Finally, no bid on mortgage-backed securities

https://notoriousrob.com/2022/06/finally-no-bid-on-mbs/

by harambae • 4 years ago

202 388 4 years ago

As someone who doesn't own a home but would like to in the future, reading this kind of stuff is making me sick.

bombcar2• 4 years ago

Rates skyrocketing can be great if you are going to be buying - because prices will usually drop to keep total monthly payments about the same.

And even if you have to buy at 18% interest like in the 80s, you can refinance if rates drop.

Blackthorn• 4 years ago

Seems like that is belated by real estate being purchased in cash by investment firms, driving prices further up.

ZoomerCretin• 4 years ago

People are cashing out of expensive markets and moving to cheaper markets, paying all cash. There will be no price drop.

mr_cyborg3• 4 years ago

We are locked in to new construction that keeps getting delayed. Every couple weeks our payments go up as interest rates rise and there’s nothing we can do. It’s brutal.

modeless3• 4 years ago

Hmm. So if a house cost $2m at 3% interest last year, then interest spikes to 18%, the house should drop to $550,000? Yeah I really don't see prices dropping 70%, sorry. As much as I wish they would, as someone who wants to buy their first house.

gnopgnip• 4 years ago

Home prices are set by the market, not just by affordability.

If home prices dropped 50%, very very few homeowners with rates in the ~5% range would be willing to sell even if they could afford to do so without bankruptcy.

_ah• 4 years ago

You might think so, but historically that doesn't seem to be the case. Prices rise as interest rates drop, but prices are sticky on the way down. This article is old but still relevant: https://www.theatlantic.com/business/archive/2011/07/how-ris...

ryanSrich2• 4 years ago

That might be the case if supply was even close to demand, but at least in most parts of the US the demand outweighs the supply by several orders of magnitude. I don't see prices going down. They might go flat, but they'll never be lower than they are right now.

usrn6• 4 years ago

At least here the rates going up now means renting is cheaper than owning and the price have barely moved.

toomuchtodo• 4 years ago

Stockpile cash for your down payment, rising rates drive down asset prices.

(not investing advice)

krupan• 4 years ago

If you are buying a home to live in, just make sure you can stick with it for 5 years at least, and you will probably be fine. And the more years the better. As someone else said, you'll be able to refinance if/when rates go down, and the value of the home will go up if the fed and IRS doesn't change things majorly.

dragonwriter5• 4 years ago

As someone else said, you'll be able to refinance if/when rates go down

Not necessarily, especially if valuations go down, as well, and especially if the economic conditions leading to lower rates/valuation—low rates being, after all, a monetary stimulus policy—also adversely effect your own earning potential.

linguae• 4 years ago

Unfortunately when you’ve been priced out of housing (the pandemic and the recent rise in interest rates priced me out of anything within 2 hours from Silicon Valley), there’s not much you can do other than relocate or find a way to increase income/savings. Housing in Bay Area exurbs like Hollister and Tracy has gone up by over 30% since the pandemic started. I’m currently relying on the latter (I don’t want to move for career and personal reasons), trying to save in the face of high inflation while also trying to level up my career and one day get promotions.

danielmarkbruce8• 4 years ago

Don't worry toooooo much. The total cost of housing moves around less than changes in rates and house prices would suggest. Over time prices, interest rates and supply tend to move such that people spend, give or take, about the same % of their income on housing.

Right now it sucks in the US because not enough houses were built for a number of years after the financial crises - then that got exacerbated during covid. It's never been easy to buy a house - looking at prices from a generation ago makes it seem easy, but they were facing high teen mortgage rates.

fartcannon• 4 years ago

We're about to face teen mortgage rates with million+ homes, aren't we?

011000117• 4 years ago

It's great if you're a cash buyer. Of course it will be difficult to raise that cash if the economy dives and/or real wages(after inflation) keep sinking. But, if you have the cash, you may be rewarded with some good deals on housing. You're generally better off paying a higher rate and less for the actual property since you can always refinance down the line but you can't renegotiate what you paid for a property.

jseliger• 4 years ago

What should really make you sick is not interest-rate information, but housing restrictions that drive up the cost of housing: https://www.worksinprogress.co/issue/the-housing-theory-of-e.... That's the true villain.

smabie2• 4 years ago

Just buy in cash

usrn6• 4 years ago

Just let them eat cake

baggy_trough5• 4 years ago

According to the Taylor rule, the fed needs to raise prime rates to inflation plus 2% to avoid spiraling inflation, that is, 11%. Hope you enjoy double digit borrowing rates or spiraling inflation.

themitigating• 4 years ago

Who do you hope enjoys this? Why are you excited for something bad to happen?

