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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

#91

Post by protonfish »

quadyeast wrote: post #15
elvirs wrote: post #7

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

I agree completely. Everything I buy has gotten much, much more expensive, food, housing, transportation etc. Not 2%/yr more like >5%/yr. The CPI is rigged. Probably in favor of those who must payout relative to it.

It's easy to rig - remove key commodities like food, fuel, housing from the calculations because the are "volatile" then base your numbers on products that are increasingly built overseas in nations with a impractically favorable exchange rate. That is, in fact, what has been done, but there is a limit to how long this ruse can last.

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

#92

Post by lmohseni »

lrem wrote: post #86
matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

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…

In your case 1, this refers to people who have variable rate mortgages, correct? What about people who have fixed rates?

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

#93

Post by herge »

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.

Inflation won’t do anything to your fixed-rate debt, but hopefully it will increase your wages to make the debt easier to pay.

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

#94

Post by ericb »

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.

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

#95

Post by BenoitEssiambre »

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.

Existing owners wouldn't really be affected if they plan to live in their house as it's just paper wealth that they can't access until they sell anyways.

Those that downsize just after interest rates rise in order to spend the value locked in their house might lose a bit depending on whether any of the money is reinvested in something else after they sell.

People who will lose the most are house builders. Their revenue is directly tied to house prices. However, for a rate rise to be sustainable there has to be other good ways to make money out there otherwise rates will likely quickly go down again.

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

#96

Post by justonepost »

herge wrote: post #93
cortesoft wrote: post #90

Earlier quoted context omitted.

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.

Inflation won’t do anything to your fixed-rate debt, but hopefully it will increase your wages to make the debt easier to pay.

It will also increase the value of your house. Fix rate debt is definetly your friend.

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

#97

Post by mistermann »

mistermann wrote: post #21
elvirs wrote: post #7

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.

Ok this is getting ridiculous, I'm very curious what motive someone would have for downvoting this (other than my username). What is there to disagree with?

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

#98

Post by arkona3 »

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.

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

#99

Post by dragonwriter »

samsonradu wrote: post #11
elvirs wrote: post #7

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

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

Housing is part of the CPI [0], contrary to what lots of people in the thread are saying.

Now, there are legitimate debates about the imputed rent method by which owner-occupied housing is included in the CPI, but housing is definitely part of the CPI.

[0] https://www.bls.gov/cpi/questions-and-answers.htm#Question_1...

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

#100

Post by anon84598 »

cyberferret wrote: post #53
matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

I recall a time of nearly 20% interest rates here in Australia a few decades ago. As far as I can remember, it was all just business as normal for most people. It all comes down to just how much debt you own. 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. Househo…

It's worth noting that most Australian mortgages use variable (i.e., non-fixed) interest rates, so when rates go up, everyone's payment increases. High interest rates in the US are beneficial to mortgage holders because most people use fixed-rate loans which means as inflation increases, your monthly payment decreases in real value.
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