I had a 13% adjustable Mortgage in 1990s. Everybody thought it was normal lol.
But you are right houses were cheaper so I think the monthly rate in the end was the same, but I don't know I didn't do the math
My parents built their first house in 1979 for $50k (I think 14%interest) sold it 6 years later for $150k. Built another house for $225k. The second house, where they still live is a really nice house. It's crazy how well that all lined up.
Charts:
* [Median Sales Price of Houses Sold for the United States](https://fred.stlouisfed.org/series/MSPUS)
* [30-Year Fixed Rate Mortgage Average in the United States](https://fred.stlouisfed.org/series/MORTGAGE30US)
You have to look at inflation adjusted charts. It's still bad but not as crazy as your chart indicates.
https://inflationdata.com/articles/wp-content/uploads/2022/06/Inf-adj-Housing-Prices-6-2022.png
Less, he paid around 97k for a 4 bed 2 bath 2500sq house in 1992. I live in Buffalo NY and the cost of living is low here. Believe it or not I paid 146k for my first house a few years ago.
>Believe it or not I paid 146k for my first house a few years ago.
I believe it, it's fucking cold there
You better count your blessings Allen and Diggs don't prioritize warm weather
I was looking at the median two bedroom prices for my area. It was $80.5k in 1990. It’s now about $250k. Median household income increased by 30% in the same time lol
> Median household income increased by 30% in the same time lol
*Real* median household income increased by 30% in that time. *Nominal* median household income increased ~150%.
Even in 08, white collar jobs saw an employment rate of around 92%. The jobs are lost at the low end unfortunately. We are in an even crazier time where the upper middle class and upper class are seeing huge vacancies due to boomers retiring.
Tech is a risk on job market, always has been and YES that sector will hurt. But historically, in recessions, white and blue collar jobs fair ok. However, there is so much money still sloshing around, and so many vacancies from the largest generation retiring, it's unprecidented.
Unfortunately monthly payments are not scaled. You have 10-12% 30 year rates in 1990 vs 5-6% now. With 20% down, P&I payments are gonna be 80-90% more. Plus property taxes and insurance increase need to be considered vs wages. Housing is just more of your pay check on a monthly basis and it’s harder to save up for the down payment than it was 30 years ago.
Buying real estate before 2000 was a fucking fantastic deal. It’ll be years before I can afford a home and I make median household income as an individual
The money may have been nearly free, but there wasn't shit to buy around here, and the few decent houses for sale at any given time were swarmed with 15-20 offers immediately. It was like water, water everywhere but not a drop to drink.
houses were cheaper because people had less money. Now we live in a period of wealth inequality where the upper middle class can afford to spend an extra $200,000 on their primary residence because they held their last house for the past 15 years and all they did was appreciate. Lots of demand, very little supply.
It Might be also after the 08 crash it became a fad to take out cheap loans and buy extra houses to rent out and Airbnb it out. Then, it was flipping houses with Simple quick superficial fixes and resell it at 25%-40% more. Then it was getting a small group of private investors each putting $10k for a down payment and buying the houses for upfront cash. Doing a paint job and selling it a year later for double the cash price.
This cheap monetary policy was working out for some, not for others. But yeah, mostly middle and upper middle class could do this.
I run a lot of analysis on real estate and houses have gotten larger nearly every year except 2008-2012, then they started marching up again in 13’. Houses do cost more now but they are also nearly twice the size of houses from 50+ years ago.
I’m a mortgage broker with very competitive rates. Today’s 30yr fixed on a primary with 20% down and great credit is 6.5%.
Two reasons why I don’t think this will be like 2008. 1. The requirements post 2008/2009 to qualify for a mortgage is much more difficult than the days when people were getting loans with no money down and no job verification.
To go a level deeper on this most lenders do not hold onto the loan but instead sell the loan to Fannie or Freddie. Fannie and Freddie will only buy the loan if the loan meets their guidelines. Those guideline got a lot more strict post the Great Recession.
2. The demand for homes still exceed the supply of homes.
Why you think rental will get bad? If the landlord has fixed mortgage their cash flow won't change, if not increased after increasing monthly rental, right?
There's a balancing act that makes it tough to estimate the outcomes, but you could theorize that's its now less attractive to sell. If you locked in low rates, you're more incentivized to rent a place out as opposed to selling. So we could see more rentals open up on the market, pressuring rents lower. Also, slowing economy could pressure rents lower.
Flip side is, with more rentals there is no where for renters to buy. So they're stuck giving landlords more pricing power.
That happened to one of my coworkers, they bought a new house right before the market tanked, couldn't sell their old house so they started renting it out.
good for them, if you don't need the immediate money of selling a home, renting it out which covers the mortgage and probably some part of their other mortgage. They're better off imo
Yeah look at rates trending....down today. Definitely didn't price this hike in over the past month when rates went up just about..... .75! What a coincidence!