300bps• 4 years ago

Bad is a matter of perspective isn’t it?

baggy_trough5• 4 years ago

Obvious sarcasm is not obvious?

danielmarkbruce8• 4 years ago

It's a phrase. "hope you enjoy X". It just means "I'm pretty sure X is about to happen". It doesn't mean the person is excited for it.

codefreeordie2• 4 years ago

If it happens, I will enjoy it.

I would be relatively happy to see inflation drop while interest rates are above 10%. I could secure my financial future at much lower risk in that world.

I'm not ideally positioned for that eventuality, because I didn't (and still don't) predict that outcome, but it would certainly be an opportunity-filled moment were it to occur.

Honestly, "enjoy" is overstating the situation. The macro economy around such a circumstance would probably be miserable, so I would probably be unhappy. But, I would be happy to have the opportunity that such a moment would produce.

beebmam• 4 years ago

Sounds pretty awesome to me, I'd be more than happy to loan at a >11% return.

baggy_trough5• 4 years ago

Don’t you care about the real rate?

robocat• 4 years ago

Are you sure? You might have said you would be happy getting 8% a few months ago, which would have been bad? And you can get ≈50% putting money into Argentina Government Bonds: https://www.investing.com/rates-bonds/argentina-government-b...

cko4• 4 years ago

The 70s were the worst time to be an investor in terms of real returns. Even worse than the 30s, which saw deflation, so the real return was actually not as bad in comparison.

Also, the market would not react well if the Fed signalled they'd go any higher than 5%.

If I knew 11% was happening, I think I'd liquidate to cash now, then go 60/40 when it happens. (Currently I'm 100% equities.)

refurb5• 4 years ago

Even when inflation is 9% so your real return is 2%?

almost_usual4• 4 years ago

11% interest on 30+ trillion dollars of national debt.

thomasahle• 4 years ago

Doesn't interest rate changes only affect future debt?

rayiner7• 4 years ago

Wait what? I remember when it crossed $10 trillion. When did we become Japan?

ldjkfkdsjnv• 4 years ago

Not sure why this is getting downvoted, watch a famous hedge fund manager on CNBC say the same thing the other day

baggy_trough5• 4 years ago

HN commentariat loves shooting the messenger.

cko4• 4 years ago

What could cause spiraling inflation? Human behavior? Looks like high energy costs are here to stay (due to years of ESG signalling leading to underinvestment in oil/gas) but what about other prices?

baggy_trough5• 4 years ago

Negative real interest rates are inflationary.

almost_usual4• 4 years ago

Creating 40% of broad money in 2.5 years.

puranjay• 4 years ago

Service and shelter inflation tend to be sticky. You don’t renegotiate your lease or your salary every month.

Inflation is now moving increasingly towards these two categories, which indicates that it could be around much longer even if supply chain issues get resolved.

el_nahual• 4 years ago

Wages aren't that sticky, and in many cases (big unions, big employers) contractually give out inflation-indexed raises.

So if a transient spike lasts long enough to be considered "inflation", then it gets baked into wage increases, which leads to higher prices, which leads to higher inflation, which leads to wage increases...

Unfortunately, the govt thinks of monetary policy as their only tool to fight inflation, when in fact they have a much stronger, better one: public policy.

The govt should be passing emergency legislation to vastly increase supply of the three main contributors to family spending: housing, healthcare, transportation, and education.

Make it MUCH easier to build housing.

Vastly incentivize cheap car replacements (ebikes, etc).

Loosen drug import laws from Europe & CA like, yesterday.

lamontcg2• 4 years ago

The sticky thing is the wage market with boomers retiring, reduced immigration, COVID and long COVID removing workers from the job market, and the pandemic in general pissing people off so they start to demand more at their work, rising unionization, etc.

High energy costs are also not here to stay. There's very clearly the post-pandemic supply shock which has spilled over into high energy costs due to a bullwhip effect. And there's the war in Ukraine, which will not last forever. There's also a buildup in inventories now (the bullwhip is coming back around) and there's no huge demand for container ships from China right now. High energy costs didn't stick in 2007, they didn't stick in 2014 and they won't stick this time. Commodities/Energy inflation is cyclical.

readthenotes13• 4 years ago

Did Taylor consider quantitative easing and tightening? The shadow funds rate messes with these numbers quite a bit

r00fus• 4 years ago

How much QE is still going on?

nostromo4• 4 years ago

We should be solving this by fixing supply chains, allowing domestic energy production to increase until the Russian war is resolved, raising taxes on the very wealthy, and cutting spending (to reduce deficit spending, which creates new money). These would all be supply side fixes and budgetary fixes.

Instead we're going the demand side route: keep making everyone poorer until people stop buying things.

dageshi• 4 years ago

Given the disparity between the current interest rates and the inflation rate, that is more or less what the Fed is doing. They're no where near the point where they're actually trying to stop inflation with interest rates.

baskethead3• 4 years ago

Those of us fortunate enough to have 30 year fixed rate mortgages at about 3% are about to see our mortgage “debt” give us better returns than our stock holdings.

