5 ms·

Everyone mentions 2007, but 2006 was when lending tightened, making the subprime crisis inevitable given all the interest only ARM loans.

bryanlarsen 4y ago
And now is when we find out who didn't learn from the subprime lesson. The UK had the gilt crash, but so far no cascade crisis has appeared with the tightening interest rates in the US. Given that the rates today are about the same as what they were in 2019, I don't expect any cascade crisis unless rates rise significantly higher.
- chrisco255 4y ago
  Even then, in the U.S. less than 5% of mortgages are variable rate loans: "The percentage of adjustable-rate mortgages to total loans shrank from a high of roughly 34% in 2005 to a low of under 5% in 2022. The decline began when the housing market peaked around 2006 and bottomed in 2009 at around 2.5%." https://www.financialsamurai.com/adjustable-rate-mortgages-as-a-percentage-of-total-loans/ https://www.financialsamurai.com/adjustable-rate-mortgages-a... Everyone is always fighting the last war. The real estate market may slow down here, maybe even prices decline in either real or nominal terms, but I don't think real estate is where the biggest risks lay, at least in the domestic US real estate market (can't say anything for China or AUS or other markets that seem primed for a dramatic bust). I'm far more concerned about sovereign debt levels, which have absolutely ballooned over the past decade, and are even accelerating in growth in many cases.
  - bcrosby95 4y ago
    Real estate is, unironically different this time. A key component in this run up vs the last is, last time rents did not increase nearly as much as home prices. In 2005-2006 I was paying $2200/mo to rent a house worth $1 million. And no, it wasn't rent controlled. That rent prices haven't massively dislocated from housing prices makes me think it's not the same situation.

bryanlarsen 4y ago

And now is when we find out who didn't learn from the subprime lesson. The UK had the gilt crash, but so far no cascade crisis has appeared with the tightening interest rates in the US. Given that the rates today are about the same as what they were in 2019, I don't expect any cascade crisis unless rates rise significantly higher.

chrisco255 4y ago
Even then, in the U.S. less than 5% of mortgages are variable rate loans: "The percentage of adjustable-rate mortgages to total loans shrank from a high of roughly 34% in 2005 to a low of under 5% in 2022. The decline began when the housing market peaked around 2006 and bottomed in 2009 at around 2.5%." https://www.financialsamurai.com/adjustable-rate-mortgages-as-a-percentage-of-total-loans/ https://www.financialsamurai.com/adjustable-rate-mortgages-a... Everyone is always fighting the last war. The real estate market may slow down here, maybe even prices decline in either real or nominal terms, but I don't think real estate is where the biggest risks lay, at least in the domestic US real estate market (can't say anything for China or AUS or other markets that seem primed for a dramatic bust). I'm far more concerned about sovereign debt levels, which have absolutely ballooned over the past decade, and are even accelerating in growth in many cases.
- bcrosby95 4y ago
  Real estate is, unironically different this time. A key component in this run up vs the last is, last time rents did not increase nearly as much as home prices. In 2005-2006 I was paying $2200/mo to rent a house worth $1 million. And no, it wasn't rent controlled. That rent prices haven't massively dislocated from housing prices makes me think it's not the same situation.