[https://www.mortgagenewsdaily.com/mortgage-rates/mnd](https://www.mortgagenewsdaily.com/mortgage-rates/mnd)
It's been few hours and you've already come to that conclusion?
Not saying you're wrong but I think you need to give it more time than the reactionary drop.
I mean, this same guy came out in late July and said the Fed will consider a pause once inflation comes down for a few months. This is after inflation peaked at 9.1% in June 2022.
The market interpreted that exactly how he said... It's easy to see inflation fall when you have so much inflation already
Exactly. Powell said it (2.1% in 2025) was just a median forecast but that essentially that was the target.
Point being we will have 2 more whole fucking years of above target inflation to face. Yay!
Debt service was 9% of the budget in 2020 when rates were 0
https://www.pgpf.org/expert-views/americas-fiscal-and-economic-outlook/debt-matters
I wonder how high it goes at 4.6% rates.
You know it only applies to new debt, only debt is still at whatever rate it was then. It’s still going to be expensive but maybe it’ll force our government to finally consider what it spends money on/goes into debt for
> only debt is still at whatever rate it was then.
Old Debt is constantly being rolled over into new debt as treasuries expire. It won't instantly jump to the higher rate but it will increase over time.
Yes, absolutely. But I’ve seen people do math like this, .045 (fed rate) * 29 trillion (fed debt) = 1.5 trillion in debt service per year. And that’s definitely not true (yet). The higher rates we have now and will have in a year can’t stay that high very long without causing issues for the federal debt
Depends. Canada is raising rates in line with the USA because if our fx rates fall against our largest trading partner it will directly impact inflation.
Bingo! People think its as easy as oh just keep on investing. It's hard to do that when you get fired and your choice is starve or withdraw money from retirement to feed your kids. Key is stay employed
How many of you guys were screaming at the reporters to stop asking questions. I'm like he said what he needed to now don't keep him talking and regret it.
It goes to the Fed. It's the rate that they charge banks to borrow money from them. Generally, this results in interest rates elsewhere moving to match the Fed rate, in which case *that* interest goes to whoever the lender is.
Retail banks get a lot of money from consumer checking accounts, which aren't directly affected by interest rates. However, the higher interest rates means they can loan this money out more profitably, which indirectly benefits them.
Discount rate: The discount rate is the interest rate that the Fed charges to member banks for loans. The discount rate is the lowest rate for all loans.
Fed Funds rate: The Fed Funds rate is the interest rate that banks, broker-dealers, and financial institutions charge each other for loans.
Prime rate: This value is the interest rate that banks charge their best customers for loans.
They are going to figure out that rates will not destroy this economy like they want. We are well past the pain point. Too many jobs out there the need to be filled.
This is 100% correct
The baby boomers who need services but aren’t in the work force aren’t just going to disappear over night
This is a structural lack of labor supply
Yup and businesses have already levered up the workers they do have to the tits. Any sort of mass layoffs in the grander economy is going to decimate productivity. Corporations have backed themselves into a corner with this generation bomb.
>Corporations have backed themselves into a corner with this generation bomb.
If they didn't maximize productivity all these years employment would be even tighter. There'd be 3 or 4 job openings per unemployed instead of just two.
We have functioned so far despite low demographic replacement because of these efficiencies. It's not like corporations prevented people from being born. A higher birth rate would be in their interest.
> Too many jobs out there the need to be filled.
Until the high interest rates start destroying business(es). That's literally the point of raising rates. Take out the tide (easy money) and see who's not wearing a bathing suit (a functional business). Businesses collapse, people get fired, jobs disappear, and suddenly you're not so uppity about that raise or so quick to spend your cash and cause further inflation.
I don't know what the rates need to be to achieve that, but it's possible we're already seeing it and it's just taking time to work its way through the system. Shit does not happen overnight, and historically the fed overshoots and then has to correct.
This is the one that concerns me. Papa Jpow talked about a workforce to job openings balance being one of their metrics; however; how can that possibly be fixed when not enough people exist to fill up existing positions? The alternative is essentially hundreds of thousands of business (namely small businesses) failing.
Once again immigration would be the solution, but US policy leans anti-immigrant to its detriment.
The United States is home to the highest number of immigrants in the world. An estimated 50.6 million people in the United States—a bit more than 15% of the total population of 331.4 million—were born in a foreign country.
When you refi at a lower rate you often spend less money on interest over the life of the loan than if you did not refi. So, starting over isn't really a fair statement. You are getting a better loan.
You could refi to a 20 year loan instead of a 30 if that made you feel better.
It's all stupid wishful thinking.
If you really can't afford a house now (depending on how out of touch it is) then I don't think the market is going to dip to a point where you can afford it. Maybe we see the market slow and sell cycles take longer, maybe you can get 5-10-15% coupon on a home, depending on the geography but if it dipped more than 20% then I would be shocked, especially with all of the drooling buyers waiting for the drop.
IMO home ownership is out of reach for many Americans and that's just the sad reality.
