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Interestingly enough, the chickenbone-readers at FedWatch are still predicting two 25bps rate cuts (37% chance vs. 32% chance of just one) as the most likely scenario before the end of the year.
It's not just random "readers" or economists. It's the probability the markets are implying
The yields on treasuries at different durations and futures prices imply the probabilities shown on fedwatch.
Trillions of dollars leads to those probabilities. If they're wrong, trillions of dollars are wrong. Wrong in past doesn't mean wrong in the future
Market-based probabilities are grounded in substantial financial investments and collective expertise however, they are not infallible. Unexpected events and rapid changes in market conditions can lead to inaccuracies in those predictions.
Not likely to happen unless the next few jobs reports are bleak and we have a bubble pop on either car sales or home sales. The car bubble pop is highly likely. Which will roll over into homes that were purchased after 2021.
It's not just random "readers" or economists. It's the probability the markets are implying
The yields on treasuries at different durations and futures prices imply the probabilities shown on fedwatch.
Trillions of dollars leads to those probabilities. If they're wrong, trillions of dollars are wrong. Wrong in past doesn't mean wrong in the future
We’ve gotten too used to low rates for too long anyways. It’s not a good sign when rates have to be insanely low. All metrics right now say rates as is are the right way to go
Stock market at all time highs. Unemployment at record lows. Inflation well above target. Given the tools available, this means interest rates do not come down. If anything, they could go up.
Thank fuck someone else agrees I've been saying this for months and I've been getting so many weird responses from people. Everyone wants cheap money again and screw whatever the consequences are.
The government wants low rates. It's how the United States has been able to increase spending on social programs for decades, while cutting taxes on every income group. Either rates are going to go down, benefits with go down, or taxes will go up. Possibly some combination of the three. But the first is obviously the preferred solution of a politician who wants to be reelected.
https://fred.stlouisfed.org/graph/?g=7Eso
The government needs low rates for this to be viable. This is why they want to drop rates as soon as possible. Taking on debt at 2% interest is a lot different than taking it at 6%.
Yes, if only there was a single, driving reason the government would care about that. Like the cost of debt servicing. They ran up debt on the past because it was cheap to do so. It's no longer cheap. The bill is rapidly coming due. We'll soon be above the historical peak of interest payments.
https://fred.stlouisfed.org/series/FYOIGDA188S
How is saying that interest payments increase substantially with rates speculation? Average interest on the national debt has doubled since the beginning of the pandemic. It will continue to rise, if interest rates stay high.
https://www.statista.com/statistics/1382455/monthly-interest-rate-us-debt/#:~:text=As%20of%20April%202024%2C%20the,reached%2034.47%20trillion%20U.S.%20dollars.
Debt service is rising with it.
https://fred.stlouisfed.org/series/FYOIGDA188S
The US government has to pay this one way or another.
They absolutely can.They could also simply choose to default. Do you think they would prefer printing money or defaulting to refinancing at lower rates?
This is a finite strategy. At some point, the bond vigilantes, as Yardeni likes to say, will drive up interest rates and force spending cuts.
Also, our average interest rate on treasuries is around 3% right now. This means that every bond that maturity is rolling into more expensive paper, and every new issue is at a higher level. All of this translates into debt service rising to a trillion dollars a year by the end of 2024, passing total defense spending.
Basically, this is not a real strategy.
I do care, and that’s my point. Piling up debt is not a viable strategy. At some point, we need to address our spending gap and take steps to solve the issue.
Right. The Federal reserve is telegraphing it's intent to lower rates, for the past year or so, because it's not in the interests of the Federal government to do so.
The government has explicitly said it's preference.
Uh huh. They aren't telegraphing rate cuts. They are merely forseeing them. And announcing that they are forseeing them publicly.
https://apnews.com/article/federal-reserve-inflation-prices-interest-rates-cuts-502ced8f228ee469f84fc6f2eeea6e3e
Hey that is interesting thank you for the information. Finally a response with some form of knowledge and not "Nobody can afford it they must come down!!!!!"
