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May 30, 2009 at 8:16 AM #408136May 30, 2009 at 8:55 AM #407456peterbParticipant
Interest rates will effect home prices based on the level of income from a job that will allow the debt to be reliably serviced.
High rates can only be reliably serviced if the actual dollar cost is low enough in relationship to the income. Thus, high rates in the 1980’s could be sustained because the amounts of the loans were low enough to allow the debt to be reliably serviced/maintained.
Today’s income levels absolutely do not allow for this scenario to take place. If rates rise, prices must come down.
Rates usually rise with an improving economy. I doubt we’ll have an improving economy for quite sometime to come.May 30, 2009 at 8:55 AM #407699peterbParticipantInterest rates will effect home prices based on the level of income from a job that will allow the debt to be reliably serviced.
High rates can only be reliably serviced if the actual dollar cost is low enough in relationship to the income. Thus, high rates in the 1980’s could be sustained because the amounts of the loans were low enough to allow the debt to be reliably serviced/maintained.
Today’s income levels absolutely do not allow for this scenario to take place. If rates rise, prices must come down.
Rates usually rise with an improving economy. I doubt we’ll have an improving economy for quite sometime to come.May 30, 2009 at 8:55 AM #407941peterbParticipantInterest rates will effect home prices based on the level of income from a job that will allow the debt to be reliably serviced.
High rates can only be reliably serviced if the actual dollar cost is low enough in relationship to the income. Thus, high rates in the 1980’s could be sustained because the amounts of the loans were low enough to allow the debt to be reliably serviced/maintained.
Today’s income levels absolutely do not allow for this scenario to take place. If rates rise, prices must come down.
Rates usually rise with an improving economy. I doubt we’ll have an improving economy for quite sometime to come.May 30, 2009 at 8:55 AM #408003peterbParticipantInterest rates will effect home prices based on the level of income from a job that will allow the debt to be reliably serviced.
High rates can only be reliably serviced if the actual dollar cost is low enough in relationship to the income. Thus, high rates in the 1980’s could be sustained because the amounts of the loans were low enough to allow the debt to be reliably serviced/maintained.
Today’s income levels absolutely do not allow for this scenario to take place. If rates rise, prices must come down.
Rates usually rise with an improving economy. I doubt we’ll have an improving economy for quite sometime to come.May 30, 2009 at 8:55 AM #408151peterbParticipantInterest rates will effect home prices based on the level of income from a job that will allow the debt to be reliably serviced.
High rates can only be reliably serviced if the actual dollar cost is low enough in relationship to the income. Thus, high rates in the 1980’s could be sustained because the amounts of the loans were low enough to allow the debt to be reliably serviced/maintained.
Today’s income levels absolutely do not allow for this scenario to take place. If rates rise, prices must come down.
Rates usually rise with an improving economy. I doubt we’ll have an improving economy for quite sometime to come.May 30, 2009 at 11:02 AM #407511patientrenterParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 11:02 AM #407754patientrenterParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 11:02 AM #407996patientrenterParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 11:02 AM #408058patientrenterParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 11:02 AM #408206patientrenterParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 12:31 PM #407516Rt.66ParticipantKrugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
May 30, 2009 at 12:31 PM #407759Rt.66ParticipantKrugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
May 30, 2009 at 12:31 PM #408001Rt.66ParticipantKrugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
May 30, 2009 at 12:31 PM #408063Rt.66ParticipantKrugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
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