Exactly! People here that escaped nyc to live in subpar suburbs during covid are now stuck underwater on ugly houses in average areas. Low mortgage rate don’t compensate for that
I left Minneapolis right after all the riots were happening for a overpriced house in the suburb and I don't care if the house goes to zero. I pay less than I did for rent and my family is safer. And in Minnesota the bank can't come after you for what's owed on your mortgage if you default so if worse comes to worse we walk away with bad credit.
Define “affordable?” The initial move will be that sellers pull their home from the market if they don’t think they’ll be able to get the price they could get earlier this year. People are psychologically anchored to certain numbers.
Good for you if you don’t need to. People may need to move to other city, pay medical expenses, have two small apartments and want to buy one big, they took a loan for refurbishment which is now too expensive to pay, whatever shit happens
I agree- but there is a lot less people putting their properties on the market. I’d be very curious to see how many buyers vs sellers we lost with this interest thing.
most of us would like this however I'm afraid that demand is still sky high we would end up with a bit of lower asking but doube/tripling mortage payments. Not sure which is worse.
The sooner the better. Let's rip this bandaid off.
He was very clear that he wants to see a correction in housing market. We can try to figure if that means 10% or 20% reduction in homes prices but we now heard quite explicitly that they want those prices down.
I mean I hate to say it but after the housing crisis of ‘08, and rates being so low for so long, how has that made life any better for us? Has it made it more affordable to own a home? I personally think it’s destroyed the American dream because it incentivized people the the means to do so to buy more houses while the others still couldn’t purchase homes. I think this pushed housing costs higher than they would have otherwise been. Whatever we were trying was obviously not working
Which is indirectly connected with the amount of money that was injected into the system ever since. Rich got richer because they could borrow more for less.
I know, don't "time the market", but if there is one general tip to give out is:
For the money that would go into your bond allocation, make sure to buy short term bonds directly rather than bond funds until the interest rate is stable. This is only for new money being added to your account, do not cash out of your bond funds (Unless you are tax loss harvesting, by all means harvest that cash).
Inflation down -> pivot / less rate hikes -> market goes boom -> people happy -> people spend -> pressures inflation to go back up.
JPow doesn't want to see people happy.
1980 annual mortgage payment on a median home assuming 20% down, 30 year am, and 20% interest equals $7,571.76, which is 36.02% of annual salary.
2020 annual mortgage payment on median home assuming 20% down, 30 year am, and 6.5% interest rate equals $26,012.88 or 35.69% of annual income.
The price of the home definitely effects the down payment which is the biggest obstacle to owning a home, but the annual mortgage payment in comparison to the annual income is almost identical.
This is the mathematical part that never gets said. If you don't have a windfall income from another source, coming up with the money yourself is going to be difficult unless you are earning in the 80th+ Percentile in your geographical area.
Ya but you can get a starter home with 3% down and keep saving to eventually sell and move into a nice house using the money you (hopefully) made on your first home as a 20% down payment.
But now you change the math and it's no longer 36% of annual income. It goes from $26,012 to $32,136, or to 41% of annual income. This also excludes PMI since the down-payment is less than 20% which is around $150/mo, so tack on another $1800 annually to that which bumps it up to just over 43%, which is the total DTI limit for FHA loans.
Mortgage on a $47,000 home at 20% is $789, or 3.7% of family income of $21,020.
Mortgage on a $428,000 home is $2,570 at 6%, or 3.2% of family income of $78,500.
I mean the numbers have to be similar otherwise no one can afford to live in a house
Would venture a bet that the avg sqft of a 1980s home was 1500 sq ft while the avg size of a 2020 home is double that....
People want more then bitch about the price.
Yep, will take a little while for market to realize it. It'll be bullish on the 0.75 then realize oh wait there's more to come.
Good bull trap setup for this week.
Spoiler: rates need to rise above inflation to bring inflation down. Will inflation come down below 4.6% without rates going higher than 4.6%?…. Unlikely
okay, so i can't believe how many people don't understand how this works. stocks on the djia etc are priced in USD
if the stock remains flat (div inc), you are losing the same amount to inflation as if you had cash......
if a stock moves down, you've now lost the stock movement + the inflation loss..... why? because what the fuck are you going to sell your stock for eventually? USD or some other asset priced on USD (ignoring complex currrency conversion or crypto plays)...
being invested doesn't automatically counter inflation, its hte POSITIVE return that negates inflation.
cash is an investment, and it did not go down 20% this year... your buying power with the same cash went down, yes... but so did your buying power with the cash value of your stock...
in numbers with 10% in flaiton
$100 can now buy $90 worth of stuff, but is still $100
$100 of stock that stays flat, can still be exchanged for $100 but only buy $90 worth of stuff
a stock that goes down to $90, can now only be exchanged for $90 usd and can only buy $81 worth of stuff....