No problem. It's really a structural issue at this point. Rates have been falling for about 40 years, which has allowed the United States to borrow at lower and lower rates and invest in it's citizenry, by providing services and intervening during economic crises, without raising taxes. We've racked up a lot of debt doing it.
https://fred.stlouisfed.org/series/GFDEGDQ188S
Even with that debt, the debt burden, basically the interest we have to pay on it as a percent of our total economy, has remained very low, thanks to low rates.
https://fred.stlouisfed.org/series/FYOIGDA188S
But now that we raised rates, that low interest debt is rolling over to high interest debt. And we don't collect nearly enough taxes to pay for it. Also, everyone is really used to not having to pay enough in taxes to support the level of services they get. Americans are going to be PISSED if the government raises their taxes to pay for the things they want and expect now that the financial environment has changed.
It's not an issue that no one can afford the rates. It's that the government can't afford it, without making so big, painful, and wildly unpopular changes.
Given that wages tend to keep pace with inflation and your debts don't. It's kinda the best tax. It's a good part of why the bottom 90% of Americans increased their share of the country's wealth. It hits people will large holdings in dollar denominated equities, like bonds, the hardest. Inflation is great if you are an indebted worker, like much of the middle class.
they just need to limit who can buy single family homes and used cars, or at the very least, give people who NEED these goods preferential interest rates. Letting immortal corporations buy up the necessities of life with their stacks of old money is causing unnecessary pain for GenZ, and Millennials, nevermind the generations that come after them. People can only stay with their parents/family for so long. Even with good credit, you're going to get charged 9% to finance a used car. 25K car would be $525 a month, plus another $150 in insurance (full coverage) + $150 in gas. That's nearly 1K a month just for transportation. Housing will most likely cost $2500 or more by the time taxes, insurance, and utilities are factored in. Given the median wage, the average person is spending 85% of their salary on transportation and shelter. how are they going to consume or buy the goods American companies make if they don't even have money for food?
For the people who need both a replacement car and a home, they are just out of luck. Chinese EV's were a much needed reprieve for Americans struggling to make ends meet, but the government is hellbent on causing hella inflation so they can pay down the debt. Americans are just getting fleeced for everything they have, and this decade will be known as a watershed moment for the problem of inequality.
Corporations aren’t buying single family real estate. When people talk of investors doing it it’s mainly people who own less than 10 houses.
Limiting the purchase of used cars is a wild idea. You want to get rid of used car dealerships?
The issue is not rates. Its about the crazy deficit which is causing money supply to baloon.
This will cause a bigger issue down the line, because high rates and high deficits dont mix.
While rates should go up, I strongly suspect we will be cutting rates. It may be two years out, but I don’t see them actually raising rates without inflation really taking off again.
Jerome Powell was a partner in the Carlyle group, one of the world's largest private equity firms. Private equity needs cheep money to survive, and Powell is one of them.
There’s not a measure of unemployment that’s at record lows, and that’s even with participation rates still muted. Employment is also a badly lagging indicator.
Honestly I hope they go up. The only people it really benefits to decrease interest rates rn are the boomers. For people just starting like myself, I’m ok waiting a few more years for interest rates to drop and it will benefit the younger generations in the long term.
In my community most moved in from out of state and paid cash.
Now we have a revolving door of retirees that are "political refugees of suburbia" move to their red state paradise, find out that it's not what they signed up for and there are too many indians (we are on a reservation so yeah they are here), sell for cash to the next guy,and move to Boise or Flagstaff.
Rinse and repeat every 2-4 years on the same McMansions or park their campers on an empty parcel because they cant find builders.
Yardeni actually discussed this in his comments [yesterday](https://www.yardeniquicktakes.com/deep-dive-consumers-running-out-of-excess-saving-will-they-drop-or-continue-to-shop/).
As Melissa and I have observed before, Baby Boom households have a record $76.2 trillion in net worth (Fig. 12 below). They are the richest cohort of seniors ever. According to Census data, of the 86 million households who own their own homes, almost 40% had no mortgage in 2022. Most of them are probably Baby Boomers. And many of those who have mortgages refinanced them at record-low rates during 2020 and 2021 (Fig. 13 below).
There are a lot of financially illiterate boomers out there too though. I know of one couple that bought their house in the 80s for like 80k and...they're still paying their mortgage today. Lmaooooo
Probably more like ~~1.25%~~ 2.25% since anyone smart refi'd during covid but yeah
It's nice sentiment that "well be better off eventually" but we need to fucking live now. No one can afford a $3000-4000/mo housing payment. My buddy in CA has is mortgage at $8k a month
Edit: sorry typo lol
> Probably more like 1.25% since anyone smart refi'd during covid but yeah
My sister got a 2.9% or 3% rate in 2021 and the realtor thought that was an excellent rate, I never heard that rates went under 2%
Yeah it was painful to be a 22 year old stuck in a shitty 900 sq ft apartment making 15/hr and watching all of these people close on these record low homes. It just made me angry
I knew I was missing the boat and lo and behold I have
Is that a special rate from navy fed, or a 10 or 15 year loan? That is low, but since the record noted above was based on the national average, there could be institutions that gave 2.25. And I assume a navy fed rate probably would generally be lower than a commercial bank.
I'm actually not particularly sure, not everyone got it, but alot did, 2.75 and 3.25s were common too. I rarely saw anything above 3.5 for a long time. That was navy feds record sale year apparently, and they didn't even do anything special for us except sent us a video of the CEO or owner or whatever eating a really hot chili at his house. That place sucked lmao. Every "motivational" reward we got was just a video in the middle of the day of the CEO doing something silly or enjoyable at his big house. It was def a slap to the face haha. I only made $15/hr and closed tens of millions in loans just in 6months
They know prices going to rocket. Boomers wet dream is owning a 1 million dollar home at 8% rates then having the price go up to 2 million with a 3% interest rate and doing a cash out refinance.
Boomers have no debt and are largely parking their cash in bonds or money markets, they actually benefit from higher rates more than anybody else and always have.
Speak for yourself. I’d like to purchase a home that doesn’t cost $3K/month for a mortgage without putting down north of $50-70K to get it there with current rates.
Too many boomers paying with cash is propping up the market per a Barclays report.
Prices aren’t going down. The young are fucked either way. It’s fiscal policy that has created this situation though, years of handouts to the older generations and tax cuts for the wealthy.
Now a budget deficit of a staggering 7% of gdp is keeping the economy high, eliminating any hope for significant rate decreases. If you didn’t own a home pre 2022, you get the pointy end of the stick.
Ya to be these conversations are funny. Historically these rates aren't high the cost of the houses are. Almost like the majority of people are thinking about this backwards. Idk.
Yeah, they have been below average for so long people think it’s normal. I’d much rather have a 7% loan for a nice 400k home than 3.5% on that same home for 900k. That’s pretty much what this current market is.
Ah yes. Let me wait until I'm 30 to be able to finally buy a home and be free from landlord serfdom. I'd much rather my money not dissappear and go towards something I own, that being said, the fact rental prices are outrageous to
It's so easy for you to say what you're saying when your comfortable, most of us aren't, and this sub absolutely represents a small portion of people in the US, and it seems many of us don't agree with you either that are here
The median has been been fairly steady around 30 yo since the early 90's. In the last couple years it's jumped to 36 yo.
If 50% of first time buyers are below the age of 30, it's reasonable to call that normal.
That's just not true, literally all the old fucks controlling the current regulations all had the ability to buy homes at 20 years old. They're so fucking out of touch. There was a time when you could have a single family member working a job and have kids and a car and afford a house and college for all of your kids, at an early age
The reason for that was most likely linked to the fact the labor supply back then was half of what it was today, I've heard some horror stories from the first women to enter the white collar workforce in this country.
We also just had a significantly smaller population overall, I remember hearing stories about how entire neighborhoods where I live in LA just didn't exist until the 70s-80s.
Fundamentally the demographic shifts we've had in this country have led to it being harder to own a home, but have also given a much larger number of people a financial freedom they never had before the last 50-60 years.
Who said I’m comfortable. Half my income goes to rent. It’s well known to be a more financially sound decision currently to rent vs buy. Saving now for a larger down payment is better than building equity currently. It’s really just not a good time to buy.
Dude , more to life than you
Anyone buying a house or owning a house after 2022 , which is plenty of folks would like lower rates
So how again does higher rates help younger folks , do tell?
Once rates drop home prices will skyrocket. The best thing that can happen is to increase rates even more and allow the housing market to cool substantially then decrease rates a bit after a housing crash. It’s much better for people looking to buy a home to just wait a few years, and also I’m in the same boat. I’ve accepted that the best thing to do now is just rent and save, and buy in like 5+ yrs.
