patrick.net

tatupu70 says

And I'll post this again. There is a difference between causation and correlation.

Which hasn't been disagreed with. Beat some more strawmen into the ground I guess.

tatupu70 says

It matters because you and others keep saying interest rates are too low--that they "should" be much higher. I'm asking why you came to that conclusion. Presumably there is some data that led you to write that. Should they be 1% higher? 2% higher? 4% higher? Further, mortgage rates have been falling recently--how do you explain that? If they were truly "too low" because of government intervention, does that mean the FED is buying up treasuries now? Otherwise why would they be dropping? The free market wants them to go up, right?

I already told you how I came to that conclusion (trends) which you have not tried to address in any way shape or form. You just keep saying, "Oh you don't know what the rate will be? LOOOOL That is just your opinion." The best anyone anywhere could give you, even the Fed itself, is a WAG of where rates will be exactly in the future. I would point out that historically Fed Fund rates tend to be around 4-5% "normally" but have reached much much higher levels in the past when the government has had to stymie inflation (the 80's of course) which also pushed the mortgage rates up to insane levels (ie. 18% or even more). The Fed and government's actions have baked high inflation into the cake. There is no getting around this, the only question is how high the inflation levels will be and for how long, my guess is pretty damn bad since this is much much worse than the 70's. Falling rates? Already addressed too (gov. intervention). Also the "free market" comment is just precious. We don't have a free market and there probably isn't one that has existed anywhere ever.

tts says

Which hasn't been disagreed with. Beat some more strawmen into the ground I guess

I don't think you know what a strawman is. You are stating the Fed Funds rate directly determines mortgage rates. That is causation. I'm saying that outside factors affect both mortgage rates and Fed funds rate so they generally move together. That is much different than if the Fed Funds rate causes mortgage rates to change.

At least I think that's what you are saying. Please correct me if not.tts says

You just keep saying, "Oh you don't know what the rate will be? LOOOOL That is just your opinion."

See now you are getting ridiculous. I would never use 4 O's

tts says

The Fed and government's actions have baked high inflation into the cake. There is no getting around this, the only question is how high the inflation levels will be and for how long, my guess is pretty damn bad since this is much much worse than the 70's.

There are lots of people who would disagree with you. As evidenced by investors pushing bond yields down to almost record lows today. I think people are more worried about another depression then they are about inflation.

tts says

We don't have a free market and there probably isn't one that has existed anywhere ever

Now that's precious. Splitting hairs much?

tatupu70 says

That is much different than if the Fed Funds rate causes mortgage rates to change.

No, I've already quoted myself once since you forgot previously to or something:

Remember I said "heavily influenced by the prime rate" and not "looool follows it exactly day by day".

and here is the original:

Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

The other factors are relatively minor in comparison.

tatupu70 says

There are lots of people who would disagree with you. As evidenced by investors pushing bond yields down to almost record lows today. I think people are more worried about another depression then they are about inflation.

Lots of people disagreeing with me means nothing at all. People disagreed with me about housing prices too back in 05/6 and again in 2009. Also current bond rates aren't necessarily a good barometer of future bond rates. Lots of other countries have similar issues with their economies as we do but are in even worse shape so we look better in comparison but aren't necessarily seen as in good shape in the short term or long term.

tatupu70 says

Now that's precious. Splitting hairs much?

Nope. You didn't elaborate on that whole "free market" thing at all so if there was some sort of exception or gotcha you have to say (and you still haven't) it otherwise people will read it and take it litterally. Free markets don't have regulations or governments stepping in and saying short selling is OK one week and not the next, or doing QE, or buying up bad assets at 100 cents on the dollar that no one else will touch for 5-20 cents on the dollar at the most, or doing mortgage moratoriums, or letting the banks keep inventory off the books, or giving out home loans when no else will with low rates, etc.