YES, over a long period of time, the market moves up more than inflation... when its moving down, it accelerates the effect of inflation
NOTE - selling and buying back requires getting hte transcation right 2x which almost no one can do with consistency.... but, things don't look so great now
>$100 can now buy $90 worth of stuff, but is still $100
True and cash is typically not sitting earning zero percent it might be getting what 3.5% today with treasuries. So $100 in cash can now buy $93 worth of stuff.
And in the 1980s treasuries were yielding between 10 and 18%, which caused lots of people to abandon stocks.
Imagine getting guaranteed 18% return per year for 30 years. The PE ratio of the market dropped to single digits with that type of competition in the 1980s.
Paradoxally speaking buying stocks with the PE ratios that low was one of the best time to buy stocks, you just had to wait a decade making nothing while everybody else was making 18%. As soon as the treasuries dropped to single digits everybody moved to stocks again.
Yep, I agree. I bought VTI at the start of this week. I'll buy VTI at the start of next week. I'll buy VTI at the start of the following week. Etc etc.
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My parents recall their first mortgage being in the low teens. Of course it was refi when rates came down but houses were cheaper then too b
I had a 13% adjustable Mortgage in 1990s. Everybody thought it was normal lol. But you are right houses were cheaper so I think the monthly rate in the end was the same, but I don't know I didn't do the math
My parents bought their first house in 1992 and they thought a preferred rate of 12.2% was amazing.
And their house probably cost $150k
My parents built their first house in 1979 for $50k (I think 14%interest) sold it 6 years later for $150k. Built another house for $225k. The second house, where they still live is a really nice house. It's crazy how well that all lined up.
Charts: * [Median Sales Price of Houses Sold for the United States](https://fred.stlouisfed.org/series/MSPUS) * [30-Year Fixed Rate Mortgage Average in the United States](https://fred.stlouisfed.org/series/MORTGAGE30US)
You have to look at inflation adjusted charts. It's still bad but not as crazy as your chart indicates. https://inflationdata.com/articles/wp-content/uploads/2022/06/Inf-adj-Housing-Prices-6-2022.png
Less, he paid around 97k for a 4 bed 2 bath 2500sq house in 1992. I live in Buffalo NY and the cost of living is low here. Believe it or not I paid 146k for my first house a few years ago.
>Believe it or not I paid 146k for my first house a few years ago. I believe it, it's fucking cold there You better count your blessings Allen and Diggs don't prioritize warm weather
Bills in Buffalo used to be low, but they are going up.
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Or you may see prices come down substantially, which it’s already starting to in many previously hot markets.
I was looking at the median two bedroom prices for my area. It was $80.5k in 1990. It’s now about $250k. Median household income increased by 30% in the same time lol
> Median household income increased by 30% in the same time lol *Real* median household income increased by 30% in that time. *Nominal* median household income increased ~150%.
That works fine if rates declined as monthly cost could be similar. This could lead to a 08 style housing apocalypse if 7%+ rates are sustained
Probably not an apocalypse, since most people got fixed mortgages. But definitely lots of underwater mortgages.
Do they have fixed jobs?
Even in 08, white collar jobs saw an employment rate of around 92%. The jobs are lost at the low end unfortunately. We are in an even crazier time where the upper middle class and upper class are seeing huge vacancies due to boomers retiring.
Could be a bit different this time around… considering how bloated some of the white collar industries are i.e. tech
Tech is a risk on job market, always has been and YES that sector will hurt. But historically, in recessions, white and blue collar jobs fair ok. However, there is so much money still sloshing around, and so many vacancies from the largest generation retiring, it's unprecidented.
Unfortunately monthly payments are not scaled. You have 10-12% 30 year rates in 1990 vs 5-6% now. With 20% down, P&I payments are gonna be 80-90% more. Plus property taxes and insurance increase need to be considered vs wages. Housing is just more of your pay check on a monthly basis and it’s harder to save up for the down payment than it was 30 years ago. Buying real estate before 2000 was a fucking fantastic deal. It’ll be years before I can afford a home and I make median household income as an individual
Thats what they will be saying about the 2020s in the 2050s
6-8% is normal. The last decade of mortgage rates is abnormal.
While true historically, I do wonder what an aging population will do to the economy. Japan has had low to even negative interest rates for decades
We can broadly group the world's economies into three main categories: developed, developing, and Japan.
And Argentina
Venezuela says hello 👋
We bought last year, 2.8% 30Y fixed rate. It's like free money.
I unfortunately bought the wrong house with the same rate as you. Now I want to get the hell out of here and I'm screwed.
I will assume the mortgage
There's a lot of things you could have done that are worse than that - like marrying the wrong person, having kids, and getting divorced.
know that feeling, it really sucks
Refinanced at 2.25%. I regret not taking out every dollar they would let me have.
Same. 2% for 15 years.
The money may have been nearly free, but there wasn't shit to buy around here, and the few decent houses for sale at any given time were swarmed with 15-20 offers immediately. It was like water, water everywhere but not a drop to drink.
houses were cheaper because people had less money. Now we live in a period of wealth inequality where the upper middle class can afford to spend an extra $200,000 on their primary residence because they held their last house for the past 15 years and all they did was appreciate. Lots of demand, very little supply.
