What Will Higher Interest Rates Mean For The Bubble?
Some readers want to know what you think about interest rates. “I think a good topic would be on intrest rates. Long term rates are finally starting to rise. Many are proably going to blame this for the RE slow down. Predictions of where long term rates are headed (including time frame). Fed predictions and short term rates would also be intresting to go over.”
“And to tie it all together, the yield curve and if it will stay inverted, correct it self, or stay the same.”
Another said, “I agree about interest rates. How do the ARMs and 30-year rates affect the percentage of price that homes need to drop now, to make them as affordable as last year at this time, for example. I think late last summer the ARM speculators were priced out, and this year the long-term folks who want to simply buy a primary residence are going to find it much more expensive. Not to mention the ARM folks who were told they could ‘just refi.’ Argh.”
From a new reader, “The big unknown, that gets very little play, is how what happens in the international capital markets will affect interest rates in the U.S. The efforts of other nations to move away from trading in dollars could have incredible ramifications for interest rates in the U.S. And we all know what increases in interest rates will mean for a housing market that is already tipping.”
From a veteran of this blog. “The 10 year bond, now at 4.77, where does everyone think it’s going (how high).”
From the Wall Street Journal. “As interest rates rise and the housing market cools, there are hints that Americans are weaning themselves off the home-equity credit lines. The growth in home-equity credit lines has screeched to a halt. Many of the credit lines are tied to the prime interest rate, which has climbed to 7.5% from 4% three years ago.”
“(Mortgage broker) Steve Habetz says his firm has seen its volume of home-equity lines cut in half since 2004 as a result of higher rates. ‘When rates are dropping, I say ‘Honey, great news, we’re going to refinance our house and you’re going to get that new kitchen,’ Mr. Habetz said. ‘Now all of a sudden…If I refinance, it’s more expensive and I’m increasing my whole payment.’”
“Some homeowners still find the ease of home-equity lines irresistible, though. Neil Garfinkel, a real-estate attorney in New York, recently took out a home-equity line of credit which offers no-fee deals and other perks to entice consumers. ‘I’m bucking the trend,’ he said. ‘I do not recommend people go out and do that…But I can’t lie to you and tell you I didn’t just go out and do it.’”
“Other consumers are finding alternative ways to finance spending. Ed Crowell, a lobbyist for the trucking industry in Georgia, and his wife took out a $100,000 home-equity line when they purchased a $300,000 house in suburban Atlanta in 1999, and tapped it to buy a car in 2001. Now, they’re about to close on a weekend home in Pine Mountain, Ga.”
“But this time, Mr. Crowell says, they will decline the bank’s offer to set up a home-equity line. Rates have made them too expensive. ‘The bank will offer it again, but we won’t take it,’ he said. Instead, Mr. Crowell says, he and his wife will take advantage of no-interest financing at the local Rooms to Go store to furnish the new house with furniture.”
The monetary system is screaming “stop spending” and these idiots plug their ears and do it anyways. The new middleclass whitetrash catch phrase ought to be “howmuchamonth?”
Absolutely. It’s like sitting in the goddamn car dealer’s office - “You can drive this baby for $249/month.” All I wanted to know (and what everyone SHOULD want to know) was the total cost of the loan over the five years. If people would just figure out for themselves that the interest payments alone will likely add up to more than the amount initially borrowed when spread over 30 years…
Sell the payment, NOT the price.
Oldest trick in the car dealers book.
In my experience people will tap their equity until it’s exausted, regardless of where the rates are at.
Do you see that alot in the Reno area?
Amen, brother. If small-brained nimrods would read the fine print on their “no interest financing” agreements, it might give them pause. If they’re late on a payment, or miss one, this “no interest” rate so kindly offered by his ever-accomodating salesman will likely get jacked up to nosebleed levels, retroactive to the date of purchase. Of course, Mr. Bumpkiss will then wail that he was “deceived.” Tell me again why we let people like this vote and breed….
Wowww. Mr & Mrs Crowell are rich! But incredibly stupid, scratch that….extermely over leveraged. Can’t help to wonder what is thier source of cashflow? other than Borrowing?