This is incorrect. That's only if house prices go up along with inflation, which I don't think it will. House valuations have been sky high, like the stock market was 6 months ago. There's a lot of room for valuations to pull in, I would say at least 33%, if not 50%. So we could see deflation in house prices, and a net loss even though "real" rates are very negative.

danielmarkbruce8• 4 years ago

Read the quote literally.

mike_d3• 4 years ago

With 8% inflation if housing took a 50% hit, your stock holdings don't matter because people are fighting over loaves of bread in the street.

Originami• 4 years ago

Retail mortgages are 6% whilst Blackrock can borrow at 0.75%. Corporations need to banned from owning single-family residential housing.

baskethead3• 4 years ago

I agree with this. Owning apartment buildings are one thing, but buying hundreds of thousands of single family homes and squeezing regular people out is detrimental to the entire country.

mhluongo• 4 years ago

Do regular people not live in apartment buildings?

lmm3• 4 years ago

One weird trick to own the speculators and make housing affordable for young people: build some more homes in desirable areas. BlackRock is only doing the same thing that the boomer generation has been collectively doing for years; but I guess giving young people a way to access that unearned NIMBY rent defeats the point.

13of40• 4 years ago

Is this actually a thing? I'm a bit of a map nerd and I look at the King County (i.e. Seattle and surrounding area) parcel maps a lot, and I haven't seen more than one or two single family residential properties that weren't owned by individuals. Do you know of a neighborhood where a lot of houses have been bought up?

danielmarkbruce8• 4 years ago

Retail mortgages are 6% for 30 yr fixed. Blackrock isn't getting 30 year money at 0.75%. The US government is paying 3 something for 30 yr money and it's climbing fast.

LoveGracePeace• 4 years ago

I agree, I want the likes of the ilk of the Gates family's hands off single-family residential.

baskethead3• 4 years ago

Bill Gates isn't buying SFHs. He's buying all the farmland he can. He's the largest owner of American farmland.

missedthecue• 4 years ago

Fake news. The government can't even get 30 year money below 3.2% right now.

Blackrock doesnt have any 30 year debt (they have a very debt-light business model). Microsoft has 30 year bonds and theyre trading at around 4.5% right now. But of course, the default rate on AAA corporate debt is much lower than on Joe Schmo's mortgage.

NhanH2• 4 years ago

Just for context, Microsoft is the one corporation in the world still has higher bond rating than the US government itself. S&P still has US's bond at AA+, and Fitch has US's bond at AAA with "negative" outlook. While all 4 credit agencies have Microsoft at AAA.

smabie2• 4 years ago

No one can borrow at 75bps

legulere• 4 years ago

I think they are talking about the federal funds rate. https://en.m.wikipedia.org/wiki/Federal_funds_rate

carom5• 4 years ago

Blackrock owns 60 billion dollars of real estate in a 36 trillion dollar market. They don't matter.

heartbreak2• 4 years ago

The pingbacks tell an interesting story here.

Here’s a choice line referring to O&G prices from the post this one is discussing:

In a rational world, if the party in power in DC were not encumbered by climateers, we would turn on the hose, take every step to unimpede production and delivery.

Watch out for FUD. Economic forecasting is extremely political.

vkou• 4 years ago

In a rational world, that hose would have had someone trying to strangle it ~two decades ago.

In the irrational world we live in today, because of sentiments like what you've quoted, we're heading straight towards a climate catastrophe. The cheapest time to avoid it was by taking action 20 years ago, the next cheapest time to avoid it is today, but unfortunately irrational people aren't very price-conscious.

ProjectArcturis6• 4 years ago

I don't know why this "No Bid" claim is getting so much traction. MBB, an ETF containing only MBS, dropped all the way from 98 to 97 on Friday.

xeromal2• 4 years ago

What's the significance of 98 to 97 ?

ProjectArcturis6• 4 years ago

$98 per share to $97 per share.

mike_d3• 4 years ago

Nothing. They just found a random ETF that owns MBS and quoted the stock price, while the original article is talking about the MBS market (which isn't part of the stock market).

It's like inferring the health of the commercial real estate market in the bay area by quoting Google's share price.

djbusby• 4 years ago

Yea, it's NBD, this thing is off around 1% over the weekend. But check the futures now, it's all off 1% (or was last I looked).

Maybe this is one of those little cracks before the dam? This (coming? ) recession might not give us a bang like 01 and 08 kinda did.