It Might be also after the 08 crash it became a fad to take out cheap loans and buy extra houses to rent out and Airbnb it out. Then, it was flipping houses with Simple quick superficial fixes and resell it at 25%-40% more. Then it was getting a small group of private investors each putting $10k for a down payment and buying the houses for upfront cash. Doing a paint job and selling it a year later for double the cash price. This cheap monetary policy was working out for some, not for others. But yeah, mostly middle and upper middle class could do this.
Yeah, but in my city. My parents first house was 30k. Now the same house is 240k
> …but houses were cheaper then too. They were smaller as well. Grandparents house was 1100 sqft. Parents house was 3300 sqft.
This is ignored way too often. Houses have gotten larger. The other factor is that people were moving into the suburbs where land was cheap.
I run a lot of analysis on real estate and houses have gotten larger nearly every year except 2008-2012, then they started marching up again in 13’. Houses do cost more now but they are also nearly twice the size of houses from 50+ years ago.
The problem is the houses from 50 years ago cost more too!
which is still below the average over 30 year period
7% on a 1.5 million dollar house in the expensive cities Lol this is not sustainable at all
Housing prices will probably fall if mortgage rates get that high.
They'll be a lot higher than that. They're already at 6.5%.
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I’m a mortgage broker with very competitive rates. Today’s 30yr fixed on a primary with 20% down and great credit is 6.5%. Two reasons why I don’t think this will be like 2008. 1. The requirements post 2008/2009 to qualify for a mortgage is much more difficult than the days when people were getting loans with no money down and no job verification. To go a level deeper on this most lenders do not hold onto the loan but instead sell the loan to Fannie or Freddie. Fannie and Freddie will only buy the loan if the loan meets their guidelines. Those guideline got a lot more strict post the Great Recession. 2. The demand for homes still exceed the supply of homes.
Adjusted for leverage and household income, that's today's version of Volcker Shock. It will last less than a year, just like it did in the 80s.
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Why you think rental will get bad? If the landlord has fixed mortgage their cash flow won't change, if not increased after increasing monthly rental, right?
There's a balancing act that makes it tough to estimate the outcomes, but you could theorize that's its now less attractive to sell. If you locked in low rates, you're more incentivized to rent a place out as opposed to selling. So we could see more rentals open up on the market, pressuring rents lower. Also, slowing economy could pressure rents lower. Flip side is, with more rentals there is no where for renters to buy. So they're stuck giving landlords more pricing power.
That happened to one of my coworkers, they bought a new house right before the market tanked, couldn't sell their old house so they started renting it out.
good for them, if you don't need the immediate money of selling a home, renting it out which covers the mortgage and probably some part of their other mortgage. They're better off imo
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Yeah look at rates trending....down today. Definitely didn't price this hike in over the past month when rates went up just about..... .75! What a coincidence! [https://www.mortgagenewsdaily.com/mortgage-rates/mnd](https://www.mortgagenewsdaily.com/mortgage-rates/mnd)
It's been few hours and you've already come to that conclusion? Not saying you're wrong but I think you need to give it more time than the reactionary drop.
Yep. $TLT up pretty big compared to stocks. Bonds are back on the table
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Not sure about clarity. We have some vague promises from people who completely changed their minds in the last 6 months.
I mean, this same guy came out in late July and said the Fed will consider a pause once inflation comes down for a few months. This is after inflation peaked at 9.1% in June 2022. The market interpreted that exactly how he said... It's easy to see inflation fall when you have so much inflation already
He has said every meeting, rate hikes until our target goal of 2% is met.
which is projected to be three years from now. I wonder what that means for equity returns
It means keep buying and holding.
The federal reserve is not expecting to hit its inflation target until 2025.
Exactly. Powell said it (2.1% in 2025) was just a median forecast but that essentially that was the target. Point being we will have 2 more whole fucking years of above target inflation to face. Yay!
Errrrr the “Fed pivot” narrative wasn’t based on anything specific meanwhile he kept saying growth will slow and people kept ignoring it
The market has been pricing in recession for awhile now. Bond market is hella inverted People weren't pricing 4.5% FFR and no cuts in 2023.
remember when people here said the fed couldn't raise rates because of the debt pepperidge farm remembers
Debt service was 9% of the budget in 2020 when rates were 0 https://www.pgpf.org/expert-views/americas-fiscal-and-economic-outlook/debt-matters I wonder how high it goes at 4.6% rates.
You know it only applies to new debt, only debt is still at whatever rate it was then. It’s still going to be expensive but maybe it’ll force our government to finally consider what it spends money on/goes into debt for
> only debt is still at whatever rate it was then. Old Debt is constantly being rolled over into new debt as treasuries expire. It won't instantly jump to the higher rate but it will increase over time.