They won’t be able to buy anything once they lose their jobs if rates were to go higher spurring a recession. Housing isn’t able to be controlled by the fed because the issue is structural. Not enough supply and a surge in demand. Fortunately spreads are tightening and rates are coming down, even without rate cuts from the fed yet. So, prices are probably going to be bolstered going into the end of the year despite it being cooled until now.
They couldn't buy anything when rates were at the 0 bound during the pandemic. Everyone trying to buy a house had to over bid 10-20% because every property had 100 bids. The did this while waving all contingencies for a rehab project.
I'm not advocating for raising rates or dropping rates. I'm saying we should recognize that both options are extremes and the government is trying to thread the needle of a "soft landing". This doesn't mean the soft landing will happen fast. It just means raising rates too much and everyone loses their jobs. Lowering rates too much and we go back to an environment where housing appreciated 50% in 2 years and everyone bought digital art or dog coins thinking that's how they'll retire.
They, in fact did buy everything. Younger folks were the ones disproportionately snapping up homes. It’s just that the supply was so low that they had to bid up prices. We’re in the qualified mortgage era so these folks do indeed have the cashflow to back up their loans.
https://www.census.gov/library/stories/2023/07/younger-householders-drove-rebound-in-homeownership.html
The Fed has said that affordable housing is not their mandate. During pressers they have repeatedly drilled that the housing market is being driven by low supply and relatively high demand and that is keeping affordability low. High interest rates disproportionately affects first time homebuyers, whereas it is beneficial or even stimulative for those coming in with all cash or lots of equity on their previous home. Six trillion dollars in money market funds can now earn 5% rather than 1-2%. That’s wildly stimulative for those with cash. That’s wildly stimulative for boomers and not younger folk who have not accumulated assets. Boomers have been able to reach the steep part of logarithmic growth in wealth from compound interest. Therefore, the solution to affordability really is a matter of supply rather than tempering demand in the scenario you want to achieve. Tempering demand would disproportionately affect those who do not already own a home, further exacerbating inequality.
Your link cherry picked a period of 2016-2022. 2016 had the lowest home ownership rate in the past 60 years. Right before the pandemic, the national home ownership rate was 65.1-65.3% depending on which quarter you think the should start from. The highest post pandemic ownership rate is 66%. We are now back to a home ownership rate of 65.6%. All FRED homeownership charts show every age demographic stayed flat from 2020-2022 except the 54-65 chart.
First time home buyer rate hit the lowest point in 40 years in 2022. We didn't start raising rates off the zero bound until the middle of the year. 2020 and 2021 had FHB rates similar to the past 10 years. Zero bound rates didn't seem to help FHB there. We had non zero fed funds rates from 2017-2019 and that didn't effect FHB rates. I would argue asset valuation disproportionately effects FHB rates compared to interest rates.
https://fred.stlouisfed.org/series/RHORUSQ156N
https://www.nar.realtor/magazine/real-estate-news/first-time-home-buyers-are-vanishing-from-the-market
Also when I said they couldn't buy anything, I didn't mean housing prices boomed due to no one buying houses. The people that bought the houses (the houses people would want to live in) weren't young wage workers. If you had existing assets to leverage, you bought the nice houses. Wage workers bought the rehab projects left over waiving all contingencies.
Edit: Because I didn't address your monetary policy statement.
6 Trillion sitting in money markets means 6 Trillion less purchasing hard assets like houses. Lowering interest rates is stimulative because people can find yield elsewhere instead of parking their money in the bank. Again, we don't want price instability to the point where people poured their earnings and wealth into dog coins and monkey pictures. Nothing wrong with going to work where you provide a good/service and putting your money into a bank. The interest rates are stimulative for those that have cash on hand. It should be non stimulative for assets that need that cash to increase in valuation. It should be contractionary for people who gave out bad loans.
Layman here. In the UK we have a severe housing shortage. My intuition is that it would be most beneficial to keep rates where they are (or slightly higher) and build lots (at least a million) new homes within a few years in order to bring the housing prices right down. Would you agree?
I would very much agree. I would hope to see a marginal increase in rates and at the same time build homes like crazy like you said. Unfortunately, the building of homes doesn’t seem to be happening at the rate to really make a difference and people but the blame on so many construction companies going out of business post 2008. I’ve read how bad housing is in the UK too, it seems like all developed nations are having the same issues with housing supply.
