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The Era of Very Low Inflation and Interest Rates May Be Near an End

nytimes.com

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Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#101

Post by mattmanser »

cortesoft wrote: post #90
lrem wrote: post #86

Earlier quoted context omitted.

Imagine this was done quickly: 1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply. 2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices. 3: 1+2 force prices down, meaning some people end up owning ba…

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.

In the UK mortgages aren't fixed for the lifetime of the mortgage. Not sure about the rest of the EU. Ours are like 3/4/5 year fixed rate then revert to a bad variable rate, at which point you get a new mortgage.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#102

Post by rmrm »

arkona3 wrote: post #98
rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited va…

... if I mention that very obvious deflationary fixed supply asset I will get downvoted into oblivion on Hacker News.

there seem to be a lot of variants of them, for having a fixed supply :)

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#103

Post by dragonwriter »

elvirs wrote: post #19
samsonradu wrote: post #11

Earlier quoted context omitted.

Housing is not included in the CPI I believe. https://economics.stackexchange.com/questions/4777/why-arent...

CPI does not include rent but thats what more than half of average couples combined income is spent on. (Couple with full time $15 per hour jobs living in $2000 per month apartment)

> CPI does not include rent

CPI includes both rent costs for actual rentals and imputed rent for owner occupied housing. [0]

> but thats what more than half of average couples combined income is spent on.

More like a quarter. [1]

[0] https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

[1] https://www.bls.gov/news.release/cesan.nr0.htm

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#105

Post by rmrm »

ericb wrote: post #94
rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited va…

Fixed rate debt. If you have an income that will keep pace with inflation and you have low-cost debt, like a mortgage, you get to pay off the "dollar amount" of that debt using the inflated funny money.

Agree, that is potentially a very good one. We have that covered so far as a hefty California mortgage.

It would be nice if there were other avenues to take on low fixed rate debt, I suppose.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#106

Post by verelo »

cortesoft wrote: post #90
lrem wrote: post #86

Earlier quoted context omitted.

Imagine this was done quickly: 1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply. 2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices. 3: 1+2 force prices down, meaning some people end up owning ba…

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.

For maybe 5 years, then it’ll come to hurt you when you have to re-sign at a new rate.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#107

Post by [deleted] »

cortesoft wrote: post #90
lrem wrote: post #86

Earlier quoted context omitted.

Imagine this was done quickly: 1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply. 2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices. 3: 1+2 force prices down, meaning some people end up owning ba…

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.

[deleted]

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#108

Post by dragonwriter »

api wrote: post #23
samsonradu wrote: post #11

Earlier quoted context omitted.

Housing is not included in the CPI I believe. https://economics.stackexchange.com/questions/4777/why-arent...

This is why I don't take the CPI seriously as a meaningful measure of inflation "on the ground." A key inflation metric that misses the major expenses of most people is IMHO borderline fraudulent. From what I've seen inflation has been very high for the past 20 years, but has not been evenly distributed at all. The deflationary pressures of offshoring, automation, technological advancement, and device convergence hav…

> This is why I don't take the CPI seriously as a meaningful measure of inflation "on the ground."

But it (that CPI doesn't including housing costs) is a completely false statement that can only be made (other than dishonestly) if one lacks even a basic knowledge of the matter being discussed.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#109

Post by jamie_ca »

cortesoft wrote: post #90
lrem wrote: post #86

Earlier quoted context omitted.

Imagine this was done quickly: 1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply. 2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices. 3: 1+2 force prices down, meaning some people end up owning ba…

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.

For fixed rate, you'll get hit when you renew at the end of the term (typically 5y).

Say you've got a 5 year fixed mortgage, at 3.49%. You buy a new home, taking a $500k mortgage at 25y amortization. That's $2494/mo. At the end of the mortgage, you'll have $431,321 remaining on the loan.

Renewing, if you find the fixed-rate amount is up two points to 5.49%, your 20 remaining years now costs you $2950/mo. If you're taking a mortgage right at the edge of your expense threshold, that 20% jump in monthly payments can hurt.

The alternative is another 25y amortization for $2630/mo (and hey, inflation means you should be clear to $2730/mo to match your first mortgage) but that's just prolonging the life of the loan.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#110

Post by kazinator »

mhewett wrote: post #66
toasterlovin wrote: post #59

Earlier quoted context omitted.

My intuitive sense is that it should destroy the real estate market. Anything that I'm missing in that analysis?

History. In the late 1970s you could get 17% return on your savings account and mortgage rates were well above 10%. People still bought houses.

If someone barely qualified for a mortgage in a 2% environment, and now suddenly is faced with 10%, that's a bit of a shakedown.
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