011000117• 4 years ago

If I understand things correctly, it's because the MBS buyers finally said that they believe inflation is going to be persistent and they require much higher returns. This opinion was unanimous. It came as a shock and indicates rates need to go higher, potentially much higher, in order for the market to continue to function. These higher rates, and the rate at which they're rising, could shock the housing market leading to ripples throughout the economy.

mike_d3• 4 years ago

You are looking at an ETF holding existing MBS, not the MBS market itself.

Like if the Treasury issued a bunch of new t-bills and nobody showed up to the auction, that doesn't impact the repayment of existing t-bills. But it is still a really bad sign.

rocqua• 4 years ago

ETFs suffer less from bad liquidity in the underlying. There can be arguments that, in illiquid markets an ETF gives a 'more accurate' price than the market price. Where more accurate means 'better matches the opinion of all traders'.

heartbreak2• 4 years ago

No, this isn’t right either. MBS deals are still pricing.

ProjectArcturis6• 4 years ago

The price of existing MBS is, of course, affected by the auction of new MBS.

If the Treasury issued a bunch of new T-bills and no one bought them, the price of existing T-bills would crater. And also the financial system would collapse, but that's a different story.

rufusroflpunch2• 4 years ago

It’s a sign the credit markets are starting to break. I think that is the only thing that could get the Fed to reverse course on tightening.

vsskanth• 4 years ago

Can someone explain this a bit more clearly ?

Consider what that means for the home buying market. Those of us fortunate enough to have 30 year fixed rate mortgages at about 3% are about to see our mortgage “debt” give us better returns than our stock holdings.

Does this mean we should have borrowed as much as possible to buy a house when rates were low ?

readthenotes13• 4 years ago

Only if you believe rates will go higher and that you can take advantage of those higher rates.

For example, Having assets on a fixed loan of 3% when you can get a CD of similar duration for 3.5% means you are making money by owing those assets and owing that loan.

It is why deflation is such anathema to the financial industry. They don't want anyone but themselves to benefit from financial conditions.

NhanH2• 4 years ago

In this example, you are borrowing the CD right?

InefficientRed2• 4 years ago

Does this mean we should have borrowed as much as possible to buy a house when rates were low ?

Prices were also high. Time will tell.

btmiller• 4 years ago

I suspect refis massively benefited. I reduced my rate from 3.75% to 2.625% and with a cash out!

riku_iki• 4 years ago

Most people refinanced low price mortgages.

011000117• 4 years ago

Does this mean we should have borrowed as much as possible to buy a house when rates were low ?

Sort of. You should have borrowed as much as possible up to the level that, under nearly any circumstances, you could have still serviced that debt(i.e. made the payments). Historically, those were really cheap rates to borrow money and we might not see them again for a few years(or a few decades).

rufusroflpunch2• 4 years ago

Next time we see them again, we will likely be in a hyperinflationary period, I would think. At some point in the future (not brave enough to say when), the Fed will run out of runway, credibility and backbone, and the easy money will never cease until the currency itself dies.

adam_arthur6• 4 years ago

The comment is implying that fixed rate debt below inflation is "free" money. Rate at 2% and inflation at 3% means an effective gain of 1% a year on the spread.

It's wrong though. Home prices are likely to fall quite substantially if you actually look at all the fundamental data and cast it in the light of significantly higher mortgage rates.

Higher inflation also raises the risk free rate which devalues assets. The stronger effect of the two will win out, and with valuations multiple standard deviations above the mean, the end result is pretty clear

almost_usual4• 4 years ago

If rents continue to rise home prices won’t fall substantially.

https://fred.stlouisfed.org/series/CUUR0000SEHA

paxys2• 4 years ago

Those who bought homes 2-3 years ago when 30 year fixed mortgage rates dipped below 3% have already seen their values go up like 30-40%. There is no reason to expect it to crash by that much in the next few years, if ever.

hackererror4042• 4 years ago

From what I've heard there is a massive supply issue. Rates will only fall if supply increases or if demand drops. From what I've heard, the demand isn't expected to fall and there are limits in the supply side of things due to all sorts of issues many stemming from covid and the long recession we had on the housing market post crash of 2008.

Ideally demand will go down because things as it stands are just not affordable to most. The rent also is going way up, so that drives housing prices too.

nostromo4• 4 years ago

Raising interest rates can increase the costs of housing. (Not the sticker price, the cost.)

Fewer developers will build new apartment buildings because financing is getting much more expensive. Fewer new apartments with a growing population means rents will not be getting cheaper unless we have a deep recession and lots of people lose their jobs entirely.

Same goes for housing -- fewer houses will be built by builders.

Existing housing prices will probably go down, but the people buying them with mortgages will pay just as much, if not more for them each month because debt is getting more expensive. But instead of that money going to the old owner, it'll go to the lender.

Sammi• 4 years ago

It depends on what your time horizon is. If you look short term, then anything can be the case at any point of time. Short term is volatile and you can be up and down at any moment.

