patrick.net

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.

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?

The reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it naturally made home prices rise.

Notice, as soon as interest rates lowered to around 10%, home prices climbed faster. Proving once again, people buy "Payments", not "Houses".

TwoScoopsPlissken says

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.

Absolutely true. Anon (joey) must not remember that the majority of people who buy houses with a mortgage actually buy the PAYMENT not the house. What's the first thing a realtor asks you at the first meeting? "Let's see how much you qualify for" and then they go shopping for a house that fits that payment.

Sniper says

The reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it
naturally made home prices rise.

Correct - yet whether its females entering the workplace, improvements in productivity, or any other conceivable reason, the lagging yet FUNDAMENTALLY NECESSARY precondition of an inflation cycle is increasing wages. Remember this. No matter what inflationary cycle you happen happening in the future, there will somehow be more money available to those people to pay $27 for that loaf of bread, $84 for a pound of steak, $78,999 for a bargain basement car, and $1.2MM for a starter home in Temecula. In this case, the family who is now making 200K (double what they were before) is in wretched agony being bled dry by enormous prices for everything. Yet to escape the ass raping of 8K a month they are "Throwing away on rent" those that can will gladly sign up for the loan for the home - thereby causing the price support confounding those who believe prices must crash.

This site is full of poor Republicans who know nothing about investing.

Having $5K in the stock market doesn’t make you an expert.

anon_fad35 says

This site is full of poor Republicans who know nothing about investing.

Having $5K in the stock market doesn’t make you an expert.

Posting as anon doesn't either.

I like how people pretend that wages are going to be going up. Lol

The better question is why is Trump selling US Debt so cheap when it’s obvious that it would sell for MUCH Moar? Not very good at making deals, it seems

Sniper says

he reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it naturally made home prices rise.

Notice, as soon as interest rates lowered to around 10%, home prices climbed faster. Proving once again, people buy "Payments", not "Houses".

Not sure how a graph can be misread so much. Prices stalled because the economy was in a recession. Recession = lower wage growth.

Home prices rose on that chart from 1976 - 1980 : higher rates and rising rates. From 1989- 1991: high and stable rates. From 1995-2008: moderate and falling rates.

Prices fell from 2008-2012: Low and falling rates.

Not sure how anyone could look at these time periods and the resulting housing price changes and conclude that low interest rates are good for home prices and high rates are bad.

Sniper says

Anon (joey) must not remember that the majority of people who buy houses with a mortgage actually buy the PAYMENT not the house.

Nope---anon remembers that. Anon always remembers that during times of higher inflation, wages/salaries go up much more/faster, so the higher income can easily afford to pay a bit more interest.

Flat wages and higher interest means even less people will buy homes. RE market will collapse in an epic way!

If we have high inflation, how angry will the perma renters be?

Permarenter will mutter to himself that house payments are much higher than rent, so it's a great deal to rent. 3 years later, his rent will have gone up 30%, and his wife's friend will be talking about how her mortgage is now lower than permarenter's wife's rent, and it is fixed and getting easier every year. Permarenter's wife will be sad.

Didn't work out that way for me. My rent went up only slowly, and the stock market beat housing appreciation. Wife is happy.

Conversely, I'm sure there were a ton of divorces in the wake of the housing bubble implosion starting in 2008.

It totally depends on the numbers involved. It is wrong to say that renting or buying is always better.

TwoScoopsPlissken says

Consumer prices jump much more than forecast, sparking inflation fears
The Consumer Price Index, a key indicator of inflation trends, jumped 0.5 percent in January, well above market expectations.
Markets reacted sharply to the news, with stocks sliding and government bond yields rising.
The Fed is watching inflation closely, so the report could add fuel to interest rate hikes.
https://www.cnbc.com/2018/02/14/us-consumer-price-index-jan-2018.html

Fantastic News! The best help to debtors is some decent inflation. No more wimpy inflation to pad the wallets of the banks and lenders.

The CuntFace McRacist administration has gutted regulations aimed at keeping banks for fist fucking the nation, so it's not like consumers getting reamed by poor fiscal and monetary policy is going to harm the banks in any way. That carried interest loophole the Cunt was going to close to rein in Wall Street? What a fucking joke, like the rest of his lies.

Patrick says

Didn't work out that way for me.

Did you make this decision in a period of high inflation? That is what we are talking about after all.

It's wrong to say that renting or buying is always better.
However, generally speaking, if you buy right before a period of high inflation, you will come out ahead. That is not rocket science. As an example of things working out badly, you mentioned buying right before a period of deflation and huge recession. That is the opposite of the situation that we are discussing.