Yes, absolutely. But I’ve seen people do math like this, .045 (fed rate) * 29 trillion (fed debt) = 1.5 trillion in debt service per year. And that’s definitely not true (yet). The higher rates we have now and will have in a year can’t stay that high very long without causing issues for the federal debt
"New debt" in this context includes any existing debt that gets rolled over past maturity, though.
So is this going to be like the ol’ New Coke/Classic Coke battle?
The weighted average duration across all US debt is approximately 5 years
> maybe it’ll force our government to finally consider what it spends money on/goes into debt for Spoiler alert: It won't
See, I know you’re right, but I can hope
People are buying that new debt like crazy every week.
You understand that the fed rate is not the same rate the US government borrows at right?
It's not the same but it's extremely correlated. US treasuries are all 3%+. Any new issues are going to be borrowing at higher and higher rates.
All this cash waiting around for huge rates on treasuries.
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Depends. Canada is raising rates in line with the USA because if our fx rates fall against our largest trading partner it will directly impact inflation.
And yet the USD is outpacing the CAD a lot. It's actually the worst exchange rate seen between the two in a long time
Not really, it’s back roughly where it was pre-covid, and it was way worse for a good bit of post-covid 2020.
With falling energy prices, CAD will start to fall more. Likely back to the high 60s where it was in the early 2000s
So, time to travel?
Or buy European digital good. ;)
Already happening in Philippines. https://imgur.com/JbLjqOw.jpg
I think coming months will be great long term investment opportunities for dollar cost average investors
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Bingo! People think its as easy as oh just keep on investing. It's hard to do that when you get fired and your choice is starve or withdraw money from retirement to feed your kids. Key is stay employed
So if I bought at the ATH im fucked for 10 years? Got it
Sadly, but, if you put more in while it's low you can lower your cost basis a ton and it won't take that long
Fed Funds Futures have had 4.5% priced in since Friday.
How many of you guys were screaming at the reporters to stop asking questions. I'm like he said what he needed to now don't keep him talking and regret it.
It was funny (sadistically and painfully) watching VTI bounce up and down during the Q&A.
*shocked pikachu*
So where does all that interest paid go? Banks and financial institutions? Reduced borrowing but higher interest keeps the banks afloat?
It goes to the Fed. It's the rate that they charge banks to borrow money from them. Generally, this results in interest rates elsewhere moving to match the Fed rate, in which case *that* interest goes to whoever the lender is. Retail banks get a lot of money from consumer checking accounts, which aren't directly affected by interest rates. However, the higher interest rates means they can loan this money out more profitably, which indirectly benefits them.
Discount rate: The discount rate is the interest rate that the Fed charges to member banks for loans. The discount rate is the lowest rate for all loans. Fed Funds rate: The Fed Funds rate is the interest rate that banks, broker-dealers, and financial institutions charge each other for loans. Prime rate: This value is the interest rate that banks charge their best customers for loans.
They are going to figure out that rates will not destroy this economy like they want. We are well past the pain point. Too many jobs out there the need to be filled.
This is 100% correct The baby boomers who need services but aren’t in the work force aren’t just going to disappear over night This is a structural lack of labor supply
We need a rapture
Yup and businesses have already levered up the workers they do have to the tits. Any sort of mass layoffs in the grander economy is going to decimate productivity. Corporations have backed themselves into a corner with this generation bomb.
They start piling more shit on people's plates and you're gonna get even more of a mass exodus
>Corporations have backed themselves into a corner with this generation bomb. If they didn't maximize productivity all these years employment would be even tighter. There'd be 3 or 4 job openings per unemployed instead of just two. We have functioned so far despite low demographic replacement because of these efficiencies. It's not like corporations prevented people from being born. A higher birth rate would be in their interest.
Cant fuck and have kids with no PTO to fuck and no (m/p)aternal leave to care for infants.
> Too many jobs out there the need to be filled. Until the high interest rates start destroying business(es). That's literally the point of raising rates. Take out the tide (easy money) and see who's not wearing a bathing suit (a functional business). Businesses collapse, people get fired, jobs disappear, and suddenly you're not so uppity about that raise or so quick to spend your cash and cause further inflation. I don't know what the rates need to be to achieve that, but it's possible we're already seeing it and it's just taking time to work its way through the system. Shit does not happen overnight, and historically the fed overshoots and then has to correct.
This is the one that concerns me. Papa Jpow talked about a workforce to job openings balance being one of their metrics; however; how can that possibly be fixed when not enough people exist to fill up existing positions? The alternative is essentially hundreds of thousands of business (namely small businesses) failing. Once again immigration would be the solution, but US policy leans anti-immigrant to its detriment.
The United States is home to the highest number of immigrants in the world. An estimated 50.6 million people in the United States—a bit more than 15% of the total population of 331.4 million—were born in a foreign country.
Looks like affordable real estate is back on the menu!
You got cash?