We have never had anything at all like a free market but the last few years have been particularly subject to government intervention in almost every way shape and form. So are we to interpret your "free market" comment as hydrochloric sarcasm or what?

tts says

Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

Yes, and this is flat out wrong. As Roberto told you earlier--your statement should have been--take the 10 yr treasury rate and add the risk premium and there is your mortgage rate. Fed Funds and prime rate are short term. Mortgages are long term.

tatupu70 says

Yes, and this is flat out wrong. As Roberto told you earlier--your statement should have been--take the 10 yr treasury rate and add the risk premium and there is your mortgage rate. Fed Funds and prime rate are short term. Mortgages are long term.

Nope its dead on, go google any chart if don't like mine. The Fed Fund rate is the tide that raises all boats, the 10 yr is like the individual waves on that ocean. Its sheer pedantry to focus on those and then to ignore the Fed Fund rate.

Um....

I'm taking tts's side here.

Fed Funds rate is the rate that most banks borrow from. Granted now it is quite low if you brought things back to the late 70's early 80's it dictated what would be the lowest rate across the board. Of course a bank needs to make money so no one will pay Fed Fund rate..the open market window is open to all but I don't think any individuals actually received direct funds
http://en.wikipedia.org/wiki/Federal_funds_rate

Now if you mean banks lending to each other then that invokes Libor but that's not what is being argued.

The Fed Funds rate is what everyone watches when the Fed has a meeting. It goes up, down or stays the same. If it isn't that then it's the Beige Book.
http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
I still can't believe the rates are as low as what they are.

One might try to say that the 30 year t bill is what mortgages are based on...but the 30 year so called long bond was actually discontinued for awhile. Treasury secretary o'neil was pretty pissed off when it was leaked out accidentally. Even when the long bond was gone people still went out and got mortgages.

tts says

Nope its dead on, go google any chart if don't like mine. The Fed Fund rate is the tide that raises all boats, the 10 yr is like the individual waves on that ocean. Its sheer pedantry to focus on those and then to ignore the Fed Fund rate.

tatupu70 says

Here you go. Fed Funds rate vs. 30 yr. mortgages.

http://www.azmortgageguru.com/mortgage-rates-not-related-to-the-federal-funds-rate/

As you can see, there is no direct relationship. Generally they move together because they are affected by the same forces.

Here are a few more links for you:

http://library.hsh.com/articles/more-tools-resources-and-info/mortgage-basics/does-the-federal-funds-rate-affect-mortgage-rates

http://www.behindthemortgage.com/2008/10/fed-funds-vs-mortgage-rates.html

http://www.behindthemortgage.com/2008/03/fed-cuts-rates-will-mortgage-rates-rise-as-a-result.html

http://www.getrichslowly.org/blog/2008/01/31/are-mortgage-rates-tied-to-the-federal-funds-rate/

On that last link, the 2nd graph is most interesting. It looks like the mortgage rate affects the Fed Funds--not the opposite. Mortgage rates drop first, then the Fed drops the Fed Funds rate--implying that the market sees the slowdown before the Fed acts.

I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,

wbblair3 says

f they are, they are fools since properties rapidly degrade without constant maintenance,

you've obviously not read the news link below:

http://www.csmonitor.com/Business/Mises-Economics-Blog/2011/0729/Banks-bulldoze-houses-despite-millions-being-homeless

Banks are destroying houses instead of actually letting the market discover the price.

wbblair3 says

I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,

austrian_man says

you've obviously not read the news link below:
http://www.csmonitor.com/Business/Mises-Economics-Blog/2011/0729/Banks-bulldoze-houses-despite-millions-being-homeless
Banks are destroying houses instead of actually letting the market discover the price.

Not sure that article disputes blair's point. These are homes that pretty much won't sell for any price.

All of that only to realize Interest rates are influenced by DEMAND. NO BUYERS-NO INTEREST.

HOW can we force the banks to kick down ? WE (taxpayers) own that shadow inventory. It's MY inventory and I want it NOW !