However if you look long term then housing inflation out paces interest rates. This is always the case. So taking a 30 year loan with low rates is a pretty safe bet that you will come out on top over this long term time period.

taylodl• 4 years ago

I thought home prices were high because new home construction fell off a cliff after the 2008 market crash and has never fully recovered - thus leaving a massive shortage of homes and the Millennials (i.e. Baby Boom 2) generation now reaching the age where they want homes for their kids. Low supply + high demand = high prices. Don't see that changing anytime soon. What we should expect from higher mortgage rates (what I as an old-timer would call "normal" mortgage rates) would be a cooling off on prices. We're already seeing that happening. That's an example of how high rates combat inflation. Your food and energy costs may be soaring but housing costs have just been brought in check.

chrisco2552• 4 years ago

God no, the real estate prices are about to plummet (higher interest rates kill demand) and being in max debt will crush you in a recession.

alfiedotwtf5• 4 years ago

30 year fixed rate mortgages

Wait, what? Americans can fix for 30 years?!! The longest I've seen in Australia is 7 years fixed, but the usual home loan is 3-5 years fixed and then a renewal at the new market rate.

Jacqued2• 4 years ago

Here in France people only ever do fixed rate, generally for 20 or 25 year mortgages. I have never heard of someone buying a home with a variable rate loan, not sure if it's even legal.

It might have been a pretty good deal for the people who bought homes with 25 year 0.7-0.9% interest rate mortgages these last few years.

rvense• 4 years ago

In Denmark, 30 years fixed rate is the standard mortgage. I think it was basically the only way to own a home until "liberalizations" in 2002, and some of the more.. creative financial products that showed up are what ended up causing trouble after 2007.

bkberry3522• 4 years ago

The majority of American homes are fixed for 30 years

tinus_hn• 4 years ago

Considering the house increases in value faster than the debt increases due to interest borrowing to buy a house has turned out to be profitable.

Of course the reality is that the 30 years aren’t over and it’s all about risks, this is a gamble where the buyer was lucky.

trashtester4• 4 years ago

Does this mean we should have borrowed as much as possible to buy a house when rates were low ?

I refinanced my morgage in spring 2020, up to the maximum allowed at the lowest interest rate bracket. The main reason was to ensure that I had liquidity, in case the economoy would crash much harder than it did in 2020, the secondary motive would be to take advantage of investment opportunities that might show up even if the credit market would crash (potentially making it hard to borrow).

Until now, I've been paying about 1% over the floating interest rate, but made a good profit from the money, most of which was put into index funds, even if half the profit has been lost this year. I've moved half my index fund holdings into index funds focusing on commodities, hoping that these will hold better than generic index funds if inflation stays high.

I don't belive central banks will be able to bring inflation under control on the first attempt. Instead, I predict that interest rates will go up until a moderate/strong recession causes people to enter the streets, and that QE and lower rates will follow for a time period, causing drawn-out stagflation, which is why I dont want to have too much in cash. I do have about 30% in cash, still, in case the market falls much further than it already has.

carom5• 4 years ago

Your debt is losing value at the rate of inflation, and you are paying less than the rate of inflation for that debt. If I'm paying 2.9% on -800k and that -800k is inflated away at 8.6% then I'm making 5.7%.

chasd00• 4 years ago

But isn’t this assuming your pay increases at the rate of inflation? If your pay doesn’t increase then you don’t get any benefit of high inflation against your debt.

neffy• 4 years ago

Yes, if you are living in the US, and could access fixed rate mortgages. Or indeed anywhere where a fixed rate mortgage for a reasonable 5+ year term is available.

Because the money supply is in some sense linked to house lending by the banks these days (not the entire source, but a lot of it), house prices will increase in tandem with the money supply, that is fairly guaranteed.

For the rest, look to the latter part of the 1970´s, which is what happens in the US, when following a long period of low inflation, inflation and higher interest rates kick in to create this situation. TLDR, it isn't pretty for the lenders (banks, savings and loan, pension funds) who get stuck with the low interest rate long term loans. But that's prequelling the next financial crisis, not the current one.

cykros• 4 years ago

I'm not sure about borrowing as much as possible (though publicly traded companies sure did buffer their balance sheets with low cost debt). I am sure though that I won't be pre-paying my mortgage at any point, given that it's more economic to buy savings bonds, use the yield to pay the interest on the mortgage, and pocket the difference. Never mind comparing to the yield on positively performing risk assets once the markets stop seizing up (and if they don't, we all have bigger problems anyway).

