patrick.net

“Keep dreaming. Nominal house prices rose during the high inflation of the late 70s/early 80s.”

Has nothing to do with dreams. Prices are already waaaaay to high and we have historic low sales and historic low ownership rates. More expensive mortgages will just end the housing bubble. Not sure why you compare that to the 70’s.
In the 70’s house prices were dirt cheap. House prices were never pushed that high due to artificially low interest rates in the worlds history. The next crash will be epic!

Heraclitusstudent says

Up to 1997 real home prices were relatively stable. Then madness began

It's true that what happened pre-1997 makes more sense in terms of real prices.
OTOH, this proves the anon comment correct. Home prices went up with in the 70s along with inflation. Real prices stayed relatively level (within 10%), but between 1973 and 1980, inflation was about 9% on average. That means that prices of everything including houses nearly doubled in that 7 year span. So, expecting 9% inflation and high interest rates to result in flat or decreasing nominal house prices is not what happened historically. There are also plenty of logical reasons that this doesn't happen. If anyone is waiting to buy a house, they have to hope for deflation and depression. 2008 was great for those people if they acted in 2009-2011. On the flip side of that bet sits anyone who leveraged up and has a lot of debt. They hope for inflation, and 2008-2009 killed those people unless they walked. Trump and Kushner are leveraged up and hope for inflation. That is an obvious fact, and anyone who thinks/thought that Trump would not steer us toward inflation is an idiot. He loves debt, and he tells everybody about it.

anon_d8885 says

Prices are already waaaaay to high and we have historic low sales and historic low ownership rates.

Low ownership rates is actually a bullish signal for housing.

anon_d8885 says

More expensive mortgages will just end the housing bubble. Not sure why you compare that to the 70’s.

Obviously because we had extremely high interest rates

anon_8f378 says

TwoScoopsPlissken says

The higher the interest rate, which should be tracking inflation, the cheaper the home price.

Except that's not really true. If you look at historical data there is actually a slightly positive correlation between home prices and inflation. Meaning prices rise with higher inflation and fall with low inflation.

Which makes sense. Prices are much more strongly tied to income than to interest rates.

Correct. If anyone has any questions, ask yourselves why didn't prices tank in seattle 1975-1980 when inflation was rocketing up?

Inflation & wages go hand in hand.
If not it's not MAGA.
......
Only psychics take on debt,because they know they can always repay it in the future.
Their motto:"What could go wrong?"

~$1,500,000,000,000 in circulation.
Household debt ! $13,000,000,000,000
Damn math!

Here's what I always feared the most with Trump (second most including nuclear war):

He succeeds in causing an ugly form of inflation. One where incomes don't nearly keep up. Sure, if you own your home you have somewhat of a hedge, but this will be terrible for the country. It's not that Trump intentionally causes this ugly type of inflation, it's just that if we have inflation now, it's bound to be ugly, due to the amount of debt out there, and the trend we've already sen of real interest rates (interest rates minus inflation being close tozer to negative.

What people don't get is that there must be a price for using inflation to pay your debts.

LEt's say a couple years from now we have 10% inflation with 7% long term debt available to those with capital and good credit. . This will be an incredible boon to those with a lot of capital (the owners!) . They can buy everything up with low risk. If inflation ends they refinance, if it continues or goes up they win win win.

The public is so gullible.

anon_cf3e5,
HEYYOU didn't log in.....again.

anon_b62db says

, it's just that if we have inflation now, it's bound to be ugly, due to the amount of debt out there,

Uh, inflation is the best killer of debt.

Low inflation or worse, deflation, is the best incubator of debt

anon_b62db says

LEt's say a couple years from now we have 10% inflation with 7% long term debt available to those with capital and good credit. . This will be an incredible boon to those with a lot of capital (the owners!) . They can buy everything up with low risk. If inflation ends they refinance, if it continues or goes up they win win win.

Why would lenders take a 3% loss?

anon_24e57 says

Correct. If anyone has any questions, ask yourselves why didn't prices tank in seattle 1975-1980 when inflation was rocketing up?