“Mr. Crowell says, he and his wife will take advantage of no-interest financing at the local Rooms to Go store to furnish the new house with furniture.” …. because heaven knows they couldn’t actually BUY the furniture with money that they had s-s-s-saved. Oh yes, that’s right, they even borrowed the down payment against their primary residence (right after they got that shiny new car they wanted), so, I guess their pool of savings was limited.
Honest to goodness, I don’t know how people like this sleep at night.
My wife and I have been saying this for 3 years now. But then again, we’re living in the age of the new paradigm where debt is saving, and saving is really spending. War is peace, but peace is really war.
As a buyer of one of these overpriced homes you are the one to be thanked for paying for it all. Most likely paying for it your lifetime so someone else can drive that new hummer around.
Speaking of Hummers, the world can do without those consumptive, tawdry behemoths too.
Dave Ramsey had a nice rant on his show about a month ago where he asked, “When was the last time you heard someone say, ‘I’m going to save up for X?’”
They’ll just BK and let the rest of us suckers bail them out of their mess!
We ought to reinstate debtors prisons. They could clean up the highways pave the streets ect. To keep them from running away we could chain them together and their ankles. OH - we already did that and the lefty judges said we couldn’t do that to the poor white trash and n—–s. How about we send them to the sheriff in Maricopa county AZ. Don’t all clap and thank me at once.
It doesn’t seem like ANYONE has been able to forecast long-term rates. But I do believe folks have been lulled into complacency. A drop in demand for our bonds could happen very quickly, with a resultant rise in long-term rates. The conundrum is dead.
So far, Ben Bernanke seems to be doing a good job of creating the perception that the conundrum is dying a slow natural death, thereby taking the heat off the Fed for its role as executioner…
“He who has never noticed the hand that — kills tenderly — is a poor observer of life.”
Friederich Nietzsche
I would like to suggest the following:
As the Bank of Japan and the Euro Central Bank begin to tighten, US debt begins to look inherently less attractive because we are running at higher rate of inflation, making our dollar’s real return lower. We must, therefore, continue to raise rates as well to maintain the spreads between our debt yields and theirs to make our debt marketable. Failure to do so will drastically weaken the dollar and our ability to sell our debt.
inflation - as defined by increase of the money supply - is slightly higher in Europe (about 8%) as compared to the US.
Don’t know about Japan but there M3 growth is probably even higher than in Europe.
Inflation as defined by the CPI is slightly lower in Europe compared to the US, but there is so much manipulation going on in this statistic that it is of very little value.
I think that the tightening of lending requirements will have a larger effect on the market than rates. If the lender decides to require a down payment, tax returns, income (imagine that!), reserves, etc etc- many borrowers will be shut out regardless of rates.
Agreed that it will be a large factor. I wouldn’t presume to know which of the many pressures will ultimately be “most” influential, but it’s fun to keep track of them all!
I think that would stop the price increases (no new buyers), and would exert a downward preassure on prices as investors/flippers are forced to sell, but the big time happens when rates rise and force homes from the holders of exotic loans and ARMs.
yes, I fully agree. Long term rates have changed very little over the last year, so only the real speculators see a difference. And even them, long term rates say nothing in isolation, it is REAL rates (corrected for inflation) that count.
P.S.: I would like to add that in some countries (e.g. in New Zealand) a housing boom developed despite relatively high and stable interest rates. Interest rates are NOT a major factor, they are just a small part of the equation.
Higher interest rates mean the bubble will pop rather than the air gradually leaking out of the balloon. What more is there to say? No buyers, no more frenetic price increases, no more bubble…
One might make the argument that, for a housing-bubble of this magnitude to occur, there had to be ‘perfect storm’ conditions. Among other factors, low interest rates, favorable new tax provisions, lots of liquidity in the banking system, lax lending requirements, flexible appraisals, and frantic buyers (lots of them). Since the rise in housing prices in the bubble markets has gone up sharply like a delta function, there is no reason to suppose that when one (or more) of these props gets knocked out, it will return steeply to the median.
There has been some hope held out by those in the real estate trade that prices will be more ’sticky’ on the downside. I wonder if this is so. Given the vast leveraging that has been gone on with exotic loan instruments, perhaps we’ll see the sharp downturns that mimic the 2000 losses in the NASDAQ.
