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Actually the biggest blow was not the energy costs, but the interest rates. They went from 1-2% now at 4-5, even 6% for real-estate ( new building and old ) whi
by ccozan 3y ago
Actually the biggest blow was not the energy costs, but the interest rates. They went from 1-2% now at 4-5, even 6% for real-estate ( new building and old ) while the prices are still at last year level. For other types of financing, I had a "good" offer which went to 12% interest. I felt like in a 3rd world country. With such expensive money, nothing will be done.
The construction economy is really going dow from mid 2023, everyone has trouble finding projects while the money are kept by the people in banks and not released out of the uncertainty.
However, German economy is so diverse that it will absorb this as well.
- mafribe 3y ago> money are kept by the people in banks and not released The banks will reinvest this money. (Cf Fractional-reserve banking).
- nine_zeros 3y ago> The banks will reinvest this money. (Cf Fractional-reserve banking). Only if there is demand for the money at a high interest rate. The credit boom is dependent on the borrower as well.
- deleted 3y ago[deleted]
- Escapado 3y agoI had a brief interaction with a real estate agent a few months back and he told me they really have trouble selling houses now at those interest rates. The run on housing apparently has dialed back significantly. He also mentioned that he thinks in around 5 and 10 years time the market might be flooded with houses people bought at low interest rates because they will not be able to pay their mortgage at these new interest rates and those are typical timeframes for interest rate guarantees. Maybe someone with more insight can share their perspective. I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again.
- nradov 3y agoHomeowners who do have low interest loans will probably also devote much of their disposable income to paying down the principal in anticipation that rates will rise later. That means less spending on home improvements, consumer products, vehicles, travel, etc which will act as a further drag on economic growth.
- onlyrealcuzzo 3y agoIf things continue, in 5-10 years, dollars will be worth 50 cents, and it should be MUCH easier to pay your mortgage. And, I'll eat my hat if we don't get back to ZIRP sometime in the next 10 years.
- myth_drannon 3y agoThat's not going to happen, salaries are depressed and are not keeping up with inflation by a large margin.
- dragonwriter 3y agoThe balance on an existing loan doesn’t increase with inflation, though.
- myth_drannon 3y agoYes, but the interest payments on mortgages with variable rates had doubled. Now some people basically are paying interest only without paying off their principal amount.
- onlyrealcuzzo 3y ago<2% of US homes are on variable rate mortgages.
- red-iron-pine 3y agoMost folks aren't on variable rates. If you're on a fixed 15-year or 30-year then inflation is generally working in your favor. Salaries not going up is not directly related to mortgages, and while I can't speak to all jobs, has been pretty good in the STEM field.
- markus_zhang 3y agoThe energy cost might be the cause of that interest rate though.
- worksonmine 3y agoWhat correlation do you see to get to that conclusion?
- beambot 3y agoRates were raised to combat inflation.
- ccozan 3y agoNot from what I know. The high energy costs are due to a effective and possible felt scarcity which occured at the beginning of the war in Ucraine. The energy companies are now planing to reduce the costs with as much as 25% from next month, since the marked is now flooded with gas and renewables ( a lof of new wind parks and solar installation will go online the next month ). I honestly I do not know why the interest rates went up. If someone can explain the correlation with the energy price, please do.
- pjc50 3y agoEnergy price -> inflation -> central bank raises rates to cause recession [ -> reduced wage/price feedback loop -> reduced inflation ] The part in square brackets is yet to come.
- comicjk 3y agoThere is a correlation. Germany has the reputation of being very concerned with inflation, which happens when the amount of money in circulation grows relative to the supply of goods to buy. When there is a supply shock (such as this energy conflict), inflation is the natural result, but a concerned government can respond by increasing interest rates to reduce the amount of money in circulation. That way they get less inflation than they would have otherwise, at the cost of slowing down the economy.
- myth_drannon 3y agoMost countries raised interest rates to the same level but they are not in recessesion. I don't know what does it says about Germany's economy... At least in Canada I believe the recession was averted by increasing immigration.
- AzzieElbab 3y agoI hate to say it but give it a few months.
- c00lio 3y agoI guess the reasons are more than just the interest rates. Interest rates kill off longer-term investments like building homes. But there was also a rather steep hike in (mostly greed-caused) inflation of everyday goods and energy prices, official overall rate was slightly above 10%, but for foodstuffs it went above 20% inflation. At the same time, wages didn't keep up, raises were below 10%, often below 5%. Inflation-corrected disposable income went down roughly 10%. So consumers also have less money to spend on their day-to-day needs and of course reallocated all the spending on "extras" (like luxury items, organic foods, leisure), to the basics (energy and less expensive basic nutrition). Which can be seen e.g. at energy providers raking in the profits while e.g. gastronomy is in a bad place.
- pseudo0 3y agoOECD predicts 1.3% GDP growth with what, 2.5% population growth from immigration? Canada is also getting poorer, the government is just better at juking the stats.
- foobiekr 3y agoThey are not in recession yet. Someone was going to be first.