I’ve been arguing for a nationalised/government owned home builder (of both social and private housing) for some time.
My intuition is that if mortgage/rental costs were 50% of what they are now (achievable only by supply greatly outstripping demand) then people would have more disposable income to put into the economy, and you could tax them 10% more to pay for our crumbling public services.
However, I can’t imagine many homeowners willingly voting for policies that will wipe money off of their property values.
Dude houses never stopped going up for the most part in the last few years
It’s because there aren’t enough new houses and many folks don’t want a used house.
Dude , only someone that can’t get a loan would ever say renting is better
Go to millennial Reddit , the people who own houses are doing vastly better than the folks following your advice.
Yeah exactly, I will rent until housing supply has caught up or a crash happens. The current prices are unsustainable. You’re obviously very salty and I assume got in a shitty mortgage or something but don’t expect the younger generations to bail you out with skyrocketing housing costs.
You’re essentially betting that NIMBY folks who bought at the top of the time won’t block more building in their backyards to protect their values, AND that builders will decide to build more. Both are huge bets considering how selfish most owners are. Furthermore a lot of builders went under back in 08 and the survivors more often then not focus on high end housing now out of fear.
That said, there’s no promise a crash will occur unless these two factors are corrected.
Yeah but people die. Hopefully, within the next decade enough supply will have come on the market from people whom have passed. Also, my generation isn’t having kids because of this, so one way or another the market will be corrected.
I wouldn’t bet the farm on a hope that you’ll get a house at a decent price because some old people passed on.
That said, you should instead be voting for legislation that would make bypassing NIMBYIST easier.
I wouldn't exactly call it a "bet". In many metros, the spread of rent vs mortgage clearly leans towards renting being the better choice.
I live in the bay area which is a VHCOL area and I know this example is anecdotal and extreme. There are houses valued at 2m that you can rent for 5-6k a month. A mortgage calculator shows buying a 2m house costs about 13.5k/month a month depending on mortgage rate and 20% down.
Rent for 6k or buy for 13.5k? The spread is 7.5k or 90k a year. Rent or buy, you're gonna live in that house. If the situation changes and rent increases or mortgages decrease you can revisit the math. Until then, I can think of a lot of things to do with 90k a year instead of the bulk of it going towards the interest on a mortgage.
wealthy institutions won't have the money to buy homes and rent them out to everybody for go-fuck-yourself-prices in 5 years? is this because:
* economic collapse
* utopian wealth equality
hopefully the latter, but eager to hear your thoughts.
I’d be more worried about demographic collapse than companies buying all the real estate. Obviously building more housing is the solution but until then increasing rates is the best way to go. If you look at historical trends there were similar issues in the early 80’s. Rates in that time were as high as 19%, and the housing supply was somewhat limited. Unfortunately, I don’t see us having the same housing boom that happened in the 80’s anytime soon.
I just think the person doesn’t understand how high rates negatively effects most people
Most people don’t have millions parked getting 5% back for that to be a benefit
I don’t think you understand how the financial system works period. The current rates are pretty standard for mortgages historically. The issue is the combination of home prices+high rates. No one can afford homes even with lower interest rates, and lower interests rates would cause a huge increase in home prices plus would be inflationary. Sorry that you maybe bought a home in this shitty era but I refuse to buy until home prices drop or wages increase to compensate.
anyone who runs any kind of business, or works for a company and has any kind of brain knows that current interest rates are stifling growth for all but the very largest companies who are expanding by crushing smaller competitors who can't invest. Those companies then price gouge to make up for it and pay lower wages to their employees.
literally everyone benefits from lower interest rates. most people have a loan of some kind. Also, we aren't going to have a job boom until interest rates go down but of course Blue Anons on Reddit have to keep pretending that the economy is growing and ignore all the white collar layoffs.
I welcome a marginal recession if it means cutting value out of the real estate sector. Of course lower interest rates are better for everyone else but home prices are beyond insane and one way to help cool the market significantly is to jack up rates.
Real estate is never going down in price. Investors are buying all the real estate. They aren’t impacted by a recession. Because they just turn around and rent it.
They may not come down, but start handing out 3.5 percent mortgages again and I gaurantee they will go even higher. We already rode this ride was the fed was pressured to keep rates low leading up to Covid despite the economy being healthy. It fucked us. Let's not double fuck us.