Yesterday all my humble opinions were doom and gloom for the housing market based on the fact that excess inventory usually equals price correction . Today after a terrible night’s sleep I’m changing my opinion . I don’t know what’s going to happen . Maybe the sellers will just take their houses off the market ,(supply),until the buyers ,(demand ), come out again . Sellers have the option of selling or not selling . This market has been crazy for a long time so maybe it will correct slowly and lenders will be more decerning about loan packages , and maybe the flippers will move into their flips and stay there for 15 years until the market picks up…and maybe…and maybe .
“Sellers have the option of selling or not selling.”
Not all of them. The ones that have to sell will need to price competitively — to “screw up the comps” as it were.
But what % of the market are those kind of sellers
A very high percentage of those who will sell into the coming downturn in prices. It does not matter what percent of those who have their homes on the market at any given time happen to be of this type, as only the comps matter for the future direction of prices…
An overwhelming majority of those living in the bubble areas cannot afford the homes they’re living in and are banking on appreciation to save their butts. That’s why even a flat market will cause major problems for many home owners and lead to a downturn. It could possiblt be different if people could afford to wait it out, but unfortunatly, this is not the case. It ends badly, I’m afraid.
“…and maybe the flippers will move into their flips…”
Aren’t most of the flippers already living in a HOUSE (damn near all, I suspect)?
just an example what can happen: in the Netherlands you can purchase a new home and take your time to sell the old one, because some of the banks will provide a loan for the second home at 1% per year or even cheaper.
As a result, the ridiculous asking prices (in my area 10-15x local income) remain, inventory keeps rising and the inevitable is delayed for at least two years (which is the usual time after which the second mortgage is reset).
And the banks, well … they have had two years now to come up with new clever tricks to keep the bubble growing. I have no doubt there are new and even more favourable laws and incentives for homeowners on the horizon. Or maybe they just know that long term rates in the EU will drop to zero real soon.
“… because some of the banks will provide a loan for the second home at 1% per year or even cheaper.” I appreciate the insights you offer us from the Netherlands, but many of your examples seem rather irrelevent over here. For instance, where can you get a 1% loan? (I might go for it if you can tell me!)
the relevance is that banks can come up with lots of new tricks to get the bubble going.
And as long as money is free somewhere, I think some people (or hedgefunds, pension funds etc.) will use it.
Hey, I’m, interested in what nhz posts, even from just an educational standpoint. Keep it up, nhz!
So how long can these flippers sustain 4-figure negative monthly cash flow? And how do they live in 4 houses at a time?
And to add to the valid comments, the big builders like Centex are building like never before. They can’t and won’t stop building, and they are very motivated to sell.
I did read on this blog not too long ago that as least some of the (smaller?) builders have cut back production half a year ago already.
One further point; some realtors are using the rising rate fear to spur sales (”Buy now or be priced out forever by higher interest rates”). The economic impact of higher interest rates is to increase the financing cost of buying a home, driving a wedge between what buyers are willing to pay and what sellers are willing to accept similar to the effect of a tax increase. When there are many homes on the market and few buyers, demand becomes much more elastic than when inventories were lean — if one seller tries to raise his price, there is another one with an identical house who will sell for cheaper. Conversely, supply is now much more inelastic — only sellers who really need to sell will do so as the market weakens. Consequently, sellers who need to sell will disproportionately bear the brunt of the higher interest rates on the price for which they will be able to sell
Yup, these investors, I mean speculators, OK just call em gamblers, will take their pre-con flippers off the market and pay the carring charges (HOA, Mello Roos, Taxes, Insurance, Prinicpal and Interest, perhaps PMI) for 6 or 12 months. Yup, that’ll show those reluctant buyers who’s boss!
Increase in interest rates will push more first time buyers out of the market and here again the demand for housing goes down while the supply goes up .
You are right, especially in light of the growing awareness of how relatively cheap it is to rent these days!
Some truth over at Realtytimes.com (finally):
__________________________________
The housing market in the Sacramento Region has cooled off considerably! …There are definite signs of price erosion in the Sacramento Region, and that will affect pricing across the area, especially in the $600,000 and above market.
Jimmy Castro, RE/MAX Gold
Team Leader/ Owner JC& Associates
WTF is aTeam Leader?
