of tasks you have forgotten to work on or a divine punishment from God you must endure. A bust just means the interest rate is above the return on investment in the actual economy. That's it. "Taming the business cycle" is an empty phrase.
  - jfengel 4y ago
    There is no karma, but there is a long-term tendency for real economic growth in about the 3-4% range. It's a combination of innovation and increased population. The latter is pretty consistent; the former is not, and yet seems remarkably steady. You can increase the rates a small amount by borrowing money, but not indefinitely. Eventually, that borrowed money causes inflation, because it increases the money supply. And eventually, people get antsy, and try to cement their gains. That's not karma, it's psychology. It's how people have behaved, and it's as predictable as anything ever gets in economics. It doesn't take a deity to invoke a bust; it just takes humans.

ericmay 4y ago

> This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs Yea and outside of just absolutely ultraviolet kind of hot markets this will mitigate downward pressure on prices now and in the future because home builders (though that's another problem) won't be building homes. Coupled with people who have locked in interest rates, the market seems to me to be poised to grind to a halt and prices to remain quite high.

UncleOxidant 4y ago

Mortgage rates at 7% is pretty much the average mortgage rate going back 70 years or so. We're basically at the average mortgage rate now. The Fed screwed up by keeping rates too low for too long which juiced home prices such that a huge chunk of people who would like to be able to buy a home are priced out of the market. The problem, though, is that home building needs to continue in order to improve the housing supply problem (caused at least in part by the dearth of home-building during the '08-'12 period) and thus help with affordability. I tend to think that the government needs to step in here and do something to either incentivize home-building and/or at the very least do something to streamline permitting/zoning. Building codes need to be examined to see if there might be innovations that could lead to lower building costs which are currently being precluded. But keeping mortgage rates artificially low isn't the answer, that led to prices getting out of hand.

subsubzero 4y ago
100% agree: > But keeping mortgage rates artificially low isn't the answer I don't know what the solution is for the housing issue, on one hand you have people (like myself) who bought at high prices(and at low interest rates). My house will be a money loser if I try to sell, and this includes the thousands/millions? of people also in my boat(we are essentially trapped in our house and unable to move). On the other hand houses that will need to be built and houses on the market now are not selling, the cost to build a house and interest rates are too high in terms of affordability given current prices of houses. This leads to less mobility for Americans, and for those that are locked in their low rates right now(and bought in the past 7 years or so, and at lower levels pre-pandemic) would be crazy to sell which is another factor driving down supply.
- jerf 4y ago
  "I don't know what the solution is for the housing issue" To the extent that there is are "solutions", they all exist in the past now. The best solution is to stop trying to "fix" the market and take the pain now, because the efforts to avoid pain now involve lots of pain later. Unfortunately, it's already "later", and quite a bit later at that, after several previous rounds of "oh crap, we can't have rich people being slightly less rich, better goose the market again!"
Auracle 4y ago
[flagged]
- theGnuMe 4y ago
  What is your hypothesis exactly? Are you saying those 5m folks took the 3m houses?
  - dsfyu404ed 4y ago
    He's saying that while the numbers make it look like we're building homes slightly faster than the population is growing that's not the case once you count off the books immigration. So the housing deficit is getting worse, not better.

cwkoss 4y ago

Perhaps the housing market is obese from low interest rates, and will be healthier after a bit of dieting. Society would be healthier if the housing market wasn't managed to be a retirement fund. Would likely end homelessness.

lotsofpulp 4y ago
I keep reading this house as a retirement fund comment online, and I have no idea what it means. Are reverse mortgages a common part of people’s retirement? https://www.urban.org/urban-wire/reverse-mortgage-use-differs-race-and-ethnicity-heres-why-it-matters https://www.urban.org/urban-wire/reverse-mortgage-use-differ... > At a time when seniors are sitting on a mountain of housing wealth and have anxiety about their finances, this should be a well-used program. Instead, despite rising senior population, participation decreased between 2011 and 2018, from 73,112 to 33,000 mortgages. Does not seem like a popular part of peoples’ retirement plans. Even downsizing a house does not seem like it would yield enough of a profit to be a major component of retirement, unless you go from super popular area to middle of nowhere. But I doubt that is people’s retirement plan either. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- cwkoss 4y ago
  Many middle class seniors sell their homes to pay medical or long term care expenses.
  - lotsofpulp 4y ago
    I would like to see stats on that because the Medicaid asset test excludes $636k of one’s home value. https://www.medicaidlongtermcare.org/basics/home-ownership-impact-eligibility/ https://www.medicaidlongtermcare.org/basics/home-ownership-i... There should be no need to sell a home for almost everyone to receive healthcare or long term care (which would be covered by Medicaid/Medicare). And if people wanted to move to higher end facilities, those cost $10k+ per month, so selling a median house to live in one does not buy you much.

wwweston 4y ago

> This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs. Construction should be an industry that people care about and policymakers watch out for. But making housing purchases dependent on cheap credit may have been a poor decision, and it's possible that as a result large swathes of real estate as a sector are based on problematic incentives. The housing market needs several resets, and much as it pains me to say it as someone who'd like my own mortgages to be cheap as much as anyone else, it might need years of high interest rates to start getting things back in line -- on top of aggressive vacancy taxes, property taxes scaling on single-family rental volume + inventory scarcity, and anything else that nudges capital towards construction vs operation on existing inventory. > Basically the fed will do anything in its power to stop inflation I'm not sure what the limits of the fed's will here are, but what worries me is that monetary policy is not the sole or even primary cause of inflation: big supply shocks and demand shifts in the last 2-3 years are the bigger issue. Monetary policy can only go so far in addressing it.

jfengel 4y ago

The reversals in the housing market will be unpleasant, but they go hand in hand with all of the overpriced housing we've had for the last decade. The Fed failed to follow its own policy, of taking the punch bowl away when the party gets going. It allowed the economy to heat up for too long, and thus the inevitable reversals. Averaged over a few decades it will be the same 3-4% GDP growth that we would have gotten if they'd taken a stronger hand in taming the business cycle. Their goal is to contain the booms so that the busts aren't so bad. Having let the boom go on, there is no choice but for a bad bust to happen. It would be nice if they'd learn their own lesson for next time, a decade or so away... but unfortunately, everybody loves low interest rates and a roaring economy.

banannaise 4y ago
I hate the use of the term "housing" when what we mean is "land". Building materials haven't gotten obscenely more expensive. Building labor hasn't gotten obscenely more expensive. Land has gotten obscenely more expensive. We are also reaching a point where consumers drive the price of residential land less and less. How much difference does the mortgage rate make when the market is increasingly driven by commercial buyers, who don't use mortgages?
imtringued 4y ago
There is no karma system in economics. There is no such thing as having to do a "bust" as if it is some backlog of tasks you have forgotten to work on or a divine punishment from God you must endure. A bust just means the interest rate is above the return on investment in the actual economy. That's it. "Taming the business cycle" is an empty phrase.
- jfengel 4y ago
  There is no karma, but there is a long-term tendency for real economic growth in about the 3-4% range. It's a combination of innovation and increased population. The latter is pretty consistent; the former is not, and yet seems remarkably steady. You can increase the rates a small amount by borrowing money, but not indefinitely. Eventually, that borrowed money causes inflation, because it increases the money supply. And eventually, people get antsy, and try to cement their gains. That's not karma, it's psychology. It's how people have behaved, and it's as predictable as anything ever gets in economics. It doesn't take a deity to invoke a bust; it just takes humans.