[Rich Toscano]

sdr — Good color, thank you — I especially like the point about May… I will be very interested to see how May looks.

I’m going to quibble with your forecasts though — not the forecasts themselves, but your confidence levels.

“There is ZERO chance we go back to prepandemic pricing and the betting window remains open”. — Really… zero? First of all that’s not a bet I can take unless you’re willing to offer infinite odds. But more to the point… of course it’s not ZERO chance. Prices in any market can go back to what they were a few years prior — this has happened multiple times in SD housing and it could happen again. I’m not saying it’s probable, but to say it’s IMPOSSIBLE is wildly overconfident.

And also, re your interest rate prediction. Your last rate prediction that I remember, not too long ago, was that mortgage rates wouldn’t reach 5% in your lifetime. That probably wasn’t even a year ago — and here we are at 5% already. (Hence my little joke in the OP). Given that you are a young, virile stud with decades left to go — this was a very bad prediction! But now you are making more rate predictions! I will admit that this latest one was pretty circumspect… but still, would it not make more sense to just consider that you don’t have an edge on predicting where rates will go? (I will admit here that this is the route I’ve chosen to take, but ONLY after making many terrible rate predictions in my past).

BTW I’m busting your chops you here because you have claimed to have the best predictive track record on piggington. That may actually be true, for all I know! But either way — if you are going to brag about that… I’m going to give you a hard time when you whiff one, ha ha. Heavy is the head that wears the crown! >:-)

[Rich Toscano]

I am going to put up an update today(ish) but my thoughts on whether it’s a bubble are in this article: https://pcasd.com/whats-going-on-with-housing/

[Rich Toscano]

[quote=The-Shoveler]I guess my main point is the fed (and TPTB) seem to be deathly afraid of any economic downturn lasting more that a few months, before 2008 you could have a recession, not anymore it seems.
IMO anyway.[/quote]

OK then I did misread it… I thought you were talking about a stock market decline.

[Rich Toscano]

[quote=sdrealtor]
The part that I think is hard to argue against is the fed stepping in and bolstering the economy rather than let it crash.[/quote]

That wasn’t the argument though… it was that the Fed would act to prevent a stock market crash, inflation be damned. (Or that’s how I read it anyway).

[Rich Toscano]

I don’t think it’s hard to argue against that. They were able to stimulate so much in previous cycles because inflation stayed low. Now inflation has blown well past their target level. They can’t use the same playbook UNLESS inflation behaves and comes down on its own pretty quickly.

I disagree with the idea that the Fed doesn’t care about inflation and will just pump no matter what. They take inflation quite seriously; it’s 1/2 of their dual mandate (and it’s an issue voters care about, so politicians will hold their feet to the fire). They’ve been wrong about the transitory-ness so far, but making a mistake is different from not caring about it.

So, I think “the Fed is just going to print money and let inflation run wild” is actually a pretty easy thesis to argue against.

I guess we’ll see.

[Rich Toscano]

[quote=gzz]

If mortgage rates remain at the post-pandemic average of 3.0%, it will neither help nor hurt affordability from this point.

To offset a rate rise to 4.1% (the pre-pandemic average in the above chart), home prices would have to decline by 13%.

To offset a rate rise to 4.9% (the high point in the graph reached in 2018), prices would have to drop by 21%.

If the inflation-worriers turned out to be right, and rates broke above their pre-pandemic range, perhaps mortgage rates might rise to 6%. This is not an outlandish number… it’s about 1% above the level reached in 2018, and is somewhat below the average rate for the decade of the 2000s. To offset the affordability hit from a 6% mortgage rate, home prices would have to drop by 30%.

None of these are predictions. (We think anyone who has a confident multi-year interest rate forecast is deluding themselves).

Rich’s four interest rate scenarios are kind of like Stephen Colbert’s frequent interview question: “George W Bush, great president, or greatest?”[/quote]

Whatever man. It says right there – in the part you quote! – that these aren’t predictions. They are illustrations of potential affordability impact IF rates were to go up. (I also included a neutral scenario to indicate that current rates neither help nor hurt, because they are already priced in to the affordability measurement).

Your statement in another comment above that I am making a “bold prediction” is similarly bullshit.

As to the rest. You know, it’s funny, I actually agree with a lot of the things you’ve written about interest rates, particularly your thoughts on how wealth inequality impacts inflation and real rates.

My main disagreement is with how useful this info is. For one thing, it’s backwards looking – who’s to say that those underlying causes won’t start to shift in the other direction at some point? And for another, it’s reductionist. This is a very complex puzzle; you are overly focused on one piece of it and seemingly don’t know or don’t care that the rest of the puzzle exists. I will note here that while you have a lot of good insights, you’ve also occasionally shown some pretty basic gaps in your knowledge of this general topic.

So all in all, while I find many of your arguments compelling, your declarative predictions about the future of interest rates strike me as ludicrously overconfident. As I’ve said before.

I don’t know why you’re trolling me here with your bad-faith reading of what I wrote. Are you trying to get me to argue with you about interest rates? Sorry, I don’t want to. You have all the answers already, so what’s the point?

[Rich Toscano]

I agree that rents in the CPI (which measures what landlords are getting on average) is way understated, for all the reasons you cited. This is why I cited asking rents for newly available properties as the comparison. I believe that nullifies 1-3? Maybe not 4 though.