Patrick says

Didn't work out that way for me. My rent went up only slowly, and the stock market beat housing appreciation. Wife is happy.

Conversely, I'm sure there were a ton of divorces in the wake of the housing bubble implosion starting in 2008.

It totally depends on the numbers involved. It is wrong to say that renting or buying is always better.

What period did you rent through with high inflation?

anon_8f378 says

Home prices rose on that chart from 1976 - 1980 : higher rates and rising rates.

Why did prices level off from 1980 - 1986?

anon_8f378 says

From 1989- 1991: high and stable rates.

Wrong, rates took a steep dive back down from 18% to 10%, which made houses more affordable, which cause prices to start rising again. As rates dropped below 10%, prices accelerated higher.

anon_8f378 says

From 1995-2008: moderate and falling rates.

And prices shot up due to lower rates and higher dual family incomes.

anon_8f378 says

Prices fell from 2008-2012: Low and falling rates.

And you think that was from "low and falling rates"?

Really??

anon_8f378 says

Not sure how anyone could look at these time periods and the resulting housing price changes and conclude that low interest rates are good for home prices and high rates are bad.

Unfortunately, the last 20+ years proves that statement to be false.

anon_61c8a says

if you buy right before a period of high inflation, you will come out ahead

Sure, high inflation can decrease the real value of debt if your salary goes up but the debt does not.

The banks aren't stupid though. Are they really going to lend at interest rates below the rate of inflation?

If they raise their rates to compensate for inflation, that makes houses more expensive for new buyers, and the value of the equity in existing houses could well fall.

Patrick says

If they raise their rates to compensate for inflation, that makes houses more expensive for new buyers, and the value of the equity in existing houses could well fall.

It never has in the past. Not sure why it would be different this time.

What? The value of equity in US housing has most definitely fallen in the past, and dramatically so:

Sniper says

Why did prices level off from 1980 - 1986?

Because the US went into recession in 1980.

Sniper says

Wrong, rates took a steep dive back down from 18% to 10%, which made houses more affordable, which cause prices to start rising again. As rates dropped below 10%, prices accelerated higher.

Seriously why do we have to argue facts? Prices started rising quickly in 1989 after 2 years of steady to slightly rising rates.

Sniper says

And prices shot up due to lower rates and higher dual family incomes.

According to you. But you have a very weak case.

Sniper says

And you think that was from "low and falling rates"?

How many times do I have to say the same thing. I believe interest rates are a 2nd or 3rd order effect which have very little effect on housing prices. The fact that housing prices have risen during high interest rates and fallen during low interest rates show pretty conclusively that I am correct.

Sniper says

Unfortunately, the last 20+ years proves that statement to be false.

Nope--like I told another poster, cherry picking a short time proves nothing.

anon_8f378 says

Patrick says

If they raise their rates to compensate for inflation, that makes houses more expensive for new buyers, and the value of the equity in existing houses could well fall.

It never has in the past. Not sure why it would be different this time.

Patrick is half right. Banks did compensate making houses more expensive for new buyers. However thanks to sticky prices housing equity did not fall. Instead the volume of transactions slowed to a trickle and the only houses that cleared the market we're the ones sold to Byers willing to pay those sticky prices.

We saw on the same phenomenon 2012 or so. Negative equity was so high that everyone here just assumed that prices would collapse and a Second wave of sellers would get desperate and Sell. That did not happen and I was desperate and sellers were Starburn enough to hold on as the volume of transactions is slowly clearing the market.

Sorry that should be "sellers desperate" and "sellers were stubborn". Damn talk to text!

If you register on the site, then you can edit your comments.

ThreeBays says

House buyers are usually using 5:1 leverage so their appreciation could be much larger compared to unleveraged stock ownership. Of course, the same can apply in reverse - hence people being under water in 2018, and with sad wives.

Yup, the 5 to 1 leverage is a huge difference maker vs investing in stocks 1:1 and renting - this difference is astounding given a typical human lifetime and productive years.

Speaking of sad wives, I think divorces are much more likely if stock investing tanks especially if a house could have been purchased as an alternative choice. With house, there's something concrete, with stocks, you are a virtual shareholder!

Patrick says

What? The value of equity in US housing has most definitely fallen in the past, and dramatically so:

Sorry, must not have been clear. You stated that high interest rates may cause prices to tumble. That's what I was saying hasn't happened in the past.

Of course prices have fallen in the past--typically during recessions, when incomes fall.

This graph shows the much stronger correlation between income growth and housing prices: