Interest Rates Gone Wild

[capeman]

I am glad you would love that capeman. By the way… gather a couple of friends then pick one of them. Because that friend would be the one losing his job. Also find a couple more friends who want to borrow some money to start a small business. The tell them that they most likely will pay interest rates that will crush their business plan.

So once again, what you may wish for may happen… just make sure you have an understanding about the basic economic engine of how things work because alot more things get affected in an interest rate environment hovering in this double digit strata other then housing.

The amount of contraction is something people who were not around in the late 70s or early 80s just do not think about.

SD Realtor

 

I can understand your argument and I can tell you I know more about the economics of a high interest rate economy than you think. My home in the 80s included a single mom working in the SD defense industry where she married my stepfather who also worked in defense. She was laid off no less than 30% of that decade with at least 8 jobs. Luckily my stepfather was only hit once or twice with the unemployment. What the environment did do is challenge them to advance their working skills to become more flexible to the economic environment and in the end made them more successful. I would say through the process our family felt a lot of hardship.

I'm not one to gloat over others financial hardships but the effect of a high interest economy does put people into check on what they should have as working skills and would put a stop to the unnecessary wastefulness in business and personal lives. I wouldn't blame the interest rates for what happened to areas such as Flint, MI in the auto industry. That was the fault of poor business models and the workers got caught in it. That is the same for the defense industry in the 80s. In the end those poor workers laid off needed to adapt and embolden themselves to not be reliant on only one employable skillset. High interest environments keep the people honest and flexible and do away with unneeded business models. Working in one of the most volatile industries there is (biotech) I am well aware that my value is created by having diverse skillsets and being flexible to change my working environment. That is something through adversity that has made me strong like my parents and able to capitalize on adverse environments.

cheers,

 

chris

[capeman]

I am glad you would love that capeman. By the way… gather a couple of friends then pick one of them. Because that friend would be the one losing his job. Also find a couple more friends who want to borrow some money to start a small business. The tell them that they most likely will pay interest rates that will crush their business plan.

So once again, what you may wish for may happen… just make sure you have an understanding about the basic economic engine of how things work because alot more things get affected in an interest rate environment hovering in this double digit strata other then housing.

The amount of contraction is something people who were not around in the late 70s or early 80s just do not think about.

SD Realtor

 

I can understand your argument and I can tell you I know more about the economics of a high interest rate economy than you think. My home in the 80s included a single mom working in the SD defense industry where she married my stepfather who also worked in defense. She was laid off no less than 30% of that decade with at least 8 jobs. Luckily my stepfather was only hit once or twice with the unemployment. What the environment did do is challenge them to advance their working skills to become more flexible to the economic environment and in the end made them more successful. I would say through the process our family felt a lot of hardship.

I'm not one to gloat over others financial hardships but the effect of a high interest economy does put people into check on what they should have as working skills and would put a stop to the unnecessary wastefulness in business and personal lives. I wouldn't blame the interest rates for what happened to areas such as Flint, MI in the auto industry. That was the fault of poor business models and the workers got caught in it. That is the same for the defense industry in the 80s. In the end those poor workers laid off needed to adapt and embolden themselves to not be reliant on only one employable skillset. High interest environments keep the people honest and flexible and do away with unneeded business models. Working in one of the most volatile industries there is (biotech) I am well aware that my value is created by having diverse skillsets and being flexible to change my working environment. That is something through adversity that has made me strong like my parents and able to capitalize on adverse environments.

cheers,

 

chris

[jeeman]

Drunkle,

Well, when I said “exploit” it, I really just meant to be aware of what is going on and not fall into the same trap. That is what Charlie was saying because even in his lecture, he says that he himself is susceptible to this manipulation as well. I was hesitant of using the word “exploit” and in hindsight, I shouldn’t have.

I have been waiting for 4 years to buy a house here in SD. Back then, I didn’t want to become a victim of social proof. That $530k house is now $820k. It’s still up a good $300k, 2 years after the peak. My lesson learned was that while the herd creates a bubble, it’s still possible to make money in the bubble, as long as you get in early enough. I just need to go in with eyes wide open.

I won’t follow the herd into the dead cat bounce either :-). Once everyone thinks that real estate stinks, then I’m going in for the kill, hehe…
Jeeman

[jeeman]

Drunkle,

Well, when I said “exploit” it, I really just meant to be aware of what is going on and not fall into the same trap. That is what Charlie was saying because even in his lecture, he says that he himself is susceptible to this manipulation as well. I was hesitant of using the word “exploit” and in hindsight, I shouldn’t have.

I have been waiting for 4 years to buy a house here in SD. Back then, I didn’t want to become a victim of social proof. That $530k house is now $820k. It’s still up a good $300k, 2 years after the peak. My lesson learned was that while the herd creates a bubble, it’s still possible to make money in the bubble, as long as you get in early enough. I just need to go in with eyes wide open.

I won’t follow the herd into the dead cat bounce either :-). Once everyone thinks that real estate stinks, then I’m going in for the kill, hehe…
Jeeman

[kewp]

two. this housing slump is different from the last one, because in the early nineties, there were vast undevelopped lands in camel valley, on the corridor of now 56 higher way (4S, Del sur, torrey hills etc.). But this time what’s left there?

I’ll agree that its different this time. Given that this run-up has been ten years in the making AND since the tech bust has been feeding on itself, I’ll suggest the grand unwinding will be apocalyptic.

As for whats left, next time you are downtown after dark, take a look at all the condo towers with dark windows. Those aren’t all second residences for globe-hopping playboys. Nevermind the thousands of units already in the pipeline…

[kewp]

two. this housing slump is different from the last one, because in the early nineties, there were vast undevelopped lands in camel valley, on the corridor of now 56 higher way (4S, Del sur, torrey hills etc.). But this time what’s left there?

I’ll agree that its different this time. Given that this run-up has been ten years in the making AND since the tech bust has been feeding on itself, I’ll suggest the grand unwinding will be apocalyptic.

As for whats left, next time you are downtown after dark, take a look at all the condo towers with dark windows. Those aren’t all second residences for globe-hopping playboys. Nevermind the thousands of units already in the pipeline…

[stansd]

Some comments from a local real estate agent’s recent newsletter. For your reading enjoyment (the last paragraph in particular):

“In recent weeks, interest rates have climbed sharply. Now 30-year fixed rate mortgages, which were hovering around 6%, have jumped to almost 7% in just a few weeks. Rates are currently the highest they have been in the past ten months.

I don’t profess to be an economics expert. However, from what I read in the Wall Street Journal, this is all related to a dramatic drop in the bond market and hikes in interest rates in several foreign countries.

Apparently new home builders saw this coming because they started reducing prices or offering incentives to reduce their inventory a couple of months ago. As a result, new home sales have been at a record pace recently while home resales have been sluggish.

Another side effect of the bond market slump is that the interest rates on existing adjustable rate mortgages are spiking. For example, a homeowner who took $500,000 adjustable rate loan two years ago might find his or her payments increased by $900 per month.

Some experts have predicted for a long time that the low interest rates would not last forever. They say it would not be surprising to see mortgage interest rates in the 8-9% range in the not-too-distant future.

What does this mean for prospective home buyers and sellers? Well, if I intended to purchase a home, I’d do it before interest rates climb any further. And, if I wanted to sell my home, I’d get it on the market before too many buyers are no longer able to qualify for a loan with higher mortgage interest rates.”

Stan

[stansd]

Some comments from a local real estate agent’s recent newsletter. For your reading enjoyment (the last paragraph in particular):

“In recent weeks, interest rates have climbed sharply. Now 30-year fixed rate mortgages, which were hovering around 6%, have jumped to almost 7% in just a few weeks. Rates are currently the highest they have been in the past ten months.

I don’t profess to be an economics expert. However, from what I read in the Wall Street Journal, this is all related to a dramatic drop in the bond market and hikes in interest rates in several foreign countries.

Apparently new home builders saw this coming because they started reducing prices or offering incentives to reduce their inventory a couple of months ago. As a result, new home sales have been at a record pace recently while home resales have been sluggish.

Another side effect of the bond market slump is that the interest rates on existing adjustable rate mortgages are spiking. For example, a homeowner who took $500,000 adjustable rate loan two years ago might find his or her payments increased by $900 per month.

Some experts have predicted for a long time that the low interest rates would not last forever. They say it would not be surprising to see mortgage interest rates in the 8-9% range in the not-too-distant future.

What does this mean for prospective home buyers and sellers? Well, if I intended to purchase a home, I’d do it before interest rates climb any further. And, if I wanted to sell my home, I’d get it on the market before too many buyers are no longer able to qualify for a loan with higher mortgage interest rates.”

Stan

[PerryChase]

Capeman, I totally agree with you about the economy and skill sets.

When interest rates are too low, investors will fund any kind of hair-brained business plans in search for return. Innovation and discovery are great, but but pie-in-the-sky is something else.

There are plenty of venture capitalists drinking the cool-aid too.

——-

Jeeman, yeah, you can get rich following the herd, but if you then believe the hype too much, you’re liable to lose everything. I know some people who reinvested their real estate gains into more real estate. They think the market will turn around in 2008. Who knows, they might be right.

But you have the right idea as far as going for the kill is concerned. I’m gonna do that too.

——-

stansd, that’s what a RE broker friend told me also. He said buy now. He’s not a close friend so I didn’t direct him to Piggington. I just said “wow interesting” and changed topic. Not sure if he believes what he said or was just full of hot air.

[PerryChase]

Capeman, I totally agree with you about the economy and skill sets.

When interest rates are too low, investors will fund any kind of hair-brained business plans in search for return. Innovation and discovery are great, but but pie-in-the-sky is something else.

There are plenty of venture capitalists drinking the cool-aid too.

——-

Jeeman, yeah, you can get rich following the herd, but if you then believe the hype too much, you’re liable to lose everything. I know some people who reinvested their real estate gains into more real estate. They think the market will turn around in 2008. Who knows, they might be right.

But you have the right idea as far as going for the kill is concerned. I’m gonna do that too.

——-

stansd, that’s what a RE broker friend told me also. He said buy now. He’s not a close friend so I didn’t direct him to Piggington. I just said “wow interesting” and changed topic. Not sure if he believes what he said or was just full of hot air.

[jeeman]

“Well, if I intended to purchase a home, I’d do it before interest rates climb any further. And, if I wanted to sell my home, I’d get it on the market before too many buyers are no longer able to qualify for a loan with higher mortgage interest rates.””

Stan,

Are you kidding? Very rarely is the market the best for both the buyer and seller. It’s good for one or the other or bad for both.

If sellers are about to lose a bunch of buyers due to non-qualifying, then they will drop their prices, allowing buyers to qualify for that house again. Sure, at a higher interest rate, but the monthly will probably end up the same with the lower loan amount.

Why did the run-up happen in the first place? Sellers knew buyers could qualify for more with lower rates and they raised their prices as the market was flooded with buyers buying into the social proof that “there is never a better time to buy”. Bull….1996 was the best time to buy. It progressively got worse and reached its worst in 2005.

Jeeman

[jeeman]

“Well, if I intended to purchase a home, I’d do it before interest rates climb any further. And, if I wanted to sell my home, I’d get it on the market before too many buyers are no longer able to qualify for a loan with higher mortgage interest rates.””

Stan,

Are you kidding? Very rarely is the market the best for both the buyer and seller. It’s good for one or the other or bad for both.

If sellers are about to lose a bunch of buyers due to non-qualifying, then they will drop their prices, allowing buyers to qualify for that house again. Sure, at a higher interest rate, but the monthly will probably end up the same with the lower loan amount.

Why did the run-up happen in the first place? Sellers knew buyers could qualify for more with lower rates and they raised their prices as the market was flooded with buyers buying into the social proof that “there is never a better time to buy”. Bull….1996 was the best time to buy. It progressively got worse and reached its worst in 2005.

Jeeman

[HereWeGo]

I seem to agree with many of your posts, jeeman (including the part about kicking yourself for not buying during the run-up when you had the chance.)

[HereWeGo]

I seem to agree with many of your posts, jeeman (including the part about kicking yourself for not buying during the run-up when you had the chance.)

[temeculaguy]

How could a group of highly intelligent people who all see that housing cannot remain beyond normal highs and not see that interest rates cannot remain beyond normal lows. Look around, you people are are the ones who did homework and still do it. Regardless of your age, education or wealth, you find it entertaining to do more in your free time than is required to get a degree in economics. Almost everyone here will be successful, whatever the future brings because you are not the ones who wait to do what experts tell you, in many cases I’ve seen more insight in some of your writings than mainstream media writers. I won’t cite all the reason rates are required to return to at least a normal rate, regardless of what the fed or the federal government wants. It just is, accept that cycles exist and they do what they are supposed to, cycle. Low rates are good for some, bad for others, high rates, the same. Rising housing prices are good for some, bad for others, low prices, the same. The most obvious part of this patern is that it is a patern, do I have to quote some Lao Tzu to get you to realize that cycles have always existed.

Stop worrying, do what Perry says and figure out how to make whatever comes work to your advantage, life may give you lemons, oranges or apples, who cares, just figure out how to make juice.

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