Pivot man at the circle jerk. Commonly referred to as the monday morning realtors meeting.
Rising rates will weaken the house of cards, but I think that the end will really be brought about by tightened lending standards (which will be prompted by slowing/declining property values, rising foreclosures, and — eventually — increased government regulation of home lending). It isn’t record-low interest rates that have enabled Joe Sixpack to buy a $500K home on a $75K income, and enabled newbee investors to borrow millions to speculate on real estate — it’s that banks have been dropping money from helicopters to anyone who holds their hands in the air. Two years from now, stated income, I/O, neg-am, and 100% LTV loans will be almost impossible to get for all but the most qualified borrowers. Teaser-rate loans and other dangerous gimmicks will be outlawed by Congress in a spasm of long overdue barn-door-locking, just as they did after Enron/Worldcom/et. al.
let’s hope then that this applies outside the US as well, because otherwise all US homes will simply be purchased by the EU buyers who still have almost unlimited access to easy money (and maybe even the Japanese could start buying again - it’s long ago that they burned their fingers on US RE).
In Europe there is no sign at all that the free money times are over, on the contrary.
And it’s hard to see how easy money is doing European economies any good. The whole idea behind loose monetary policy is to encourage business spending (plant and equipment) as well as consumer spending on domestic goods. If all that money just flies out the door and lands in US real estate and treasuries, it’s hard to see how that’s doing anything productive for European economies.
I agree, it is totally unproductive, just like it is unproductive now to have all that money ending up in european real estate. The situation in EU is much the same as in the US: companies are sitting on mountains of cash, many have record profits but they are not investing and they are not creating new jobs.
And although homeprices are still rising here (as in the last 15 years), consumer spending is down lately.
The easy money is extremely good for some people high up in the business world and politics (pay checks increase 15-30% yoy there) and for those who profit from the RE boom. It is very bad for the economy and most normal citizens.
>And it’s hard to see how easy money is doing
>European economies any good.
It doesn’t matter…the longer the easy money is available, the more the inevitable gets drawn out…
I think that is probably wishful thinking. Congress is re-elected every two years and it could be political suicide to vote to make financing unavailable to the average Joe. Creative high risk loans will possibly get easier to obtain in hopes of getting us out of this bubble mess. Home ownership is the so called American dream and politicians have been bragging about the fact that we now have the highest ownership levels in US history.
just what I’m thinking …
as mentioned some time ago, I really wonder when those Caribbean investors will magically appear to purchase all the US homes that are for sale. Maybe Ben B told them to wait until shortly before the elections?
Borrowing more to be out of debts? The bubble mess is really a debt mess. Why would any American want to work any more if he or she can keep borrowing? I save or invest most of the money I make and drive an old car that is worth around $2000, so I can use my own money when I retire. Why would I want to live so frugally when a neighbor who makes no more than I do is driving a $100,000 European car, living in a $1.5M home, and owes over $1.5M in mortgage and other debts? If it becomes apparent that the Fed will keep the ball rolling regardless how much debts the country and its citizens will accumulate 50 years down the road, I will join the club and spend all my money to live like my neighbor. Why save when the Fed is going to make the money you save worthless?
You make a good point, but I still have to disagree. I predict a public furor when the wheels come off — lawsuits, referendums, and calls for greater regulatory oversight. I really don’t think that lending standards can get any looser than they already are. Eventually, lenders and MBS investors will get burned badly by defaults and they’ll either go out of business (as thousands of S&Ls did in the 80s) or tighten up considerably. Remember that it was ever-appreciating collateral that caused banks to get so relaxed about lending. Once that collateral starts declining in value, you’ll see a lot less “stated income” loans and similar nonsense.
Higher interest rates will slow the building of new homes as profit margins shrink, but the availability of mortgages is still the key issue. In the automotive world, people will sign any contract regardless of the sales price or interest rate; all they care about is the monthly payment. It’s all about the “bag of tricks” that the RE Agent / Mortgage Broker / Title Co. have at their disposal to get the passionate buyer to the closing table. For these hustlers the Negative Option ARM ranks up there with the invention of the wheel.
