What if interest rates go to 13%?

[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.

[peterb]

RB- looks like the TED spread is confirming your thesis. Our govt only has as much power over this as their lenders will allow. So, it’s really their call. The Chinese have indicated that the party is pretty much over from this time on.

[peterb]

RB- looks like the TED spread is confirming your thesis. Our govt only has as much power over this as their lenders will allow. So, it’s really their call. The Chinese have indicated that the party is pretty much over from this time on.

[peterb]

RB- looks like the TED spread is confirming your thesis. Our govt only has as much power over this as their lenders will allow. So, it’s really their call. The Chinese have indicated that the party is pretty much over from this time on.

[peterb]

RB- looks like the TED spread is confirming your thesis. Our govt only has as much power over this as their lenders will allow. So, it’s really their call. The Chinese have indicated that the party is pretty much over from this time on.

[peterb]

RB- looks like the TED spread is confirming your thesis. Our govt only has as much power over this as their lenders will allow. So, it’s really their call. The Chinese have indicated that the party is pretty much over from this time on.

[svelte]

[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]

Wow, you weren’t alive in the early 80s? Assuming you were alive by 1985, that makes you 23 tops?

I was wild, young and single back then, but my recollection is that housing prices had skyrocketed by the early 80s. For example, my father bought a house for $21K in 1970 and by the early 80s, he bought a similar house for just over $75K in the same area….housing prices had tripled. That is probably due to the high rate of inflation during the late seventies, early 80s…remember the phrase “stagflation” and WIN (“Whip Inflation Now”) buttons?

People were still buying homes in the early 80s (at least those I knew), I assume because wages and everything else were rising considerably also.

America was pretty down on itself in those days and the big topic of the times was that we were no longer competitive, that Japan was kicking our arse. Of course, it wasn’t longer after that when Japan’s economy went into the toilet, an event from which they are still recovering right now. Just listen to some Springsteen albums from the era (“The River”, “Nebraska”) or even Kinks (“Low Budget”) to get a feel for the mood of the country and the world in the early 1980s. Low Budget seems especially apropo as it has songs about gas prices (A Gallon of Gas), health insurance (National Health), and cutting back during hard times (Low Budget).

Though unemployment was high, I was still able to find jobs in the early 80s…I was a lowly college student so they weren’t great jobs, but they paid the few bills I had.

Bottom line: life went on, but it is not necessarily a period that most people would want to live through again…though we may be about to do so.

[svelte]

[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]

Wow, you weren’t alive in the early 80s? Assuming you were alive by 1985, that makes you 23 tops?

I was wild, young and single back then, but my recollection is that housing prices had skyrocketed by the early 80s. For example, my father bought a house for $21K in 1970 and by the early 80s, he bought a similar house for just over $75K in the same area….housing prices had tripled. That is probably due to the high rate of inflation during the late seventies, early 80s…remember the phrase “stagflation” and WIN (“Whip Inflation Now”) buttons?

People were still buying homes in the early 80s (at least those I knew), I assume because wages and everything else were rising considerably also.

America was pretty down on itself in those days and the big topic of the times was that we were no longer competitive, that Japan was kicking our arse. Of course, it wasn’t longer after that when Japan’s economy went into the toilet, an event from which they are still recovering right now. Just listen to some Springsteen albums from the era (“The River”, “Nebraska”) or even Kinks (“Low Budget”) to get a feel for the mood of the country and the world in the early 1980s. Low Budget seems especially apropo as it has songs about gas prices (A Gallon of Gas), health insurance (National Health), and cutting back during hard times (Low Budget).

Though unemployment was high, I was still able to find jobs in the early 80s…I was a lowly college student so they weren’t great jobs, but they paid the few bills I had.

Bottom line: life went on, but it is not necessarily a period that most people would want to live through again…though we may be about to do so.

[svelte]

[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]

Wow, you weren’t alive in the early 80s? Assuming you were alive by 1985, that makes you 23 tops?

I was wild, young and single back then, but my recollection is that housing prices had skyrocketed by the early 80s. For example, my father bought a house for $21K in 1970 and by the early 80s, he bought a similar house for just over $75K in the same area….housing prices had tripled. That is probably due to the high rate of inflation during the late seventies, early 80s…remember the phrase “stagflation” and WIN (“Whip Inflation Now”) buttons?

People were still buying homes in the early 80s (at least those I knew), I assume because wages and everything else were rising considerably also.