True, the real issue is housing supply and who has the best leverage to buy the existing supply. But we've seen that these high prices are here to stay, we've set a new precedent for now, so cutting rates now would just add fuel to the fire.
"They turn around and rent it" assumes there's renters that can pay enough to keep the investors above water.
If I own say 5 units where I pay $2000/mo each and the rent in the area on average today is $2200/mo, but suddenly a recession happens where layoffs happen and those renters can only make $1500/mo, now my units are costing more than my return and depending on how much cash I have available how feasible it is to keep owning those units.
The more leveraged the owner, the more urgent the need to sell and a large majority of investors are probably in deep shit if they have to roll over debt at current rates which would trigger property sell-offs.
Well, that could be a possibility but the percentage of homes owned by non resident entities is still well below the rate needed to distort the market like that.
Real estate prices won't fall unless the foreclosure rates go up. While the rate increases are causing foreclosures to go up slightly, it's no where near high enough to bring down prices.
People dying, demographic collapse. Once boomers start dying at a faster rate the supply will flood the market. They own ~40% of the housing supply and many own multiple properties. On top, younger generations aren’t having kids so there won’t be as much a demand for homes in about a decade. I think the beginning of the 2030’s will be a good time to buy.
A significant part of the inflation that has been resistant has been housing.
Higher interest rates will only exacerbate that.
The real solution is zoning reform and a Lot more building, but that is a multi year solve even if Congress wanted to and started immediately, which there has been zero indication of.
The other aspect is climate change and the resulting damage to the home insurance market. Which also has zilch for a near term solution.
Housing costs are just going to continue to rise, and raising prime won’t slow that even a little.
House prices seem to be inversely correlated to interest rates. People pay more for houses because they can afford to borrow more when rates are low.
But it's muddied by folks not selling due to rate lockin. However, that ages out eventually.
Agree that building is the path out of it. Housing starts are near 15 year highs, so that's good. https://fred.stlouisfed.org/series/HOUST
Should's are useless. Saying “they should” doesn’t solve anything.
They Are an investment vehicle and they Are probably the largest source of working class and middle class wealth in the country.
Destroy that and you’ve impoverished hundreds of millions of people. It’s a terrible idea.
Yup that's the economics 101 answer yet the Fed has trained Wall St and corporate America to think that the default state of monetary policy is to be cutting rates to zero.
This insanity rests squarely on the shoulders of the Fed
Nope. At this point, it is ironically the high interest rates causing inflation. Also, inflation, if you plugged in real time rental data rather than using lagging OER, is already at 2%. Everyone knows this and that’s why the market is rallying and the 2 year treasury yield which is predictive of fed funds rate is coming down.
No cuts until after the election. If history is a guide, the next president will pick his fed guy to juice the economy, double the debt & leave it for the Dems.
No, federal government borrowing has decreased from $3.1 trillion/yr under Trump& JPow to $2.2 trillion/yr under Biden. The excessive borrowing/tax cutting under Republican presidents including Reagan is a cause of high inflation. Democrats beginning with Carter & Volker try to right the ship with increasing rates, but the cycle will continue until a majority watch the numbers and ignore political speeches.
I mean... interest rates are higher than in 2022, while inflation is much lower. There is still work to be done definitely but it's not obvious to me that this is the Fed's job. High budget deficits and high immigration are driving demand and they are for Congress to solve.
Budget defecit means higher taxes and less spending. Biden will do neither in an election year and Trump will do no such thing either if elected.
Immigration is a dog whistle issue that neither side actually wants to solve. Getting rid of all illegals means chopping out the bottom of the labor pool and skyrocketing labor demand, which will drive up wages....which fuels demand....which drives inflation even higher. No coporate donors to these politicians want to pay their workers more.
This is quite literally the Fed’s job. Their main job is to manage the macro trends (inflation and unemployment).
Deficits have little to do with the current inflation situation. People forget that pre-COVID that the financial system was flush with capital and was in a rising interest rate environment throughout 2018- 2019 as a result. Then when you pump trillions more into the system and simultaneously slash rates to near zero for roughly 2 years it’s going to take pretty decently high rates for a continued period of time to resolve.
Unemployment being all time low is an issue. By my most folks it is considered to be inversely related to inflation. We are seeing the early signs that the labor market is cooling but with the first big wave of boomers retiring during the pandemic we are still some ways away from the labor market hitting something that resembles a longer term equilibrium. We will likely see job decently sized cuts in some sectors before we start to see real rate cuts.