In regards to the 10 year bond I think this past week was a watershed moment when the Bank of Japan this week announced the gradual end of its quantitative easing policy. We are now facing a situation where Europe, the U.S. and Japan are all tightening at the same time. This hasn’t happened since the early 1980’s. This will have a huge impact on the carry trade. For the past five years Japan has had 0% interest rates which allowed investors to borrow from Japan and then invest in such things as U.S. Treasuries, Motrtgage backed securities and so forth. Now that this particular carry trade is being dismantled, it will in turn create volatility in the bond markets. It is my opinion that there was an inverted yield curve because foreign investment in U.S. Treasuries, particularly the 10 yr note, artificially kept the yields low even as the Fed has been tightening short term rates. With the structural change in the carry trade, US Treasuries are no longer as appealing. I don’t think China and Japan will dump all their US bonds due to their economies being so dependent on the US, but there is a risk a that big collection of smaller banks will. In my opnion this is why we saw the 10 yr jump this week. This has huge implications for housing in the US. Basically the money faucet that allowed a great deal of asset specualtion (2000 tech stocks, current housing bubble) has been turned off. Bubbles always seem to bust when there is some sort of trigger, this scenario most likely is that trigger. Expect to see continued sell off of US Treasuries, higher yields, higher mortgage rates, seriously decreased housing demand, rising inventories, falling prices. The Fed will not be able to cut interest rates to stop the fall in order to preserve the U.S. dollar. By the time the economic down turn will arrive and Global banks loosen monetary policy housing will be nothing but smoldering cinders.
Many good points mentioned. I just want to add that China never said it would dump dollars - of course that would kill the value of its holdings. It has stated twice in the past month and a half or so, however, that it will be reducing the rate at which it has been buying US securities (and dollars). China need not dump dollars to affect interest rates here - they only need to reduce demand. IMO.
You’re right on spot about the Fed being impotent to stop raising rates. But I heard an interesting interview about if the Fed cutting rates could save the housing market if it began to implode. The opinion was that once the “panic hype’ set in, lower rates would initially be futile to stop it.
It will then capture all the remaining fools who have been hybernating for over 6 months and are unware of the current market condition.
Once house/condo values begin to drop, I’d think that lenders will have zero incentive to subsidize mortgages in the initial years. Who in their right mind would lend anything at zero down in a market of declining prices? Without the base of those buyers, what would be the impetus for a recversal to rising prices? So even if interest rates fall, toxic products probably will all but disappear, to the extent they actually make housing “affordable” to marginal buyers. The ARMs and HELOCs that rose by 3% to match the Fed’s increase would not, I believe, retreat 3% if the Fed dropped by that much. Those days are gone.
there is not any real tightening in Europe yet, just some empty words from the ECB. It is very clear that the EU parliament will not tolerate a significant rate increase. Mortgage rates in most EU countries are the lowest in a century or more, crazy lending and leverage is everywhere.
In the Netherlands one bank raised mortgage rates with 0.2% last week, but the previous rate was the lowest in 400 years …
nhz,
This is from Reuters;
“Adding to interest-rate worries in the United States, the European Central Bank raised a key rate last week by a quarter-percentage point to 2.5 percent to stem inflationary pressures from high energy prices and credit growth. That increase — the ECB’s second credit tightening in three months — pushed the euro zone’s key interest rate up to the highest level in nearly three years.”
This looks like real tightening to me.
not really: the first time that the ECB raised rates by 0.25%, mortgage rates and interest rates on savings accounts in the Netherlands went DOWN by nearly 0.5%.
It’s too early to say what will happen this time, but it is very clear that the official ECB rate increases do NOT translate into equivalent increases in mortgage rates.
I see your point, I think I’m looking at this from more of the global carry trade angle. Usually one of the big three, Europe, the U.S. and Japan, are loosening while the others are tightening, so whoever is loosening is where investors go to get cheap money. Right now all three are tightening. I imagine this will have an impact on European mortgages much the same way it will the U.S.
I think that more than 0.5% additional rate increase this year means the end for the ECB; I’m serious about that.
So I don’t see an end to the worldwide flood of cheap money yet. And the announcement from the BOJ seems most of all a warning that they MAY start raising rates at some time in the future, much like what the ECB is doing now.
I think longterm rates (even in the US) reflect this; despite all the ‘tough talk’, there is very little actual change.
