Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

nytimes.com

Post reply on HN
Print view View original

71–80 of 223 posts

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

#71

Post by jpetso »

toasterlovin wrote: post #59
mathattack wrote: post #58

Earlier quoted context omitted.

Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.

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

When interest rates rise, prices fall. New buyers have a certain amount of money they're willing to pay each month and the market adjusts to that, so it makes little difference there. Existing owners would be the ones getting hit by rising interest rates, just as they were bagging outsized profits when rates were falling.

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

#72

Post by hanoz »

jeffreyrogers wrote: post #55
ahartmetz wrote: post #43

Earlier quoted context omitted.

"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.

In the US around 65% of households own their home. A collapse of the housing market would be catastrophic for their finances. I'm sure this is true of other countries as well. 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.

It wouldn't make any difference to those who own their homes outright, unless they were planning on trading up, in which case is it would be a positive, or down, a negative. Those who overleveraged could indeed find themselves in difficulty, however I fully expect they will get bailed out by the very people they priced out of the market by overbidding.

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

#73

Post by toasterlovin »

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.

I'm not talking about a steady state. I'm talking about the transition from a low interest rate regime to a high interest rate regime.

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

#74

Post by rmrm »

dageshi wrote: post #67
cobbzilla wrote: post #50

Earlier quoted context omitted.

Isn't QE just injecting more money into the system? How can that not result in inflation, eventually and if done excessively? It's the classic "more money chasing fewer goods." It's not just where the fed pegs the discount rate that drives inflation, it's also the money supply.

I suppose if the the additional demand instantly translates to near immediate provision of supply? Most manufactured goods would fit in that category nowadays? Only things like housing do not as they can't be easily provisioned to meet demand as quickly.

Correct, in that if supply increases you've either increased productivity, or the workforce. It cannot come on line otherwise.

I think it generally lags, and does not quite close the gap, outside of other deflationary pressures being present.

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

#75

Post by toss1 »

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…

From what I've read, gold and other PM generally perform inversely to real interest rates (vs nominal FED rates). This somewhat makes sense, as gold has a carrying cost (storage, security, etc.) and earns no interest, whereas when real interest rates are high, the money will produce better yield in bonds and similar investments.

In a situation of runaway inflation, nominal interest rates are insane also (I've seen double-digit percentages per month in one hyperinflation event in a country I visited), but the real inflation is likely even faster, making real interest negative.

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

#76

Post by downrightmike »

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…

Investing in the total market: vtsax because yes it will crash, but it will also recover.

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

#77

Post by simonh »

craftyguy wrote: post #40
MrEldritch wrote: post #10

"And if threats of a trade war with China or other countries turn into reality, this will tend to increase inflation, driving up prices both directly through new tariffs on imported goods and indirectly by encouraging less efficient production." ...I'm confused as to why either of those effects are supposed to be good things.

Those aren't the 'good things' that trade wars are supposed to bring. Some people believe trade wars bolster local economies, by giving local manufacturers a price advantage for their goods.. thereby increasing demand for local products and "increasing jobs". I don't think it has ever worked out that way, despite all the rhetoric.

Quite. Since those locally produced goods are more expensive (otherwise they’d have been locally produced already), everybody buying them now has less money to spend on anything else, reducing consumption and hitting the rest of the economy. Then you’re trapped, because if you try to unwind the damage, those jobs you did create go away again.

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

#78

Post by BenoitEssiambre »

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)

It includes rent just not house prices because house prices reflect investment (cost of consumption in the future) more than immediate consumption. House prices are converted to a kind of rent equivalent before being included in CPI.

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

#79

Post by voisin »

toasterlovin wrote: post #59
mathattack wrote: post #58

Earlier quoted context omitted.

Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.

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

High rates and inflation tends to reflect an overheated, strong economy. This usually signifies higher demand for real estate and lower cap rates (higher valuations). Nothing happens in a vacuum so it depends on relative opportunities elsewhere too.

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

#80

Post by toasterlovin »

jpetso wrote: post #71
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?

When interest rates rise, prices fall. New buyers have a certain amount of money they're willing to pay each month and the market adjusts to that, so it makes little difference there. Existing owners would be the ones getting hit by rising interest rates, just as they were bagging outsized profits when rates were falling.

Yeah, I guess I meant that house prices would crater. Obviously some people benefit from that and some don't.

My intuition is that it would also precipitate an economic downturn. Many households will see a drastic deterioration of their balance sheets, which should act as a damper on consumer spending. Which would, in theory, have 2nd order effects on the real estate market...

Post reply on HN