What if interest rates go to 13%?

[Running Bear]

Gents,

I believe trying to determine the effects of interest rates, tighter lending standards, etc on home prices becomes very easy when you just look at monthly payment. People buy based on monthly payment and whether they can afford that payment.

During the boom we saw more and more creative lending to keep the monthly payment disproportionately low in relation to the purchase price. Toward the end we saw negative am loans take this to the absolute limit. I remember when I heard that neg am loans were being advertised that the top was very near. The housing downturn is going to be much longer then most people expect and will remain low for a long time. Think in terms of an L shaped recovery vice a V shaped one.

My2Cents

[peterb]

No doubt that higher rates = lower house prices, in my mind. It’s trying to figure out if rates really will rise and stay there for a while. And it looks like they will just based on risk of default and risk of inflation.

[peterb]

No doubt that higher rates = lower house prices, in my mind. It’s trying to figure out if rates really will rise and stay there for a while. And it looks like they will just based on risk of default and risk of inflation.

[peterb]

No doubt that higher rates = lower house prices, in my mind. It’s trying to figure out if rates really will rise and stay there for a while. And it looks like they will just based on risk of default and risk of inflation.

[peterb]

No doubt that higher rates = lower house prices, in my mind. It’s trying to figure out if rates really will rise and stay there for a while. And it looks like they will just based on risk of default and risk of inflation.

[peterb]

No doubt that higher rates = lower house prices, in my mind. It’s trying to figure out if rates really will rise and stay there for a while. And it looks like they will just based on risk of default and risk of inflation.

[underdose]

[quote=TheBreeze]
I wasn’t alive back then, but I’ve read that Volcker took interest rates to 13% back in the early 80’s in order to combat hyperinflation. That would be a little less than a doubling of the interest rate from here. What would happen to housing if that happened? Could prices get cut in half even from these levels?
[/quote]

Volcker wanted to fight inflation. Bernanke wants to cause it. Bernanke will not raise the Fed funds rate to 13%. No chance, no how.

However, the federal funds rate only can influence mortgage rates, but it doesn’t control them. Mortgage rates could go to double digits even with the fed funds rate at 1%. That would be if mortgage interest rates were controlled by market forces. But sadly, the government just nationalized everything, and market forces have much less clout than they used to. The government can print new money and push it through the mortgage markets at an interest rate well below the rate of inflation. They can even do what Bernanke suggested during his 2002 “helicopter” speech, print money to buy US Treasuries and manipulate the interest rate on the national debt. Great! The Treasury can borrow directly from the Fed. Who can guess what long term interest rates will do anymore?

That really isn’t the question. If inflation becomes that severe, if Bernanke prints that much money, any inflation hedge will go up in price in nominal terms. If inflation is 100% and mortgage interest rates are also 100%, home prices will rise again. They may rise at 90%, lagging inflation, but people will take out 100% interest rate loans rather than hold cash.

The key is: real estate must still correct further in real terms, but what homes do in nominal terms depends on how aggressively the Fed prints money, regardless of interest rates.

[underdose]

[quote=TheBreeze]
I wasn’t alive back then, but I’ve read that Volcker took interest rates to 13% back in the early 80’s in order to combat hyperinflation. That would be a little less than a doubling of the interest rate from here. What would happen to housing if that happened? Could prices get cut in half even from these levels?
[/quote]

Volcker wanted to fight inflation. Bernanke wants to cause it. Bernanke will not raise the Fed funds rate to 13%. No chance, no how.

However, the federal funds rate only can influence mortgage rates, but it doesn’t control them. Mortgage rates could go to double digits even with the fed funds rate at 1%. That would be if mortgage interest rates were controlled by market forces. But sadly, the government just nationalized everything, and market forces have much less clout than they used to. The government can print new money and push it through the mortgage markets at an interest rate well below the rate of inflation. They can even do what Bernanke suggested during his 2002 “helicopter” speech, print money to buy US Treasuries and manipulate the interest rate on the national debt. Great! The Treasury can borrow directly from the Fed. Who can guess what long term interest rates will do anymore?

That really isn’t the question. If inflation becomes that severe, if Bernanke prints that much money, any inflation hedge will go up in price in nominal terms. If inflation is 100% and mortgage interest rates are also 100%, home prices will rise again. They may rise at 90%, lagging inflation, but people will take out 100% interest rate loans rather than hold cash.

The key is: real estate must still correct further in real terms, but what homes do in nominal terms depends on how aggressively the Fed prints money, regardless of interest rates.

[underdose]

[quote=TheBreeze]
I wasn’t alive back then, but I’ve read that Volcker took interest rates to 13% back in the early 80’s in order to combat hyperinflation. That would be a little less than a doubling of the interest rate from here. What would happen to housing if that happened? Could prices get cut in half even from these levels?
[/quote]

Volcker wanted to fight inflation. Bernanke wants to cause it. Bernanke will not raise the Fed funds rate to 13%. No chance, no how.

However, the federal funds rate only can influence mortgage rates, but it doesn’t control them. Mortgage rates could go to double digits even with the fed funds rate at 1%. That would be if mortgage interest rates were controlled by market forces. But sadly, the government just nationalized everything, and market forces have much less clout than they used to. The government can print new money and push it through the mortgage markets at an interest rate well below the rate of inflation. They can even do what Bernanke suggested during his 2002 “helicopter” speech, print money to buy US Treasuries and manipulate the interest rate on the national debt. Great! The Treasury can borrow directly from the Fed. Who can guess what long term interest rates will do anymore?