All valid points. But I think you need to keep in mind that traders and investors don’t make their decisions based on what is happening right now but which way are things heading. Can Europe sustain its growth? who knows. But are they currently tightening? yes. Does Japan have the demographics to sustain its economy and truly end its deflation? again who knows. Did they just communicate to the world they plan to raise interest rates? yes. The point that I am making is that everything is up in the air right now. Nobody knows. This creates volatility. US Treasuries were in demand because it was anticipated that Japan would keep the money flowing. They just communicated that is over. Again can they sustain that who knows. Either way that makes US Treasuries vulnerable just based on uncertainty. Markets hate uncertainty. The worst thing that can happen to US Housing right now given the sheer degree of speculation is a volatile bond market. And that is exactly what we have now. Personally I think the bubble has already popped, this is just the nail in the coffin.
LA Renter: I agree about the uncertainty and volatility.
Now we just have to wait and see if this translates into a serious increase in interest rates and lending standards (I’m not seeing it yet, but if long term rates go over 6% maybe you are right).
One of the reasons I’m sceptical about this is that everything suggests that the EU banks see even lower interest rates on the horizon. I hope they are wrong …
good work
I’m on rydex juno
I think at 5% the 10 yr - at that point the RE market should crash hard
One comment: I think interest rates will have a HUGE effect if they really do stay 1-2% higher or more than at the peak bubble time.
Buyers buy based on “Howmuchamonth” (thus the popularity of the funky mortgages). There is NO way to improve the howmuchamonth any more, and interest rates make it worse.
But sellers look at “HowmuchIpaid”. Interest rates going up reduce the howmuchipaid price if the howmuchamonth price is just to remain the same.
Thus I believe higher interest rates will exacerbate the freeze in the market: Nobody wants to buy (as the howmuchamonth price just gets even higher), and inventory will continue to expand.
So if rates stay up, or go higher, (think about the 1-2% subsidy the PBOC is applynig to people’s home loans goes away), it will almost shut down the real estate market except for those sellers willing to drop the price and chase the market down.
True, but it’s the exotic mortgage which give buyers the real “savings.” Many option-ARMs now have an initial 1% rate. Many the hybrid ARMs (those with initial fixed, “teaser” periods) have low initial rates which are not really linked to Treasury rates.
It’s the lax lending that enables the low-income people to “qualify” for these exotic loans. As Deb pointed out, nothing will bring down prices like 20% down, low DTI ratios and verified income requirements. Rates will help, but the real problem is exotic loans to people who cannot qualify with traditional mortgages/standards. IMHO!
None of you have considered the derivatives bomb. As rates rise, the losses will concentrate and the systematic risks will be realized in collapses of banks and other financial institutions. This will change the mass psychology from spending to savings.
I doubt it. Banking collapses means that many savers will loose their money while the debtors can keep their unpaid homes (I doubt they will have to move in case the owner of the mortgage collapses)
Maybe all the disenfranchised homeowners from New Orleans can move into the foreclosed homes. I’m sure FEMA will propose something akin to this. That way, at least someone can kinda keep an eye on the place until Joe Sixpack can rebuy his old homestead with a Super Neg Amort loan. You know, the loan that pays you every month to live there.
Can anybody thing of anything that could save /divert the crash bomb your predicting in the housing market ?
The pervasive psychology of “homeownership”. That’s what got us into this mess in the first place.
Yes, if a huge meteor were to hit the planet and wipe us all from the planet like the plague. But in few hundred thousand years it would only start all over again!
“Can anybody thing of anything that could save /divert the crash bomb your predicting in the housing market ?”
I don’t believe that it can be stopped. Any time a credit bubble is created, and I would like to mention that credit bubbles are created mainly by mass psychology, and that is why they are so hard to avoid, when they are created they ALWAYS, without exception , burst and cause a recession or depression depending on how extreme the bubble was in the first place. Just because this bubble, which is really an extention of the stock market bubble, has been going on for at least 20 years does not mean that it is different from all the other bubbles. Because of the extremity of this 20 year stock and RE bubble, involving not only national but international participation, the resulting depression should be at least the equal of the 1930’s depression. But this is not as gloom and doom as it sounds. During the Great Depression people didn’t sit around moaning “we are living through the Great Depression…” They continued with life and the conditions in the USA were still better than most of the world even in regular times.