It sure looks like your chart is evidence for me, not for you... the big upswing in home costs happens in the Neoliberal Era,when rates began to drop below 8%.

The most dramatic rise in home prices is exactly when the Fed cut rates way back in the 2000s.

There's a modest increase in the late 70s-80s but that's driven by Boomfuck demographics when every last boomer is firmly in early adulthood, ready to form housholds. And that Seattle was experiencing the first Tech Driven Boom in the late 70s.

Homebuyers buy the total monthly payment, not the total home price.

A $250k house is:

~$1250/month at 4.5% 30-year fixed
~$1950/month at 8.5% 30 year fixed.

That $700/month is a big difference. It means far fewer people would qualify, putting downward price pressure or at least restraining price increases.

Many households make $45k. Much fewer make $72k

Tenpoundbass says

This is why we had cheap food during Reagan years. Businesses could write off their losses through inflation. They wholesale blitz of old stock and clear the way for this years production.

I know a ton of Boomers who did well in the liquidation business in the 80s.

TwoScoopsPlissken says

It sure looks like your chart is evidence for me, not for you... the big upswing in home costs happens in the Neoliberal Era,when rates began to drop below 8%.

OK, please point out when house prices dropped during high interest rate times. That was your thesis.

TwoScoopsPlissken says

A $250k house is:

~$1250/month at 4.5% 30-year fixed
~$1950/month at 8.5% 30 year fixed.

That $700/month is a big difference. It means far fewer people would qualify, putting downward price pressure or at least restraining price increases.

Many households make $45k. Much fewer make $72k

Except you're only looking at half the equation. Under which scenario does the household income go up more?

anon_8f378 says

OK, please point out when house prices dropped during high interest rate times. That was your thesis.

My thesis was that inflation helps debtors pay off their homes, since the mortgage is typically fixed but the incomes rise, even if the household on gets COLA and no additional income from promotions or raises.

The idea that high rates kept home prices in check is borne out by the fact that home prices rose very modestly, even in one tiny segment of the national market experiencing a tech boom, during massive home-formation demographic pressure from the largest generation in history all being at prime home-formation age in those years. Boomers were either buying their first homes or trading up to a larger place with an expanding family.

Contrast with the fact that during the late 90s - late 2000s period, the smallest generation in recent history, Gen X, was in peak household formation years, while the bulk of millenials were too young. Yet low inflation/low rates and weak demand resulted in a massive increase in home prices regardless even with that low demographic demand

The real surprise was how modestly home prices rose around 1980 relative to the inflation rate.

So yes, I think your chart actually makes my case.

The period around 1980 had the 3rd highest period for inflation increases in the past century.

The period between 1990-2010 was marked by low inflation.

Which one exhibited the most dramatic housing cost explosion in the absence of a prime household forming generation?

The late 90s to late 2000s, during the smallest cohort of new household formers entering the market.

anon_8f378 says

OK, please point out when house prices dropped during high interest rate times. That was your thesis.

I remember in 92 I had an older girl friend her best friend lived in Coral Springs. She paid a whopping $!20K for her house in 85 but could only sell it for $98K in 92 because interest rates were like 10%

Had she held on it, for another 12 years She could have gotten $700K for the main house, plus her double lot she could have built another $700K house.

Here's a chart with National Canadian Home Prices vs. Rates.

US National Inflation vs. Home Prices (FORBES)

Home prices will not go down with big inflation and interest rates. Reasons:
1. Homeowner with locked in 3 to 4% rate will just keep the house and live in it or rent it out. It would be stupid for them to sell in a high interest rate environment.
2. As long as wages are increasing, buyers will be looking at higher payments. But if inflation is high and their pay is increasing, they will have an incentive to pay a wopping mortgage at first, because they can lock that in, and they will believe that it will get easier with time. Mortgage standards will relax, because inflation will help people pay off their mortgages. The flip side of this is when inflation is pretty low, there isn't any huge penalty for renting over long time periods.

