Additionally, I happen to believe that rates are more likely to go up than down, but that’s secondary to my main disagreement.
After clarifying that I don’t think the rent/rate or “payment ratio” model is either perfect or instant, I think it really is where we disagree.
I again think it sets the trendline along which other factors push prices up or down. You can even see it in your article where valuations, despite the worst recession in 70 years, stayed above 77-78 and 84-89.
If you want to make the case for sub-1% long term rates, go for it. But to say that there’s “NO reason” long term rates will stay above 1%, when inflation is significantly above that number… come on.
My main case is based on inequality leading rich people to greatly increase the pool of loanable funds, but demographic changes to decrease the demand by creditworthy borrowers for those funds.
I very much think the US 10-year rate will semi-permanently fall below most measures of inflation within a few years. Indeed, that is already the case for shorter term U.S. rates, and is already the case elsewhere in the world. In Germany, the 10 year rate is about 0.5% and the inflation rate is about 1.6%. Our aging demographics are basically Germany’s shifted back a few years.
In the unlikely event we see some real inflation, sure that might drag up nominal interest rates a bit. But even then real rates will continue to fall.
