51–60 of 223 posts
Earlier quoted context omitted.
> as the gov't is trying to slow down the real estate market This is not the reason for mortgage stress test, just one of its effects. The main reason for the regulation is to avoid a tsunami of bankruptcies when interest rates eventually increase.
These are not fixed rate loans?
Earlier quoted context omitted.
> as the gov't is trying to slow down the real estate market This is not the reason for mortgage stress test, just one of its effects. The main reason for the regulation is to avoid a tsunami of bankruptcies when interest rates eventually increase.
These are not fixed rate loans?
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're only being propped up by their record low interest rates. If those interest rates went up 2-3% they'd be in serious trouble.
EDIT: for more context the average fixed period for any home loan in NZ is roughly 2-3 yrs. The term is a 30 year term typically.
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
If I recall, people who were highly leveraged or had negatively geared property were hit the hardest. People with actual savings in the bank were actually happy with their interest returns being so high.
Household debt was not as bad back then as it is nowadays, so I don't expect it to go as well if we ever hit those levels again tomorrow.
I am not buying that inflation is low. Property taxes and housing cost (especially rent) has doubled in last 10 years in New York. I think so has the medical costs. Just because gas prices are low dose not mean inflation is low
> Property taxes and housing cost (especially rent) has doubled in last 10 years in New York. Same thing in Canada's larger cities (if not a doubling in much less than 10 years), yet we're told the change in the housing component of the CPI is < 2%. Lies, damn lies, and statistics.
Earlier quoted context omitted.
It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…
"Collapse of the housing market" is a funny way to talk about affordable housing. It assumes that everyone already owns a house and will have a problem if / when the value drops below the remaining debt.
You might argue that many people don't actually own their home since they still have a large mortgage, but this just makes the situation worse: now you have a mortgage that's more than your house is worth.
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…
> So as long as the moves don’t go too far, increases in inflation and interest rates would be a sign the global economy is returning to a more prosperous equilibrium like the one that prevailed before 2008. Pre-2008 was quite far from a prosperous equilibrium, otherwise it wouldn't have caused the crisis.
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
Earlier quoted context omitted.
It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…
Why does loaded up with debt imply interest rates will be low? Most debt is fixed-rate and not inflation-adjusted so there is a strong incentive to drive up inflation and interest rate with so much outstanding debt. This may fail in which case you get a deflationary collapse, but a priori it's not clear at all which direction things go. If the stagflation era of the 70's is any guide, the world will undergo a signifi…
adventured seems to think that "can't afford interest rates to rise sharply" implies "therefore interest rates won't rise sharply". That seems a bit naive. (Though in fact the Fed can make that happen, with QE. But the results could be pretty disastrous in non-interest ways.)
However, there is a bit of a negative feedback loop. Interest rates rising hurt those who owe variable-interest debt. (Side note - if you have a variable-rate mortgage, you should seriously look at refinancing with a fixed-rate one.) Those who are hurt in this way spend less. This slows down the growth of the economy, which slows the rise of interest rates.
> If the stagflation era of the 70's is any guide, the world will undergo a significant bout of inflation to clear the plate...
That seems likely. Those who owe variable-rate debt will get crushed by this, though. Those who owe fixed-rate debt will be relieved over time.
> ... and the holders of USD... will be wiped out and it will no longer be the reserve currency.
Depends on whether the Euro and the Yuan hold up better than the USD. I find it hard to believe that China will let the Yuan be significantly more solid than the USD; it has found it commercially helpful to have the Yuan be weak. The Euro might be the winner, or it might become as weak as everyone else. If it's the latter, then the USD likely won't be very significantly hurt - it has the advantage of incumbency, and if it's no worse than everyone else, it will be fine.
> USD (playing the role that gold played then)
Gold didn't play that role in the 1970s - at least not in the second half. Once the US let the price of gold float, gold was a rocket. It went from $35 to $200, dropped back to $100, and then went up to $800 (though this started in the 1970s, I don't remember what year it hit $800). Those holding gold were very much not wiped out in the 1970s!