[Rich Toscano]

Wow…. just wow. Coronita you’re lucky the guy keeps paying rent for those times when he’s at work or out running errands!

[Rich Toscano]

[quote=gzz][quote=Coronita]wait, how are you srguing theres no inflation on this thread but on the other thread talking about how rents are going to the moon???

[/quote]

The rent increases are real, not artifacts of high background inflation.

Even with low overall inflation, some prices will go up a lot while others will drop.[/quote]

Good distinction of real vs nominal increases, but the rent (including OER) is a big chunk of CPI. Around 30% I think. So even if the non-rent portion of the CPI basket isn’t going up a lot, skyrocketing rents are unlikely to co-exist with low overall “inflation.”

[Rich Toscano]

[quote=gzz][quote=Rich Toscano]
M1 is not the correct monetary aggregate to use here. That’s a rookie mistake. I humbly suggest you reconsider your level of expertise on this topic.

[/quote]

I agree it is a mistake, but it isn’t my own. I think all monetary aggregates are worthless as indicators of future inflation in the context of developed nations with shrinking skilled workforces and growing economic inequality.

All the “OMG money supply doubled FED IS PRINTING MONEY!!!!” arguments come from the inflatadoomers.

[quote=Rich Toscano]
Along those lines — the bond market has pretty famously been terrible at predicting inflation. So citing breakevens or interest rates as “proof” that you are right is unconvincing and also a bit of an overconfidence red flag.
[/quote]

I don’t agree “the bond market has pretty famously been terrible at predicting inflation.” You accuse me of immodesty, but I am the one that doesn’t presume to know better than the collective wisdom of the market. My best guess for future inflation is exactly what the market is predicting, about 1.6% per year over 5 years and 2% over 30.

I am also not the one here bringing up personal anecdotes about rising prices instead of relying on the expertise of government agencies that have been carefully measuring inflation using many methods over the past 75 years or so. I also don’t think I know better than the Fed, which IMO has been doing a really great job since 2012.[/quote]

The market gets things wrong all the time. it’s not really immodest to point this out. This site wouldn’t exist if markets didn’t get things wrong sometimes! And FWIW – you point it out all the time yourself with regard to other asset classes.

So I don’t think it’s immodest to be skeptical of market prices as proof of anything.

I accused you of immodesty because you are coming across as if you have the inflation thing all figured out. Maybe I’m misreading you, but that’s the vibe I’m getting. The Fed, whom you claim to defer to, is showing a lot more uncertainty and humility on this very complex topic than you are.

[Rich Toscano]

[quote=gzz]Reminder: From 1995 to the present, the money supply in Japan went up more than 400%, but prices went up about 4%. Not per year, 4% total over 26 years.

https://fred.stlouisfed.org/series/MANMM101JPM189S

https://fred.stlouisfed.org/series/JPNCPIALLMINMEI%5B/quote%5D

M1 is not the correct monetary aggregate to use here. That’s a rookie mistake. I humbly suggest you reconsider your level of expertise on this topic.

Along those lines — the bond market has pretty famously been terrible at predicting inflation. So citing breakevens or interest rates as “proof” that you are right is unconvincing and also a bit of an overconfidence red flag.

This is a good and interesting topic; I personally enjoy reading arguments from both sides. So thanks for bringing your viewpoint to the table, but I think you could stand to recalibrate your level of self-assuredness here.

(PS I am not an expert either… which I mention because I don’t want this to be read as claiming to be so).

[Rich Toscano]

[quote=scaredyclassic][quote=Rich Toscano][quote=gzz]Bet you all thought this would be a scaredy post.[/quote]

Hahaha… I did indeed :-D[/quote]

Stylistically in terms of writing, maybe. But all nylon?[/quote]

Also a good point

[Rich Toscano]

[quote=gzz]Bet you all thought this would be a scaredy post.[/quote]

Hahaha… I did indeed 😀

[Rich Toscano]

Good stuff xbox, thanks for putting in all this effort. I think the experience of the early 80s can also be interpreted that the inverse relationship between interest rates and asset prices is not written in stone.

GZZ alluded to one possible reason why, which I’ve always been partial to. Buying a house is prepaying your rent for life, and thus, eliminating the risk of rental inflation. So the value of home ownership should (all other things equal) be higher if people are expecting high rental inflation, and lower if they are expecting low inflation. This factor would INCREASE values (again, all things equal) during periods of high inflation*, and decrease them during low inflation. This could partially offset the intuitive relationship between rates/monthly payments and prices.

* (what matters here is future inflation expectations, not trailing inflation… but people being natural extrapolators, the former usually just follows the latter).

[Rich Toscano]

[quote=svelte]”Mortgage/tax payment on SD single family home divided by equal-weighted SD rent and per-capita income”

Appears to mean (SD SFR mortgage payment / SD SFR tax payment) / (SD rent payment + per-capita income).

Or does it mean
(SD SDR Mortgage + tax payment) / (SD rent payment + per-capita income)

I’m not sure how that correlates to XBoxBoy’s data on house prices. I guess you could argue that house prices correlate to mortgage payments, but I’m not sure that’s true. And what any of that has to do with rent or income I’m not sure.[/quote]

It’s the latter. It correlates because it’s measuring monthly payments vs. “inflation” (xbox was using CPI, I use wages and rents) so should come up with similar results.

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