That really isn’t the question. If inflation becomes that severe, if Bernanke prints that much money, any inflation hedge will go up in price in nominal terms. If inflation is 100% and mortgage interest rates are also 100%, home prices will rise again. They may rise at 90%, lagging inflation, but people will take out 100% interest rate loans rather than hold cash.

The key is: real estate must still correct further in real terms, but what homes do in nominal terms depends on how aggressively the Fed prints money, regardless of interest rates.

[underdose]

[quote=TheBreeze]
I wasn’t alive back then, but I’ve read that Volcker took interest rates to 13% back in the early 80’s in order to combat hyperinflation. That would be a little less than a doubling of the interest rate from here. What would happen to housing if that happened? Could prices get cut in half even from these levels?
[/quote]

Volcker wanted to fight inflation. Bernanke wants to cause it. Bernanke will not raise the Fed funds rate to 13%. No chance, no how.

However, the federal funds rate only can influence mortgage rates, but it doesn’t control them. Mortgage rates could go to double digits even with the fed funds rate at 1%. That would be if mortgage interest rates were controlled by market forces. But sadly, the government just nationalized everything, and market forces have much less clout than they used to. The government can print new money and push it through the mortgage markets at an interest rate well below the rate of inflation. They can even do what Bernanke suggested during his 2002 “helicopter” speech, print money to buy US Treasuries and manipulate the interest rate on the national debt. Great! The Treasury can borrow directly from the Fed. Who can guess what long term interest rates will do anymore?

That really isn’t the question. If inflation becomes that severe, if Bernanke prints that much money, any inflation hedge will go up in price in nominal terms. If inflation is 100% and mortgage interest rates are also 100%, home prices will rise again. They may rise at 90%, lagging inflation, but people will take out 100% interest rate loans rather than hold cash.

The key is: real estate must still correct further in real terms, but what homes do in nominal terms depends on how aggressively the Fed prints money, regardless of interest rates.

[underdose]

[quote=TheBreeze]
I wasn’t alive back then, but I’ve read that Volcker took interest rates to 13% back in the early 80’s in order to combat hyperinflation. That would be a little less than a doubling of the interest rate from here. What would happen to housing if that happened? Could prices get cut in half even from these levels?
[/quote]

Volcker wanted to fight inflation. Bernanke wants to cause it. Bernanke will not raise the Fed funds rate to 13%. No chance, no how.

However, the federal funds rate only can influence mortgage rates, but it doesn’t control them. Mortgage rates could go to double digits even with the fed funds rate at 1%. That would be if mortgage interest rates were controlled by market forces. But sadly, the government just nationalized everything, and market forces have much less clout than they used to. The government can print new money and push it through the mortgage markets at an interest rate well below the rate of inflation. They can even do what Bernanke suggested during his 2002 “helicopter” speech, print money to buy US Treasuries and manipulate the interest rate on the national debt. Great! The Treasury can borrow directly from the Fed. Who can guess what long term interest rates will do anymore?

That really isn’t the question. If inflation becomes that severe, if Bernanke prints that much money, any inflation hedge will go up in price in nominal terms. If inflation is 100% and mortgage interest rates are also 100%, home prices will rise again. They may rise at 90%, lagging inflation, but people will take out 100% interest rate loans rather than hold cash.

The key is: real estate must still correct further in real terms, but what homes do in nominal terms depends on how aggressively the Fed prints money, regardless of interest rates.

[Running Bear]

under,

We are a debtor nation now. Our government can try to control the cost of borrowing money but the foreign governments that buy our treasuries are going to be the ones that will determine mortgage rates. After the “credit crisis” leaves the panic stage we will see at what cost they will lend money to us. The Government for a short time can try and keep the cost to borrow artificially low, but if they have to borrow it at every increasing rates they will have to eventually pass that along. We no longer control our destiny when it comes to capital and the cost of it.

[Running Bear]

under,

We are a debtor nation now. Our government can try to control the cost of borrowing money but the foreign governments that buy our treasuries are going to be the ones that will determine mortgage rates. After the “credit crisis” leaves the panic stage we will see at what cost they will lend money to us. The Government for a short time can try and keep the cost to borrow artificially low, but if they have to borrow it at every increasing rates they will have to eventually pass that along. We no longer control our destiny when it comes to capital and the cost of it.

[Running Bear]

under,

We are a debtor nation now. Our government can try to control the cost of borrowing money but the foreign governments that buy our treasuries are going to be the ones that will determine mortgage rates. After the “credit crisis” leaves the panic stage we will see at what cost they will lend money to us. The Government for a short time can try and keep the cost to borrow artificially low, but if they have to borrow it at every increasing rates they will have to eventually pass that along. We no longer control our destiny when it comes to capital and the cost of it.

[Running Bear]

under,

We are a debtor nation now. Our government can try to control the cost of borrowing money but the foreign governments that buy our treasuries are going to be the ones that will determine mortgage rates. After the “credit crisis” leaves the panic stage we will see at what cost they will lend money to us. The Government for a short time can try and keep the cost to borrow artificially low, but if they have to borrow it at every increasing rates they will have to eventually pass that along. We no longer control our destiny when it comes to capital and the cost of it.

[Author]

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