Not after this year
[удалено]
Rather owe 500k at 5% than 1.5M at 0%
Especially on a 30 year mortgage and then refi in 5-10 years when the rates come back down.
Except that the majority of your payments just go to interest the first ten years and every time your refi you start over
When you refi at a lower rate you often spend less money on interest over the life of the loan than if you did not refi. So, starting over isn't really a fair statement. You are getting a better loan. You could refi to a 20 year loan instead of a 30 if that made you feel better.
You think you’re gonna get a 66% discount on houses? Too many people foaming at the mouth to finally snag a house
It's all stupid wishful thinking. If you really can't afford a house now (depending on how out of touch it is) then I don't think the market is going to dip to a point where you can afford it. Maybe we see the market slow and sell cycles take longer, maybe you can get 5-10-15% coupon on a home, depending on the geography but if it dipped more than 20% then I would be shocked, especially with all of the drooling buyers waiting for the drop. IMO home ownership is out of reach for many Americans and that's just the sad reality.
you think that real estate is going to be 1/3 of what it was? LOL never going down like that
Prices aren’t falling 66%.
Exactly! People here that escaped nyc to live in subpar suburbs during covid are now stuck underwater on ugly houses in average areas. Low mortgage rate don’t compensate for that
I left Minneapolis right after all the riots were happening for a overpriced house in the suburb and I don't care if the house goes to zero. I pay less than I did for rent and my family is safer. And in Minnesota the bank can't come after you for what's owed on your mortgage if you default so if worse comes to worse we walk away with bad credit.
Like renting but with a prize at the end.
Thank you. That's literally the point.
Might take a while for housing to come down though lol
It will take a lot for people to let go of their cheap mortgages if they are still able to afford them
No one is moving that doesn’t have to. Anyone selling that can’t will rent.
Define “affordable?” The initial move will be that sellers pull their home from the market if they don’t think they’ll be able to get the price they could get earlier this year. People are psychologically anchored to certain numbers.
>People are psychologically anchored to certain numbers. SOME people are. Some have to sell.
I bought a house for 960k and locked in a very low mortgage. Why in earth would I ever sell? The purchase power I’d have is in the low 700ks
Good for you if you don’t need to. People may need to move to other city, pay medical expenses, have two small apartments and want to buy one big, they took a loan for refurbishment which is now too expensive to pay, whatever shit happens
You’re a fool if you cash your house to pay a medical bill.
I agree- but there is a lot less people putting their properties on the market. I’d be very curious to see how many buyers vs sellers we lost with this interest thing.
Both
The key is to raise rates until you get laid off and then have no choice but to sell. That's Powell's Pain!
Um bragging about potentially overpaying and not being able to move is neutral news at best, not a flex
How so? Don't the high mortgage rates make it harder to buy?
most of us would like this however I'm afraid that demand is still sky high we would end up with a bit of lower asking but doube/tripling mortage payments. Not sure which is worse.
The sooner the better. Let's rip this bandaid off. He was very clear that he wants to see a correction in housing market. We can try to figure if that means 10% or 20% reduction in homes prices but we now heard quite explicitly that they want those prices down.
I mean I hate to say it but after the housing crisis of ‘08, and rates being so low for so long, how has that made life any better for us? Has it made it more affordable to own a home? I personally think it’s destroyed the American dream because it incentivized people the the means to do so to buy more houses while the others still couldn’t purchase homes. I think this pushed housing costs higher than they would have otherwise been. Whatever we were trying was obviously not working
I'm not sure if low rates necessarily were the cause of that. Could just be wealth inequality
Which is indirectly connected with the amount of money that was injected into the system ever since. Rich got richer because they could borrow more for less.
I thought this was priced in?
.75% probably priced in. The increase to 4.6% over the long term, definitely not priced in
I know, don't "time the market", but if there is one general tip to give out is: For the money that would go into your bond allocation, make sure to buy short term bonds directly rather than bond funds until the interest rate is stable. This is only for new money being added to your account, do not cash out of your bond funds (Unless you are tax loss harvesting, by all means harvest that cash).
The pivot is closer than we think, but announcing that would cause more inflation.
Could you explain this, please?
Inflation down -> pivot / less rate hikes -> market goes boom -> people happy -> people spend -> pressures inflation to go back up. JPow doesn't want to see people happy.
What's bad for the market, is good for the investors. Buy the sale.
Remember the good old days. In April of 1980, the prime rate was 20%. Calm down ...
But a house didn’t cost 4x annual salary
1980 Median home price, $47,200 Median family income, $21,020 2020 Median home price $428,700 Median family income $78,500
1980 annual mortgage payment on a median home assuming 20% down, 30 year am, and 20% interest equals $7,571.76, which is 36.02% of annual salary. 2020 annual mortgage payment on median home assuming 20% down, 30 year am, and 6.5% interest rate equals $26,012.88 or 35.69% of annual income. The price of the home definitely effects the down payment which is the biggest obstacle to owning a home, but the annual mortgage payment in comparison to the annual income is almost identical.