Taking on as much debt as possible is rarely the best idea, especially if your income could at all have been at risk at any point. But yes, with interest rates as low as they were for years, more than average was probably a pretty good idea as long as it was within one's means to support. The Fed lowers interest rates as a means of stimulating the economy, and as the old adage goes, "Don't fight the Fed."

outside12342• 4 years ago

You buy short duration bonds so you have money to buy the crash

outside12342• 4 years ago

Loan only going to make more than the stock market if the real estate market doesn’t drop by 30% :)

bjornsing8• 4 years ago

Sooner or later the inflation will be over though, and this guy may then have a house with no mortgage.

usrn6• 4 years ago

Not going to happen (unless we enter an extremely disintigrative/politically unstable phase where you don't want to live here because there's too much violence.) We're bringing in/birthing more people than we're building houses for and the cost of labor to build new ones is going up.

vecinu• 4 years ago

(unless we enter an extremely disintigrative/politically unstable phase where you don't want to live here because there's too much violence.)

This is always thrown out as a rule but it's definitely not the only possible outcome. Housing can still massively drop without civil unrest but with hard times due to unemployment. 100 years ago the US was still desirable.

cudgy5• 4 years ago

Population is stabilizing and decreasing in US and many other developed countries. Large populations of older people like Boomers in the US are dying. Whose going to buy all these new, smaller, more expensive homes when there are plenty of existing homes at reduced prices in the market? Long term trends are unfavorable for growth in housing.

retube• 4 years ago

Very simplistic analysis. Real yield is a function of inflation over the life of the bond. It might be 8% now, but the market is not pricing that over the next 20 or 30 years.

And people buy MBS because they have a higher yield than treasuries.

UncleEntity4• 4 years ago

Or perhaps the market knows that the official rate of inflation is nowhere close to the real rate of inflation and are pricing that in?

Also, I saw an article the other day where the Fed is no longer buying MBS as part of QE <mark whatever> as of last month (I believe, could have been march) so a major buyer has left the market. A buyer who bought for no other reason other than to prop up the market I might add.

pas3• 4 years ago

how does the market know what's the true inflation rate?

if they use a sampling (basket of goods as proxy) method like other statistical agencies then why do we think the stats agencies are worse?

jzymbaluk• 4 years ago

I've joked since 2014 that I was born at the perfect time (1993) to never be able to buy a house, and this seems to prove that my patience in waiting out the market was not in fact a wise move. Very cool

chrisco2552• 4 years ago

Real estate prices will fall in a high interest rate, cash poor environment. More than most people appreciate. Since real estate is at all time highs relative to median incomes, something has to give.

test6554• 4 years ago

I'm glad I held off on buying that second beach condo. A couple more months, and I might find something on sale.

nostromo4• 4 years ago

But if you're borrowing to buy you're still hosed -- high interest rates means your mortgage is going to be much, much more expensive.

ryathal2• 4 years ago

Trying to time a market always fails, and a first house isn't really an investment in the traditional sense. It's always the best time to buy first home, from a market perspective. The big factor is picking somewhere you plan to live for 5+ years.

favflam4• 4 years ago

1 short cut to cutting demand is to copy everyone else around the world. Let cities get rid of single family zoning. Let go of pride and commute by bicycle. The energy consumption will drop by a magnitude. People's health will improve. We as members of society will see each other face to face more often, closing the polarization. Make the police walk and cycle around town, not sit aloof in their metal tanks.

The US would get explosive growth by not forcing such enormously inefficient car-centric cities.

irrational3• 4 years ago

How long would that take to happen? It’s not like all of the current building and infrastructure can be torn down and rebuilt in the European model overnight. Could it even happen within one person’s lifetime?

Anderkent• 4 years ago

Building is fast if you allow people to do it. You could have a new apartment building in around a year, and that's without really pushing it. Zoning and permits are what's holding construction back

favflam4• 4 years ago

No pain, no gain. We just suck it up for a few years. Our future generations will thank us.

You get immediate savings by stopping road expansion and cutting fuel demand (close lanes on big roads, replace with bicycle lanes). You get 3-10 years of pain from bicycle/walk-commuting in a city designed for cars. To compensate, let people build supermarkets and stores in single family zoned areas. Subsidize rent-a-bike companies with funds from gas taxes and frozen road construction projects.

This is basically the only sure-fire way to let poor people generate free cash flow to survive the recession without having to helicopter them money. This has worked for developing countries like China. Also, this is a way to keep cities financially solvent by letting the tax revenue to land area ratio increase naturally as people adjust to human-powered commuting.

hdjjhhvvhga• 4 years ago

The fact that it will take time is not a counter-argument.

sgjohnson• 4 years ago

It's not like the European model even works. Public transport is only as good as it is convenient, and it's virtually impossible to make it convenient for most people outside of extra-super-ultra urban areas (think New York City and London).

