The Era of Very Low Inflation and Interest Rates May Be Near an End • Hacker News Board

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

#221

Post by klipt » Fri, Apr 27, 2018, 8:12 PM UTC

amag wrote: post #87

ajross wrote: post #47

Earlier quoted context omitted.

> Countries that we normally think of as very well off, such as Denmark, Sweden and the Netherlands are among the most indebted people on earth in terms of household debt to income. They can't afford much higher interest rates at all, That's a little mixed up. The effect of inflation is to reduce the effective size of debt, not increase it. So if you owe someone $500US(which has a barter value of ~100 lattes), and a…

> Those who have borrowed come out ahead, on average. I once stayed in a hotel room where the shower had the heat I wanted on average , it was horrible. But when it comes to real estate, as long as you can afford the increase in interest you'll probably be fine. My concern, here in Sweden at least, is that given the current real estate prices here, I can't see how people with average incomes can afford a more normal…

In America, most people get fixed-rate 30 year mortgages, so if you buy now, even if interest rates rise subsequently, your monthly payment doesn't change for the next 30 years.

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

#222

Post by encoderer » Fri, Apr 27, 2018, 9:05 PM UTC

kylemuir wrote: post #52

encoderer wrote: post #44

Earlier quoted context omitted.

These are not fixed rate loans?

When those fixed rates end and they have to refix a ton of overleveraged people will force mortgagee sales. In Auckland there's been talk of that for at least 5-6 years. For example, people I personally know only earn $80-90k/yr and yet own a $500k house (absolute entry level livable house in Auckland). They also got in under our old rules which meant they only needed 5% deposit instead of the 20% required now. They'…

In USA it’s common for loans to be fixed rate for life of loan.

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

#223

Post by harry8 » Sun, Apr 29, 2018, 2:02 PM UTC

djrogers wrote: post #219

harry8 wrote: post #159

Earlier quoted context omitted.

If the real value of the residential property in future sale price and rent received goes absolutely nowhere. Having it mortgaged will cause you to win big. Stupid example, say inflation goes to 7% year on year. Your house is say $100,000 totally financed by debt. You pay interest only on your loan. 10 years time, your loan is $100,000 and is worth $50,000 in 2018 dollars due to the inflation. If you have a 0% real r…

That completely ignores the downward pressure on home prices that a high interest rate has. Inflation at 7% would be tied to significantly higher interest rates, which would reduce the buying power of potential buyers, which reduces home prices. Leaving aside all the mechanics of timing the market such that you have a huge, low interest, fixed rate mortgage in hand when inflation magically jumps to 7%.

The first line says precisely this is the assumption. The second declares the example about to be relayed to demonstrate the effect of unanticipated inflation as a "stupid example." Sorry that wasn't clear enough for you. Yes anytime you invest in an asset that is a total loser financing working for you or against you is a case of "how bad you lose."