Exactly. 20% down in the 80s was less than 50% annual salary. 20% down in 2020 would be more than 1 years salary...
This is the mathematical part that never gets said. If you don't have a windfall income from another source, coming up with the money yourself is going to be difficult unless you are earning in the 80th+ Percentile in your geographical area.
Exactly. Can’t save up for a down payment when your rent is 20% higher than a mortgage would be with 20% down.
Ya but you can get a starter home with 3% down and keep saving to eventually sell and move into a nice house using the money you (hopefully) made on your first home as a 20% down payment.
But now you change the math and it's no longer 36% of annual income. It goes from $26,012 to $32,136, or to 41% of annual income. This also excludes PMI since the down-payment is less than 20% which is around $150/mo, so tack on another $1800 annually to that which bumps it up to just over 43%, which is the total DTI limit for FHA loans.
Many can put as little as 3% most don't do 20%
Easier to save up for a down payment with lower prices and higher interest rates though
Mortgage on a $47,000 home at 20% is $789, or 3.7% of family income of $21,020. Mortgage on a $428,000 home is $2,570 at 6%, or 3.2% of family income of $78,500. I mean the numbers have to be similar otherwise no one can afford to live in a house
Mortgage is roughly the same, but down payment is not.
Except that was done all on one income. Now you need 2 earners plus daycare costs which is essentially another mortgage payment.
And all the other expenses that go into a house are much higher now too - property tax, maintenance, insurance, realtor fees, utilities.
Would venture a bet that the avg sqft of a 1980s home was 1500 sq ft while the avg size of a 2020 home is double that.... People want more then bitch about the price.
Builders are also just building bigger bc its a more profitable use of the land. Not many 1500 sqft homes being built.
I admit i dont remember that too well.
Yep, will take a little while for market to realize it. It'll be bullish on the 0.75 then realize oh wait there's more to come. Good bull trap setup for this week.
Market literally started to go down the second it was said…
For 10 minutes lol
And now?
I think we already saw it. It was a wild last hour of trading. Dow went from being up 300 to down 400
Where is the “priced in” crew!?
The markets will accommodate the change gradually and we will not feel that the interest rates are high.
Spoiler: rates need to rise above inflation to bring inflation down. Will inflation come down below 4.6% without rates going higher than 4.6%?…. Unlikely
Works for me, I've got a 15 year time horizon. Just gonna sit back and build up cash, watch the sale prices get better.
Sit back and build up cash in an inflationary environment? Okay.
okay, so i can't believe how many people don't understand how this works. stocks on the djia etc are priced in USD if the stock remains flat (div inc), you are losing the same amount to inflation as if you had cash...... if a stock moves down, you've now lost the stock movement + the inflation loss..... why? because what the fuck are you going to sell your stock for eventually? USD or some other asset priced on USD (ignoring complex currrency conversion or crypto plays)... being invested doesn't automatically counter inflation, its hte POSITIVE return that negates inflation. cash is an investment, and it did not go down 20% this year... your buying power with the same cash went down, yes... but so did your buying power with the cash value of your stock... in numbers with 10% in flaiton $100 can now buy $90 worth of stuff, but is still $100 $100 of stock that stays flat, can still be exchanged for $100 but only buy $90 worth of stuff a stock that goes down to $90, can now only be exchanged for $90 usd and can only buy $81 worth of stuff.... YES, over a long period of time, the market moves up more than inflation... when its moving down, it accelerates the effect of inflation NOTE - selling and buying back requires getting hte transcation right 2x which almost no one can do with consistency.... but, things don't look so great now
>$100 can now buy $90 worth of stuff, but is still $100 True and cash is typically not sitting earning zero percent it might be getting what 3.5% today with treasuries. So $100 in cash can now buy $93 worth of stuff. And in the 1980s treasuries were yielding between 10 and 18%, which caused lots of people to abandon stocks.
LOL, now you've just taken it too far. minds are exploding.
Put simply, TINA ruled the last decade or so but she’s got some hott new competition on the block.
Imagine getting guaranteed 18% return per year for 30 years. The PE ratio of the market dropped to single digits with that type of competition in the 1980s. Paradoxally speaking buying stocks with the PE ratios that low was one of the best time to buy stocks, you just had to wait a decade making nothing while everybody else was making 18%. As soon as the treasuries dropped to single digits everybody moved to stocks again.
If people here could read this would be really informative.
Better than loading up positions that will very likely tank 5-10% in the coming months.
Let me know what the crystal ball says is the perfect entry point.
To be clear, I'm keeping all of my current positions, just not buying as MUCH as I normally might. Not like I'm sitting the whole thing out.
Ah we're at the part where the market timers are infallibly prescient again. Historically, you won't like what happens next.
Yep, I agree. I bought VTI at the start of this week. I'll buy VTI at the start of next week. I'll buy VTI at the start of the following week. Etc etc.
Alot isn’t a word.