Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.
So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…
Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.
I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.
It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.
Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.
There are some scary numbers to consider looking at the 10 year treasury.
April 1 1980 – 10.09 %
July 1 1981 – 15.84%
October 1 1976 – 6.81%
July 1 1981 – 15.84%
To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.
Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.
So yikes is all I can think of. The 64k question is when will this all start.