Plots of inflation versus home prices should be redone as inflation versus home price appreciation. Any plot of something that increases exponentially (prices of goods, home prices, stock prices) will look like it has exploded recently when plotted on a linear scale. It is more informative to see how appreciation looked in the 70s versus in recent times.

Holding onto assets during a period of high inflation is how the boomer generation produced a bunch of property barons. Those economic conditions haven’t repeated yet. Wages grew tremendously and drove inflation. However America was more unionized then with less wage pressure from overseas production and workers, so wages could rise in lockstep with inflation, which drove wages higher in a cycle. Only ridiculous interest rates eventually halted it, but by then the wealthy were cash poor and the middle class were quite well off! It led to boom times for a couple decades.

I think we could use another 25-30 year cycle like that.

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

TwoScoopsPlissken says

anon_24e57 says

Correct. If anyone has any questions, ask yourselves why didn't prices tank in seattle 1975-1980 when inflation was rocketing up?

It sure looks like your chart is evidence for me, not for you... the big upswing in home costs happens in the Neoliberal Era,when rates began to drop below 8%.

The most dramatic rise in home prices is exactly when the Fed cut rates way back in the 2000s.

There's a modest increase in the late 70s-80s but that's driven by Boomfuck demographics when every last boomer is firmly in early adulthood, ready to form housholds. And that Seattle was experiencing the first Tech Driven Boom in the late 70s.

Homebuyers buy the total monthly payment, not the total home price.

Correct me if I am wrong, but you seem to believe that a rise in rates will cause a FALL in nominal dollars. My chart shows that does not happen - nominal dollars did not fall at all. And yes, while this is just seattle, nominal prices nationwide did the same thing (slight nominal rise).

You can cite the rationale for why it happened in the late 70s & 80s but the point is, if you believe that a rise in rates will cause a fall in nominal dollars, not only is there NO evidence to support your assertion, but the only evidence out there shows that the prices will very slowly rise.

TwoScoopsPlissken says

Here's a chart with National Canadian Home Prices vs. Rates.

Yep, but to make an effective argument you need to show that prices fall during a period of high rates. That's what you've yet to show.

Tenpoundbass says

I remember in 92 I had an older girl friend her best friend lived in Coral Springs. She paid a whopping $!20K for her house in 85 but could only sell it for $98K in 92 because interest rates were like 10%

That's funny because interest rates had gone down for the entire time period. Lower rates made her house worth less.

TwoScoopsPlissken says

That isn't a prices vs. inflation chart at all.

And don't use inflation adjusted prices.

TwoScoopsPlissken says

My thesis was that inflation helps debtors pay off their homes, since the mortgage is typically fixed but the incomes rise, even if the household on gets COLA and no additional income from promotions or raises.

Um, here's what you said:

TwoScoopsPlissken says

The higher the interest rate, which should be tracking inflation, the cheaper the home price. Then refi during a dip in rates/inflation.

That's the statement that I pointed out has historically been incorrect. It was a very popular thesis on here in the past that people just needed to wait until rates rise and then house prices will fall and it's just not true.

TwoScoopsPlissken says

Your OWN CHART disproves the idea that low interest rates and low inflation keeps homes affordable because the greatest increase in prices in decades happened under that exact scenario.

That's not my idea at all. My idea, as I wrote in several previous posts, is that interest rates are a 2nd or 3rd order effect. Incomes drive home prices.

TwoScoopsPlissken says

The idea that high rates kept home prices in check is borne out by the fact that home prices rose very modestly, even in one tiny segment of the national market experiencing a tech boom, during massive home-formation demographic pressure from the largest generation in history all being at prime home-formation age in those years.

They didn't keep prices in check. Prices actually rose extremely fast in the 70s compared to the previous 3 decades.

However you estimate it, home prices are not just linked to interest rates.
There has been a systematic under building as the population grew by tens of millions.
The problem is not just assets inflation: housing is now a luxury item. As in scarce. In CA, a large fraction of the population is now free to go homeless, or surf couches, or live at 4 in their friends garage. Only the wealthiest bid up on housing, and the price reflect that.

