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Americans Are Still Spending Like There’s No Tomorrow

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Re: Americans Are Still Spending Like There’s No Tomorrow

#11

Post by pimlottc »

UncleOxidant wrote: post #7
MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

> So... the Fed is raising rates to 5% to try and slow inflation. But now I'm earning 5% on a bunch of money to the point that it basically offsets my rent. ... doesn't that contribute to inflation? I don't think your case is all that common. The vast majority of people don't have that much money such that they could earn say $1500+/month with rates at 5%. Offsetting you are a whole lot of people who only have a few…

I’m not a finance expert but don’t you need something like $350000 in the bank to make $1500/mo in interest?

https://www.calculator.net/interest-calculator.html?cstartin...

Re: Americans Are Still Spending Like There’s No Tomorrow

#12

Post by majormajor »

MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

There's a supply side to inflation too, of course, but "increased feeling of wealth" will definitely lead to higher spending on average.

Crypto did it too, probably on a larger scale than any money market fund - I know many people who bought a house on the proceeds from bitcoins they bought a decade ago.

But if increased demand happens in a market where: (a) new sellers can enter easily and (b) there's low startup cost to competing it will be more of a "rising tide lifts all boats" than a "compete to inflate the prices of the fixed quantity of goods" situation. (Housing is the latter - location, location, location, and construction would lag even in a zero-regulation world. And the difference between now and 2008 is that even if some of that is kinda "funny money" like crypto, there's still real money and real income involved, and less of a "a ton of people are going to have to sell in a hurry" pressure vs the wildly over-leveraged essentially-fraudulent buyers with crazy variable rate terms and such.)

Re: Americans Are Still Spending Like There’s No Tomorrow

#13

Post by woodruffw »

basementcat wrote: post #10
MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

IANREE (I Am Not a Real Estate Expert) so please take the following with a grain of salt. If you want to buy a house and believe you can afford one (even at an "inflated" price) along with the cost of maintenance, property taxes, assessments, etc. then go ahead and do it. Best case scenario, real estate values continue to rise and you’re glad you made the move. Worst case, there’s a 2008-style crash and you and milli…

> Worst case, there’s a 2008-style crash and you and millions of other voters get government bailouts.

I don't think individual mortgage holders, as a class, got government bailouts during the GFC. The closest thing I can think of is the Troubled Asset Relief Program which, to my understanding, largely benefited the banks themselves (by allowing them to offload toxic assets). Am I missing something?

Re: Americans Are Still Spending Like There’s No Tomorrow

#14

Post by huytersd »

basementcat wrote: post #10
MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

IANREE (I Am Not a Real Estate Expert) so please take the following with a grain of salt. If you want to buy a house and believe you can afford one (even at an "inflated" price) along with the cost of maintenance, property taxes, assessments, etc. then go ahead and do it. Best case scenario, real estate values continue to rise and you’re glad you made the move. Worst case, there’s a 2008-style crash and you and milli…

No one got government bailouts during the 2008 crash. People had their houses foreclosed on and the big boys got the bailouts, not regular folks. What on earth are you referring to?

Re: Americans Are Still Spending Like There’s No Tomorrow

#17

Post by westcort »

MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

Companies are buying houses at inflated rates with the expectation that cash will lose value due to further inflation. To me, this is the only explanation for mass-buying of homes at a premium price even when interest rates are high.

Re: Americans Are Still Spending Like There’s No Tomorrow

#18

Post by UncleOxidant »

pimlottc wrote: post #11
UncleOxidant wrote: post #7

Earlier quoted context omitted.

> So... the Fed is raising rates to 5% to try and slow inflation. But now I'm earning 5% on a bunch of money to the point that it basically offsets my rent. ... doesn't that contribute to inflation? I don't think your case is all that common. The vast majority of people don't have that much money such that they could earn say $1500+/month with rates at 5%. Offsetting you are a whole lot of people who only have a few…

I’m not a finance expert but don’t you need something like $350000 in the bank to make $1500/mo in interest? https://www.calculator.net/interest-calculator.html?cstartin...

Yep. In a CD or a money market account of some sort. 26 week to 1 year Treasury bills are paying around 5.5%.

Re: Americans Are Still Spending Like There’s No Tomorrow

#19

Post by randomdata »

MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

Slightly different side of the coin, but in Canada – and maybe the US is the same – mortgage interest costs are what is driving inflation. Excluding mortgage interest costs, inflation has been within the target range for quite some time now. So higher interest rates are responsible for inflation in that sense.

Re: Americans Are Still Spending Like There’s No Tomorrow

#20

Post by woodruffw »

MuffinFlavored wrote: post #4

I had an interesting thought. I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny mon…

In your socioeconomic group, maybe. There are also probably a lot of groups for whom high interest rates decrease spending (those of limited means, those with extensive investments but minimal liquid cash, etc.). That's not to say that you're wrong, only that anecdotes don't make a trend :-)

(This is why the USG generally pursues a policy of low interest rates and mild inflation: it incentivizes consumer purchasing and investment to have an environment in which dollars in the bank very slowly their purchasing power over time.)

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