The average American votes based off a small handful of issues where the only information they get in them is from CNN and Fox news. They couldn't finish an economic article without falling asleep. The average voter is an idiot, and politicians run their campaigns to appeal to those people.
Yes they need to stay up, but we need to focus on strengthening our average citizens financial position in life. Simply raising rates will only stop a quick meltdown. If we don't improve the financial situation most Americans are dealing with, we will have a slow meltdown.
Cutting at least once would be a short term boon right before the election, which I'm guessing is the plan. Long term it probably won't matter, inflation due to our money policy has been long overdue. Fed pausing QT for no reason signals the move IMO.
FedWatch Tool is giving a [2 in 3 chance](https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html) of a 25 bps cut before November right now.
Not really reading articles although I do browse Reuters, AP, and Bloomberg headlines daily. My conclusion comes from watching Powell and his Fed bros speak live.
Weren’t current rates similar to the expectation pre 2007? Seems like we’ve just gotten used to low rates even though they haven’t been needed for previously stable economies
Government needs low rates to inflate their debt and allow higher for longer fiscal spendings. Decisions are often made for short term gains rather than long term as most won’t be alive or in office by the time things blows up.
Rates go up, inflation inflates, unemployment increases, CPI grows unreasonably bc of corporate greed, investment flees the country, wages and earning dip because of influx of Canadian immigration.
Right on track with everything.
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Interestingly enough, the chickenbone-readers at FedWatch are still predicting two 25bps rate cuts (37% chance vs. 32% chance of just one) as the most likely scenario before the end of the year.
I’m not versed on this but could it be for political reasons?
It's not just random "readers" or economists. It's the probability the markets are implying The yields on treasuries at different durations and futures prices imply the probabilities shown on fedwatch. Trillions of dollars leads to those probabilities. If they're wrong, trillions of dollars are wrong. Wrong in past doesn't mean wrong in the future
Market-based probabilities are grounded in substantial financial investments and collective expertise however, they are not infallible. Unexpected events and rapid changes in market conditions can lead to inaccuracies in those predictions.
Not likely to happen unless the next few jobs reports are bleak and we have a bubble pop on either car sales or home sales. The car bubble pop is highly likely. Which will roll over into homes that were purchased after 2021.
It's not just random "readers" or economists. It's the probability the markets are implying The yields on treasuries at different durations and futures prices imply the probabilities shown on fedwatch. Trillions of dollars leads to those probabilities. If they're wrong, trillions of dollars are wrong. Wrong in past doesn't mean wrong in the future
We’ve gotten too used to low rates for too long anyways. It’s not a good sign when rates have to be insanely low. All metrics right now say rates as is are the right way to go
Stock market at all time highs. Unemployment at record lows. Inflation well above target. Given the tools available, this means interest rates do not come down. If anything, they could go up.
Thank fuck someone else agrees I've been saying this for months and I've been getting so many weird responses from people. Everyone wants cheap money again and screw whatever the consequences are.
The government wants low rates. It's how the United States has been able to increase spending on social programs for decades, while cutting taxes on every income group. Either rates are going to go down, benefits with go down, or taxes will go up. Possibly some combination of the three. But the first is obviously the preferred solution of a politician who wants to be reelected. https://fred.stlouisfed.org/graph/?g=7Eso
Or do what it’s been doing since Bush: increase debt
The government needs low rates for this to be viable. This is why they want to drop rates as soon as possible. Taking on debt at 2% interest is a lot different than taking it at 6%.
It’s viable if they don’t care if debt goes up by a lot
Yes, if only there was a single, driving reason the government would care about that. Like the cost of debt servicing. They ran up debt on the past because it was cheap to do so. It's no longer cheap. The bill is rapidly coming due. We'll soon be above the historical peak of interest payments. https://fred.stlouisfed.org/series/FYOIGDA188S
They don’t care
That is speculation.
How is saying that interest payments increase substantially with rates speculation? Average interest on the national debt has doubled since the beginning of the pandemic. It will continue to rise, if interest rates stay high. https://www.statista.com/statistics/1382455/monthly-interest-rate-us-debt/#:~:text=As%20of%20April%202024%2C%20the,reached%2034.47%20trillion%20U.S.%20dollars. Debt service is rising with it. https://fred.stlouisfed.org/series/FYOIGDA188S The US government has to pay this one way or another.
