If mortgage rates go to 7% - we will head into a depression. Majority of homeowners and maybe closer to 90% have rates of 2-3.5%. What they would have to sell their homes for to justify moving into a different home with a rate of 400 bps higher doesn't make sense for them to move.
There is very little supply out there today. If no one wants to move because it does not make any financial sense - supply will become non-existent.
As for new construction - the price of building is up 30-40% from 9 months ago (unfortunately i know from personal experience). So we will see the brakes hit on new construction due to the cost / interest rates. Which will kill one of the biggest industries for economy.
What is the next generation going to do? No one will want to sell their home to upgrade from their starter home to a bigger one. They won't be able to afford a new construction, last generation lived with their parents by choice, the next will have to by necessity.
Then we talk about rentals - that get renewed annually. If you own a rental property - you know the tenants have very little choices, so due to supply and demand you will see rates going up 20% or more.
Q1 report came out and said credit card balances are back to 2008 levels and inflation has only been around for a year. If this continues "average America" is going to be leveraged out trying to live day to day.
Mortgage rates of 5,6,7% are historically normal. But that was coming from a generation that saw rates of 12%+. No one alive saw mortgage rates of 2-3%.
What needs to happen is leave rates alone and stop issuing new debt. Then let the market set rate. But our government is too fucking stupid and have a credit card with an unlimited balance and no intention of paying it back.
The next 24-36 months are going to be bad. Because we have a bunch of idiots making decisions and hiring their administration based on their skin color or sexual preference versus finding the best and brightest.
Life is going to get tougher for many people going forward. We can only hope that the politicians who are responsible for these issues suffer the consequences of their actions once they are summarily kicked out of office
Good article and comments. I am glad I subscribed. I have a 2.5 % mortgage and have wondered who will ever move unless they are forced. On the bright side, this was one of the few times the government helped the middle class. Maybe the young will wake up and recognize that more government is not the answer. I hope all the socialists and communists will open their eyes and see this as the big FU it is. Maybe they should reoccupy wall street and ask for help!
Minor typo: “Look, we screwed up – we kept rates too long for too long" --> low, not long.
But on this note, there's no way that Powell's going to come out and own up to making a mistake. Admitting to mistakes is practically banned in Washington, and is definitely banned at the Fed.
The Democrats who call the tune in Washinton at the moment will demand all rate hikes this year be completed by labor day. They will not want masses of people taking interest rate related layoffs in September and an ongoing freefall in 401k retirement accounts and pension funds happening in September and October just before the November mid term elections.
No, per Ed Dowd, Fed's making a mistake, inflation (this time) is purely supply side shocks of bad Xiden policy like Ukraine, oil production halt, vax mandates killing, disabling and running off workforce. The dollar is very strong, QE has been absorbed by banking, and this will throw the economy into a tailspin. I'm an economist, he changed my mind:
I know this sounds crazy, but why not just skip ahead and rip off the band aid and go for 100-200 bps ? This slow drip and uncertainty can't be great either.
Based on pre 1970 CPI indicators, inflation is 17.5%. I’m all for what works to bring down inflation. How about a Paul Volker 500 basis point increase? Those were the days when giants walked the earth and snow was ten feet tall. Know all we have are self serving bureaucratic pussies.
If mortgage rates go to 7% - we will head into a depression. Majority of homeowners and maybe closer to 90% have rates of 2-3.5%. What they would have to sell their homes for to justify moving into a different home with a rate of 400 bps higher doesn't make sense for them to move.
There is very little supply out there today. If no one wants to move because it does not make any financial sense - supply will become non-existent.
As for new construction - the price of building is up 30-40% from 9 months ago (unfortunately i know from personal experience). So we will see the brakes hit on new construction due to the cost / interest rates. Which will kill one of the biggest industries for economy.
What is the next generation going to do? No one will want to sell their home to upgrade from their starter home to a bigger one. They won't be able to afford a new construction, last generation lived with their parents by choice, the next will have to by necessity.
Then we talk about rentals - that get renewed annually. If you own a rental property - you know the tenants have very little choices, so due to supply and demand you will see rates going up 20% or more.
Q1 report came out and said credit card balances are back to 2008 levels and inflation has only been around for a year. If this continues "average America" is going to be leveraged out trying to live day to day.
Mortgage rates of 5,6,7% are historically normal. But that was coming from a generation that saw rates of 12%+. No one alive saw mortgage rates of 2-3%.
What needs to happen is leave rates alone and stop issuing new debt. Then let the market set rate. But our government is too fucking stupid and have a credit card with an unlimited balance and no intention of paying it back.
The next 24-36 months are going to be bad. Because we have a bunch of idiots making decisions and hiring their administration based on their skin color or sexual preference versus finding the best and brightest.
Life is going to get tougher for many people going forward. We can only hope that the politicians who are responsible for these issues suffer the consequences of their actions once they are summarily kicked out of office
Good article and comments. I am glad I subscribed. I have a 2.5 % mortgage and have wondered who will ever move unless they are forced. On the bright side, this was one of the few times the government helped the middle class. Maybe the young will wake up and recognize that more government is not the answer. I hope all the socialists and communists will open their eyes and see this as the big FU it is. Maybe they should reoccupy wall street and ask for help!
Minor typo: “Look, we screwed up – we kept rates too long for too long" --> low, not long.
But on this note, there's no way that Powell's going to come out and own up to making a mistake. Admitting to mistakes is practically banned in Washington, and is definitely banned at the Fed.
The Democrats who call the tune in Washinton at the moment will demand all rate hikes this year be completed by labor day. They will not want masses of people taking interest rate related layoffs in September and an ongoing freefall in 401k retirement accounts and pension funds happening in September and October just before the November mid term elections.
No, per Ed Dowd, Fed's making a mistake, inflation (this time) is purely supply side shocks of bad Xiden policy like Ukraine, oil production halt, vax mandates killing, disabling and running off workforce. The dollar is very strong, QE has been absorbed by banking, and this will throw the economy into a tailspin. I'm an economist, he changed my mind:
https://hillmd.substack.com/p/vaccine-injuries-and-deaths-are-causing?utm_source=%2Finbox&utm_medium=reader2&s=r
By Fall you will be able to copy and paste this article with the replace command: “200 for 75”
I know this sounds crazy, but why not just skip ahead and rip off the band aid and go for 100-200 bps ? This slow drip and uncertainty can't be great either.
Based on pre 1970 CPI indicators, inflation is 17.5%. I’m all for what works to bring down inflation. How about a Paul Volker 500 basis point increase? Those were the days when giants walked the earth and snow was ten feet tall. Know all we have are self serving bureaucratic pussies.