We have been foolishly spending money that we have not earned, and it has to be paid back, and an attitude of work and production and saving for the future needs to be reawakened. In the USA we are unaware of how fortunant we are. We have a stable environment where a business has a chance to make a go of it but this is not the case in many countries. We have friends who live in a muslim, former USSR country where the government is so corrupt that it has stiffled all business and the unemployment rate is 70% because for instance, if a farmer works hard to raise a crop, the government will often come in and take the whole thing, and there is nothing that the farmer can do about it.
My point here is that even in a depression this will still be a good place to live and people who fall into difficulties will have a chance to get back on their feet again and even if you have to drive a 10 year old car instead of a new shiny one, you can still be happy, and if you have to rent instead of owning a house, well, that isn’t so bad either.
there were some articles lately that point out that using the same statistics and definitions as were used in 1929 (for unemployment etc.), the Greatest Depression has already started in the US (and maybe in Europe as well).
The major difference with 1929 is that the news media are much better now at massaging the numbers and painting a rosy picture. And obviously, in the material sense most people are way better of than in 1929 - but maybe worse than in 1960.
You guys are talking ” 1929″ stuff . Can anything divert this .
Maybe we could build a huge time machine and send the entire world back to 1965.
Yes - war! It was WWII, after all, that got not only the US, but the entire first-nation world out of the Depression.
Thanks for helping to perpetuate the myth that war is a cure for economic depression. This works best if you, like the USA in WWII, manage to keep your capital stock intact while the rest of the world gets theirs bombed to oblivion.
Well, it may be true that war, in and of itself, is no “cure.” However, would you agree that the fiscal policies typically enacted during wartime are consistent with those our government usually enacts when attempting to transition from recession to recovery? That is, decreased taxes and increased borrowing and spending? If it is the case that fiscal and monetary policy actually can influence the economy as much as consumer psychology (”mood” and tendancy to spend vs. save, if you will), then wartime governmental decision-making would be a treatment - if not a cure. Of course, one need not have a war to enact such policies… so your point is well made. I’d agree that it is simply an easy excuse for those in office to attempt to stay in office - the number one goal of anyone IN office, after all.
Wow, I think you convinced me somewhere in the middle of my own typing.
War is the health of the state. The primary purpose of the state is to distract the rabble from burning down the landlords property. the best way to distract the rabble is to fan nationalism and attack the strangers.
A freer market to increase goods and services at lower prices to offset the upcoming rise in interest rates. End - or drastic reduction - of regulation and taxes in US. Ain’t gonna happen for a long time. Maybe people will wise up after the crash.
Yes. Stop with the “howmuchamonth” middleclass stupidity.
No.
Again, no.
Both real estate and the world economy in general resemble an addict at the tail end of a massive drug binge. More drugs and the patient goes comatose; no drugs and the withdrawals make a coma seem preferrable.
Think about it. The best things that can happen are that both the US government and it’s citizens suddenly became fiscally prudent. However, those actions alone would cause a severe recession world-wide.
http://www.housepricecrash.co.uk/base-rates.php
From a like-minded UK site, this page shows the schedule for Fed meetings to determine possible rate increases.
So how many people know what the “home equity” in “home equity loan” really means if they get behind in their payments. The single redeeming and leveling aspect of the credit bubble was it was unsecured and the credit card companiew assumed the risk for their own follies. Now home “owners” secured all their debt. All those same silly purchases now tied to their home. Good luck, chumps.
Excellent observation!
Told a friend about my plans to wait for at least another year before buying. He told me I should consider buying now before interest rates went up…and he said in his area prices were leveling out, not falling
as others have said, it’s all about the monthly payment. lenders are having a harder and harder time squeezing people into homes, even with creative financing. we really were scraping the bottom of the barrel last year, otherwise why would a less than 1% increase in mortgage rates really matter? first time buyers are simply priced out in bubble areas, and sales won’t happen unless the payments somehow get cheaper. Interest rates are just going higher, so the only way these sales are gonna happen is for sellers to cut prices. We won’t see loose credit again until the bubble actually pops and everyone is screaming “recession.” By then, it won’t matter anyway