541–550 of 704 posts
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If rates go up to X+5, then I ought to be able to find bonds that pay X+5, no?
No. 30 year mortgages and 10 year treasuries move in unison but they are not the same rate. You can see this on the first graph here: https://www.thebalance.com/treasury-note-and-mortgage-rate-r...
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I've thought about this a lot, though if you google around you'll find people who dispute this claim. Still, it makes sense to me. If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing. People will point out that stay at home moms weren't THAT pervasive, even decades ago (not as pervasive as us younglins…
I'm not going to say that the larger number of women entering the work force has had no effect on home prices, however even if it did it's not necessarily a net negative. A larger workforce leads to more economic output, more innovation (there are countless innovations that have probably failed to be made over the generations due to the impact of women not working) that leads to quality of life improvements, producti…
You're thinking too short term. This logic does not work for more than one human generation.
Say you're playing Civilization. I give you a button in the "change civics" category. You click it, and two things happen:
1. You double the number of professionals in all cities, as a factor of your total population.
2. Your population growth rate goes from strongly positive to slightly negative.
Do you click the button?
Let's make the numbers easier: If you don't click the button, you have a 2x growth rate per generation, and if you do click the button you have a 1x growth rate, i.e. perfectly balanced replacement. Well when happens if you click the button? You get ahead for one generation. But your opponent catches up in the next generation. And in the generation after that, they have 4x the population and therefore 2x the professionals. Before long they're outproducing you on every dimension.
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Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…
Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…
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Economics is a weird subject, even economists get predictions wrong all the time. It is easier to talk about logical subjects like Math or programming, vs something like social issues or economics. I don't know how to have a useful conversation about such topics, I understand your frustration. I suppose everyone has good intentions and is trying to help at the same time by sharing their theories - which could be bad…
> Economics is a weird subject, even economists get predictions wrong all the time. It's because economics is seen as a science but ignores (not completely) human behavior. You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test. This is why behavioral economics is so interesting IMO. It's not definitive but it at least it provides explanations.
That does not describe what economics has looked like for a few decades already. These days, it’s all about human behavior. Just look at the sample of newest papers collected at NBER:
https://www.nber.org/papers?page=1&perPage=50&sortBy=public_...
If you look at these, it should be clear that most of published economics these days is basically social science done using quantitative methods. The homo economicus has always been a straw man, but these days it is laughably so.
A more relevant metric to consider - monthly mortgage payment to monthly income ratio. Average interest rates in 2007 were 6.34% vs ~2.80% today. [1] * 6.34% / $2,000 monthly payment / 20% down (~$65k) >> $328,319 price of home * 2.80% / $2,000 monthly payment / 20% down (~$98k) >> $489,794 price of home Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. When…
That isn't entirely true. For most people, the amount you need for a down payment is a pretty important consideration as well, especially for a first home where you don't have any equity in an existing home that can be used to purchase your new home.
I've known people who saved up for years to buy a home, then interest rates dropped and prices went up. The mortgage might be roughly the same with the same percentage of down payment, but they don't have enough cash to make the necessary down payment.
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Economics is a weird subject, even economists get predictions wrong all the time. It is easier to talk about logical subjects like Math or programming, vs something like social issues or economics. I don't know how to have a useful conversation about such topics, I understand your frustration. I suppose everyone has good intentions and is trying to help at the same time by sharing their theories - which could be bad…
> Economics is a weird subject, even economists get predictions wrong all the time. It's because economics is seen as a science but ignores (not completely) human behavior. You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test. This is why behavioral economics is so interesting IMO. It's not definitive but it at least it provides explanations.
The scientific method doesn't require laboratory controls; statistically controlled experiments are just as consistent with the scientific method.
Now, there are branches of economics which are, more of less overtly, not empirical science but essentially theology, the Austrian school being the most well-known, overt example, and they and their practitioners tend not to be distinguished from those of empirical economics when covered by the mainstream media...
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Of course it is, Millennials are as young as 25 this year. Its doubtful many can afford a house just a few years out of college (and even more doubtful if they didnt go to college). Even those that can may not be ready to settle down and commit to such a large purchase.
Yeah, but it's still also lower then it was for the older generations when they were at the same age.
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Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…
Home ownership is not an essential need. People aren't excluded from housing because of that risk. They can just rent from a landlord who's taking that risk themselves.
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It consistently shocks me how rarely this is brought up as a solution. Price of something too high? Increase the supply.
Me too! I think the average American thinks "increase supply" means skyscrapers with apartments, rather than lower impact multiunit, mixed-use apartments/street shops that are more common in Europe. Another issue with increasing supply/density: where is every household going to park its 2-3 cars?! (Disclaimer: I've been watching tons of City Beautiful and Not Just Bikes on Youtube)