Can inflation just start popping up in an environment that has been deflationary?
No, because raising rates would cause a host of problems and immediately plunge back the system into deflation. It has to be done slowly, eroding debts, in a growing economy. Most likely it takes 10 years to switch to a 70s style inflationary/stagflationary environment.
Even that is probably not what would happen, because today’s fed would not act like the 70s. They would rather strangle the economy, than let inflation run.

Heraclitusstudent says

Even that is probably not what would happen, because today’s fed would not act like the 70s. They would rather strangle the economy, than let inflation run

Agreed. We need to adjust our target inflation rate to 5%. Enough with the 2-3% target nonsense.

anon_8f378 says

TwoScoopsPlissken says

The higher the interest rate, which should be tracking inflation, the cheaper the home price. Then refi during a dip in rates/inflation.

That's the statement that I pointed out has historically been incorrect.

Link?

I'll be waiting a long time for it, though.

anon_8f378 says

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

Link???

Ha Ha, I know that won't happen.

anon_8f378 says

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

Haha, I'm using YOUR OWN chart, and then Canadian and USA Charts. I'm literally doing the opposite of cherry picking data, since I used two nation charts and you cherry picked Western Washington.

I admit I exaggerated when I stated that high rates would substantially reduce home prices - but it may have a short term effect as anecdotes on this thread have illustrated- but low interest, low inflation era has clearly shown the most explosive home price growth in the past 50 years, far outstripping the high interest, high inflation era around 1980.

As your own chart shows, high inflation, high interest rate eras exhibit weaker price increases (again, combined with massive demographic demand) than low inflation, low interest rate eras.

Heraclitusstudent says

However you estimate it, home prices are not just linked to interest rates.

This is also correct. There's also the impact of the lack of affordable housing programs (inc. breaks for developers) as well as (dunnn dunnn dunnn) rent control.

A one-two punch of rent control and tax breaks for affordable housing would TKO the Landlords, who must be God Damned in order to God Bless America.

TwoScoopsPlissken says

anon_8f378 says

Also, Anon, get a username or go to my ignore list, please. I'm reasonably sure you were a poster that had a name at one point.

TwoScoopsPlissken says

There's also the impact of the lack of affordable housing programs (inc. breaks for developers) as well as (dunnn dunnn dunnn) rent control.

A one-two punch of rent control and tax breaks for affordable housing would TKO the Landlords, who must be God Damned in order to God Bless America.

Rent control is a bad idea. Just incentivize building. You really don't even need to worry about affordable housing--more supply will take of that naturally.

Higher interest rates=RE crash = fantastic !

TwoScoopsPlissken says

aha, I'm using YOUR OWN chart, and then Canadian and USA Charts. I'm literally doing the opposite of cherry picking data, since I used two nation charts and you cherry picked Western Washington.

No, you're cherry picking time periods. It doesn't matter who posted the charts--what matters is you are picking selected time periods that fit your narrative and ignoring those that do not. That's pretty much the definition of cherry picking.


TwoScoopsPlissken says

As your own chart shows, high inflation, high interest rate eras exhibit weaker price increases (again, combined with massive demographic demand) than low inflation, low interest rate eras

Nope--the chart doesn't show that at all. The 70s rise is substantially greater than any rise over the previous 3 decades.

The 50s and 60s were another low interest rate period--why didn't we see substantial gains over that time frame?

TwoScoopsPlissken says

Also, Anon, get a username or go to my ignore list, please. I'm reasonably sure you were a poster that had a name at one point.

Do what you need to do McGee. Not sure why an anonymous name that starts with anon is any different than an anonymous name that starts with Two, but whatever floats your boat.

Weimar republic, 1990's russia and venezuela today show that inflation results in hopelessness and despair. There are other issues at play besides paying off debts in devalued dollars...everyone wants something for nothing.

anon_313db says

Weimar republic, 1990's russia and venezuela today show that inflation results in hopelessness and despair. There are other issues at play besides paying off debts in devalued dollars...everyone wants something for nothing.

No, they show that runaway inflation is bad. Moderate inflation is good.