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CDon

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Registered Mar 08, 2012

CDon's most recent comments:

  • On Tue, 16 Jun 2015, 11:20am PDT in 10 Year Yield Having A 2nd Taper Moment, CDon said:

    Call it Crazy says

    Another good example for the crowd that says "rates don't matter"... Look at the volume of sales when rates went up to the 17% range in the early 80's. The volume was cut in half, and when rates went back down, the volume returned...

    Actually, when we had essentially this same discussion on April 1, my contention (perhaps not clear) was that volume acts as a pressure relief valve to explain why prices do not drop. In other words, either price or volume will get whacked, and due to human nature and general price "stickiness" my understanding was volume did (and would) go down.

    See my comment on volume, Post #82
    http://www.patrick.net/?p=1279563

    In any event, my attitude as one of the "rates don't matter" crowd was only in terms of price. In terms of volume, yes certainly, it matters and matters quite a bit. However, regarding the "when rates rise, prices are going to tank" thesis which was central to many many past, and some current patnetters, all I can tell you is history says you will be screwed if you are waiting for that 500K house to fall to 450K.

    This aside, I appreciate you posting that graph - I was always told that volume tanked back then, but had not been able to find any data to back that up.

  • On Sat, 13 Jun 2015, 12:57pm PDT in 10 Year Yield Having A 2nd Taper Moment, CDon said:

    Call it Crazy says

    I get your whole point about 50 - 60 years ago, but what happened back then has very little to do with today's housing market

    Yes, but it has everything to do with how people respond to stimuli, and in that regard, human behavior doesn't change over time. In a vacuum, higher rates could and should equal lower prices, but this isn't the case, which is the whole reason I have been vexed by this question and the only way I can reconcile all the data with human behavior. That said, I should note if (a) lenders added a rate premium which had nothing to do with bond rates or inflation or (b) nominal incomes stopped rising, then I would bet you dollars to doughnuts the rising rates = falling prices would ring true. Yet, as long as the US remains the words dominant hegemonic power there is no chance of this happening.Call it Crazy says

    Which is why I used the last 25 years a snap shot.

    That may be so, but it is also the one that has been bandied about bubble blogs for the better part of a decade - sometimes purposefully as people have intentionally deleted the 1970-1990 data to "prove" what they want to believe that if they wait, prices would fall:

    http://www.patrick.net/misc/Median+House+Price+vs.+Nominal+Interest+Rates+%281980-2011%29

    Call it Crazy says

    You and I are old dogs here and remember and lived the double digit mortgage rates. The majority of the kids here only know about them from history books!

    Actually, I was in pre school back then. Thus it baffled me when the few gristled vets I talked to (pre graphs) noted they didn't remember home prices falling in the early 80s since I had no memory of the period and the rising rates = falling prices thesis intuitively made sense. Either way, I am much more interested in accuracy as misinformation on housing has caused real pain to my family, and I wanted to feel very comfortable about the whole interest rate vs. price issue before I would weigh in on the topic. In real life, I like to fuck around as much as the next guy, but its only on this topic where I become the pedantic dickhead I am here.

  • On Sat, 13 Jun 2015, 11:37am PDT in 10 Year Yield Having A 2nd Taper Moment, CDon said:

    Call it Crazy says

    The issue I have with that data is that he uses "inflation adjusted" data for his graphs.

    No he doesn't. The red line is inflation adjusted, but the blue line is nominal. This is what is shown in the 60 year chart too.
    Call it Crazy says

    I think the last 25 years is a large enough time frame to get a trend.

    The last 25 years gives you a picture that blows up in your face if you look at the last 60. Also, the last 25 years does not have a single incidence of a sustained increase of interest rates. Thus why would you use it to come up with a thesis of what happens with a sustained increase of interest rates (rising rates = falling prices), when the only (albeit older) data shows the exact opposite of the rising rates = falling prices concept?

    Call it Crazy says

    Plus, a big dynamic changed in the 80's with dual income households becoming more popular (which I believe added to the faster rise in prices from the late 80's along with dropping rates). Back in the 60's and 70's the majority were single income households (which is why prices grew slowly with rising rates).

    Noted. And since this period coincided with very high inflation, its pretty astounding that nominal home prices rose so little. Yet as we know (but don't like to admit) is that rising nominal incomes is a lagging, yet necessary component of inflation (this also shows up in those charts BTW). Thus, the 1980 waiter who passed when the house cost 75K found the house "cheaper" in 1982 when it cost 3% more, and his (or his and her) income rose 8% (or whatever). Granted, he was still getting slaughtered at the grocery store where things were rising more than the 8% income rise, but again, that's what the data shows us.

    Call it Crazy says

    If the last 25 years can't give you a good indication of the CURRENT housing market, then you're grasping for straws...

    The last 25 years gives us a very good indication of what happens in a falling rate environment, but tells us nothing whatsoever happens in a sustained rising rate environment because it has not existed in the last 25 years. Thus, what people on Patnet have consistently done for the last decade is to automatically assume the reverse (i.e. if falling rates = rising prices, then rising rates MUST = falling prices). This argument has intuitive appeal as people DO shop for payment as you said. Still, the data (yes old but the only data on point) tells us the rising rates = falling prices does not happen. Instead, the payment shoppers get sidelined until such time as their nominal incomes rise (hopefully faster than the rise of prices) that they can afford it. This is the only thing that I see that can reconcile the entire 60 year data set.

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