If you can hop on a bus within a 5 minute walk of where you live, and then hop off withing a 5 minute walk of where you work, life is beautiful and you can probably ditch your car (at least for daily commute). For most, this is not the case.

And I don't want to live in a ultra-urban area.

donw• 4 years ago

Let go of pride and commute by bicycle.

It has nothing to do with pride.

Cars are comfortable and convenient. You get a nice seat, air the temperature you want it, and can carry actual cargo. It's easy to run a complete loop of errands after your workday, because you can store stuff in your car.

I went from around ten years of riding the trains in Tokyo to driving a car around a Japanese suburb. Japanese public transportation is excellent, easily best on Planet Earth, and the car wins hands-down.

favflam4• 4 years ago

The pride remark is anecdotal on my part, but based on SUV sales I would argue that my point is close to true in the US.

Cars are a luxury. If you are willing to pay a tax based on engine displacement , give priority on roads to pedestrians and cyclists, and still prefer car-travel, then it is a win-win. If you want city governments to prioritize car-travel over everyone else, then it is a win-lose. The only winner will be car-owners who can spare the cash flow.

The economics on transporting 1s of kgs of food by 1000s of kgs of metal no longer makes sense in the United States for the majority of people as they have poor cash flow and poor balance sheets. I think economically speaking delivery trucks and local supermarkets should take most of the burden.

blitzar• 4 years ago

It has nothing to do with pride.

Why dont people take the bus? Because the bus is for poor people.

I guess technically it isnt pride - its ego and virtue signalling.

isitmadeofglass2• 4 years ago

What are you expecting this to do exactly? Inflation in norther Europe is rampant too, and the housing market is just as bad. the fact that many people bike to work doesn’t change that.

pas3• 4 years ago

biking costs are a lot less susceptible to inflation. similarly if other variable costs of living go up but these are shared by more people (due to density) then ceteris paribus those pesky northerners have it a bit better in this hypothetical scenario.

blfr2• 4 years ago

Commuting by bike isn't going to happen. It's not practical for most business and personal purposes. Electric scooters have a better shot than bikes. (Still not going to happen.)

The only alternative to cars in cities is working public transit. And working means available, frequent, safe, and clean. You can't have homeless people sleeping on buses, you can't turn it off at 1 am. Regular people need to be able to rely on it.

sofixa3• 4 years ago

Bikes and electric scooters can very well supplement public transit, at least for the "last mile". Cities like Paris and Amsterdam have very good public transit, but biking is still popular, even in wind, rain and cold. People bike in freaking Oulu, Finland, even with the snow and cold.

It's a perfectly viable supplement to good public transit.

p10jkle• 4 years ago

Why is it not practical for most business and personal purposes? I cycle to work (on an e-bike) every day and so do most people I know

TomSwirly2• 4 years ago

Your unsubstantiated claim is, no surprise, false.

A bike is perfectly practical for most business and personal purposes and I live in a city which demonstrates it.

I do everything by bike, except when the weather is really bad or I'm going really far away, when I use public transportation.

czbond• 4 years ago

I see autonomous EV's as the public transit that could change everything...and not until then.

EVa5I7bHFq9mnYK• 4 years ago

I used to drive past a Dunkin Donut every day on my way to work and back. Every single time there was a police vehicle idling in their parking lot.

kory3• 4 years ago

Please stop the urbanism spam.

On average, Americans like suburbs. They like driving. They like space, a yard, a DIY workshop, and sunlight. They don't like cities. "haha go live in a city and bike to work" is not a fair response to high gas prices and inflation. It's not how people want to live.

We've got a better chance of the USA banning oil exports to lower crude prices, or enacting substantial EV subsidies to get people off gas before we can convince the suburbanite with a 5bd house + quarter acre lot in a good school district that they should move to an urban 2 bedroom apartment instead. Even if we can, I guarantee you that the apartment won't be considered an upgrade.

MagnumOpus• 4 years ago

Don't "convince the suburbanite", just get petrol taxes to the same point as in Europe, so that the $10/gl price sends a signal to the soccer mums in their Canyonero when they fill up at the pump after ferrying their kids around - and on the margin it will have an effect. (And it is good for the climate too.)

Schiendelman2• 4 years ago

First, don’t worry about it. Just change the zoning and then let people choose what they will. If what you say is true, the market won’t change a thing.

Second, price per square foot in cities is set by demand, and it is several times prices in suburbs. That behavior tells us there are people who would rather be downtown and we aren’t letting them.

horsestaple• 4 years ago

Of course those suburbanites love their hard won individualism, the point is, that this kind of life is built on externalities that make it unsustainable for the majority of people to live this way.

dragonwriter5• 4 years ago

We've got a better chance of the USA banning oil exports to lower crude prices

Banning oil exports would reduce the incentive to pump domestic oil, and, because much of the domestic supply isn't the grades best for producing gasoline, even if it did reduce the price of those grades of crude, it wouldn't do much for gasoline prices.