America was pretty down on itself in those days and the big topic of the times was that we were no longer competitive, that Japan was kicking our arse. Of course, it wasn’t longer after that when Japan’s economy went into the toilet, an event from which they are still recovering right now. Just listen to some Springsteen albums from the era (“The River”, “Nebraska”) or even Kinks (“Low Budget”) to get a feel for the mood of the country and the world in the early 1980s. Low Budget seems especially apropo as it has songs about gas prices (A Gallon of Gas), health insurance (National Health), and cutting back during hard times (Low Budget).

Though unemployment was high, I was still able to find jobs in the early 80s…I was a lowly college student so they weren’t great jobs, but they paid the few bills I had.

Bottom line: life went on, but it is not necessarily a period that most people would want to live through again…though we may be about to do so.

[svelte]

[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]

Wow, you weren’t alive in the early 80s? Assuming you were alive by 1985, that makes you 23 tops?

I was wild, young and single back then, but my recollection is that housing prices had skyrocketed by the early 80s. For example, my father bought a house for $21K in 1970 and by the early 80s, he bought a similar house for just over $75K in the same area….housing prices had tripled. That is probably due to the high rate of inflation during the late seventies, early 80s…remember the phrase “stagflation” and WIN (“Whip Inflation Now”) buttons?

People were still buying homes in the early 80s (at least those I knew), I assume because wages and everything else were rising considerably also.

America was pretty down on itself in those days and the big topic of the times was that we were no longer competitive, that Japan was kicking our arse. Of course, it wasn’t longer after that when Japan’s economy went into the toilet, an event from which they are still recovering right now. Just listen to some Springsteen albums from the era (“The River”, “Nebraska”) or even Kinks (“Low Budget”) to get a feel for the mood of the country and the world in the early 1980s. Low Budget seems especially apropo as it has songs about gas prices (A Gallon of Gas), health insurance (National Health), and cutting back during hard times (Low Budget).

Though unemployment was high, I was still able to find jobs in the early 80s…I was a lowly college student so they weren’t great jobs, but they paid the few bills I had.

Bottom line: life went on, but it is not necessarily a period that most people would want to live through again…though we may be about to do so.

[svelte]

[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]

Wow, you weren’t alive in the early 80s? Assuming you were alive by 1985, that makes you 23 tops?

I was wild, young and single back then, but my recollection is that housing prices had skyrocketed by the early 80s. For example, my father bought a house for $21K in 1970 and by the early 80s, he bought a similar house for just over $75K in the same area….housing prices had tripled. That is probably due to the high rate of inflation during the late seventies, early 80s…remember the phrase “stagflation” and WIN (“Whip Inflation Now”) buttons?

People were still buying homes in the early 80s (at least those I knew), I assume because wages and everything else were rising considerably also.

America was pretty down on itself in those days and the big topic of the times was that we were no longer competitive, that Japan was kicking our arse. Of course, it wasn’t longer after that when Japan’s economy went into the toilet, an event from which they are still recovering right now. Just listen to some Springsteen albums from the era (“The River”, “Nebraska”) or even Kinks (“Low Budget”) to get a feel for the mood of the country and the world in the early 1980s. Low Budget seems especially apropo as it has songs about gas prices (A Gallon of Gas), health insurance (National Health), and cutting back during hard times (Low Budget).

Though unemployment was high, I was still able to find jobs in the early 80s…I was a lowly college student so they weren’t great jobs, but they paid the few bills I had.

Bottom line: life went on, but it is not necessarily a period that most people would want to live through again…though we may be about to do so.

[La Jolla Renter]

Interest rate to home value relationship:

650k purchase price
150k down
500k 30yr fixed at 7%
=$3,326 payment.

475k purchase price
150k down
325k 30 yr fixed at 12%
=$3,342 payment.

A 5% increase in interest rates knocks a homes value down another 27%.

[La Jolla Renter]

Interest rate to home value relationship:

650k purchase price
150k down
500k 30yr fixed at 7%
=$3,326 payment.

475k purchase price
150k down
325k 30 yr fixed at 12%
=$3,342 payment.

A 5% increase in interest rates knocks a homes value down another 27%.

[La Jolla Renter]

Interest rate to home value relationship:

650k purchase price
150k down
500k 30yr fixed at 7%
=$3,326 payment.

475k purchase price
150k down
325k 30 yr fixed at 12%
=$3,342 payment.

A 5% increase in interest rates knocks a homes value down another 27%.

[La Jolla Renter]

Interest rate to home value relationship:

650k purchase price
150k down
500k 30yr fixed at 7%
=$3,326 payment.

475k purchase price
150k down
325k 30 yr fixed at 12%
=$3,342 payment.

A 5% increase in interest rates knocks a homes value down another 27%.

[Author]

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