AN, I think where Rich disagrees with us is not the importance of payment ratios, but that he thinks rates may revert to historical means and send prices down.
I think we are in a new normal with low rates caused by inequality (rich people get richer and save most of their new wealth, creating a huge growing pool of loanable funds), ageing reducing the number of creditworthy young people who want to borrow from that big pool, and a Fed that has gone from thinking 5% core inflation is OK, to a 2-3% target, to a 2% target, to a 2% max.
I really see no reason why long term rates in the USA won’t fall below 1% given they are around 0% or less in Germany, France, Italy, Holland, Switzerland, Japan, and Austria. Our population ageing is not quite as bad as those countries, but we are basically about 10-15 years behind them on that front.
My forecast for 12/2019 is 3.3% 30 year mortages and nominal prices 20-30% higher than 12/2016. I also think a new bubble is more likely than a 5% price decline. Finally I think rent growth will be 1-4% a year, but it won’t matter for prices as they are still low relative to rents.