ParksNet• 4 years ago

The US is suffering from a lack of cheap EVs. The cheapest EV, Nissan Leaf, has a 5-month waiting list and is still $20,000 - and only after $7.5k in tax subsidies which expire this year.

Meanwhile, China has a lot of options starting at $5000.

We're currently seeing a Western industrial failure generally, to encourage cheap mass-market EVs. Some of our safety regulations (especially those which force automakers to add heavy or draggy components) should also be overhauled.

sharno• 4 years ago

The Dark Side of Electric Cars: https://www.youtube.com/watch?v=2_T5DgsO0jc

favflam4• 4 years ago

Good points, but you still have the fundamental physics problem of hauling too much mass for too much distance for too little gain (1s kgs of groceries, etc).

The US needs to get as many people off the road as possible. Get them on to bicycles (e-bikes), walking, riding buses and trains.

I am looking at America's balance sheet and the only thing cars do is blow a whole in it. Cars cost too much relative to cash flow generated for families. Cars take up too much space in cities, killing cash flow generated from sales taxes and property taxes. The Return on Assets from a car is just too low, I believe the rate falls below the US gov/state govs cost of capital (hand wavy-speaking).

scotuswroteus• 4 years ago

And half the middle classes' nest eggs go poof, while the politicians who voted for it (many of whom don't hold down their own jobs) need to explain that it's actually for everyone's good.

It wouldn't be a short cut. The long cut would be to change American culture to be able to make big changes like that for the good of the country.

If something like this was proposed, the House that flips the fastest would be the House of Representatives, followed by the White House.

AlexCoventry• 4 years ago

Let go of pride and commute by bicycle.

Could you please elaborate on how pride gets in the way of commuting by bicycle? This is alien to me.

colonwqbang• 4 years ago

The article is full of jargon and unfamiliar abbreviations, it's quite hard to follow. I wonder what the target group is.

sideshowb• 4 years ago

Welcome to the financial press. Can't predict the future but will sure try to hide that by explaining things as counterintuitively as possible.

tylerrobinson• 4 years ago

For a typical business reader, these are pretty standard terms. Most people became familiar with MBS (mortgage-backed securities) during the last financial crisis, and CPI (consumer price index) is a way of reporting inflation.

The article is saying that if inflation is at 8.6%, no one would want to lend money for a lower rate. The real return (which takes into account the purchasing power of the dollars lent) would be negative.

The author gives evidence that there was a “no-bid” to buy debt at 5.5%. Buying debt is in effect another way of lending. Therefore, the author shows that no one wanted to lend at 5.5%, but were willing to lend at 6%. He concludes that this shows mortgage interest rates will go even higher.

That’s not to say that anyone is born knowing these terms, just that they are not particularly exotic among all the acronyms floating around.

rigelbm• 4 years ago

In London it's common for people to take 25y~30y loans that are fixed for only 2y~5y. 5 years ago interest rates were 2.5%. If rates go above 10% this year, does that mean a sudden influx of houses in the market because people can't pay their houses anymore?

Edit: Wrong fixed interest rate.

reuben_scratton• 4 years ago

Does anyone (UK) even offer fixed rate more than 5 years ahead?

Shamanoid• 4 years ago

I don't think so, we used a mortgage broker for ours and only 2 and 5 years fixed rates @ ±2.3% were offered in September 2021

Joeboy• 4 years ago

I think most banks offer 10 year fixes, and there are niche products that are longer. Mine's fixed for 7 years.

kioleanu• 4 years ago

I am watching the markets in Romania and Germany and they are completely opposites: in Romania, most people I know went for a no fixed rate loan, meaning they change interest every 3 months. The banks are advertising this as the "cheaper" option - you get 4,8% variable interest now instead of 5,5% fixed. And people go into it with a "how bad could it get" attitude. Meanwhile, there are tens of thousands of new units entering the market (Romania tends to expand cities upwards, building 8-10 stories high buildings). I am really curious about how that market is going to develop.

Meanwhile in Germany, I don't see this option at all, and banks have now started pushing* for fixed rates for 30 years at 3% or save/loan accounts where you save for 10 years and they will give you a house loan in 10 years for 1,8% interest.

* we've got letters from all the banks where we have accounts promoting this

prirun• 4 years ago

Make the police walk and cycle around town, not sit aloof in their metal tanks.

This is such a good idea. Remember the old police shows where there were always 2 partner cops in the car? That doesn't happen anymore. Now every cop gets his own personal car that they drive home at night. If there is a wreck - even a small fender bender - about 4 cop cars show up with sirens blazing, completely disrupting traffic. It's crazy.

Finally, no bid on mortgage-backed securities

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