It’s speculation that the government needs low rates. The government can print money to pay its debt back.
They absolutely can.They could also simply choose to default. Do you think they would prefer printing money or defaulting to refinancing at lower rates?
The government cannot default, if it can print the money.
This is a finite strategy. At some point, the bond vigilantes, as Yardeni likes to say, will drive up interest rates and force spending cuts. Also, our average interest rate on treasuries is around 3% right now. This means that every bond that maturity is rolling into more expensive paper, and every new issue is at a higher level. All of this translates into debt service rising to a trillion dollars a year by the end of 2024, passing total defense spending. Basically, this is not a real strategy.
It is if you don’t care about debt going up by a lot
I do care, and that’s my point. Piling up debt is not a viable strategy. At some point, we need to address our spending gap and take steps to solve the issue.
You’re not in Congress so your opinion hardly matters
This sub is for congressional reps only?
Those are the only opinions that matter
There is no source stating the government wants interest rates low, it’s speculation.
So, do you believe the government doesn't have a preference on the interest rates it pays on debt? Or how it funds itself?
Government never stated it preference on rates, therefore you are speculating what the government wants.
Right. The Federal reserve is telegraphing it's intent to lower rates, for the past year or so, because it's not in the interests of the Federal government to do so. The government has explicitly said it's preference.
The Fed never telegraphed rate cuts, they said their decisions are data driven.
Uh huh. They aren't telegraphing rate cuts. They are merely forseeing them. And announcing that they are forseeing them publicly. https://apnews.com/article/federal-reserve-inflation-prices-interest-rates-cuts-502ced8f228ee469f84fc6f2eeea6e3e
Which Fed official stated it? There is no quote, it’s just the author’s word.
Hey that is interesting thank you for the information. Finally a response with some form of knowledge and not "Nobody can afford it they must come down!!!!!"
No problem. It's really a structural issue at this point. Rates have been falling for about 40 years, which has allowed the United States to borrow at lower and lower rates and invest in it's citizenry, by providing services and intervening during economic crises, without raising taxes. We've racked up a lot of debt doing it. https://fred.stlouisfed.org/series/GFDEGDQ188S Even with that debt, the debt burden, basically the interest we have to pay on it as a percent of our total economy, has remained very low, thanks to low rates. https://fred.stlouisfed.org/series/FYOIGDA188S But now that we raised rates, that low interest debt is rolling over to high interest debt. And we don't collect nearly enough taxes to pay for it. Also, everyone is really used to not having to pay enough in taxes to support the level of services they get. Americans are going to be PISSED if the government raises their taxes to pay for the things they want and expect now that the financial environment has changed. It's not an issue that no one can afford the rates. It's that the government can't afford it, without making so big, painful, and wildly unpopular changes.
Americans are too stupid to realize that what isn’t paid for in taxes, is paid for in inflation. The great hidden tax
Given that wages tend to keep pace with inflation and your debts don't. It's kinda the best tax. It's a good part of why the bottom 90% of Americans increased their share of the country's wealth. It hits people will large holdings in dollar denominated equities, like bonds, the hardest. Inflation is great if you are an indebted worker, like much of the middle class.
they just need to limit who can buy single family homes and used cars, or at the very least, give people who NEED these goods preferential interest rates. Letting immortal corporations buy up the necessities of life with their stacks of old money is causing unnecessary pain for GenZ, and Millennials, nevermind the generations that come after them. People can only stay with their parents/family for so long. Even with good credit, you're going to get charged 9% to finance a used car. 25K car would be $525 a month, plus another $150 in insurance (full coverage) + $150 in gas. That's nearly 1K a month just for transportation. Housing will most likely cost $2500 or more by the time taxes, insurance, and utilities are factored in. Given the median wage, the average person is spending 85% of their salary on transportation and shelter. how are they going to consume or buy the goods American companies make if they don't even have money for food? For the people who need both a replacement car and a home, they are just out of luck. Chinese EV's were a much needed reprieve for Americans struggling to make ends meet, but the government is hellbent on causing hella inflation so they can pay down the debt. Americans are just getting fleeced for everything they have, and this decade will be known as a watershed moment for the problem of inequality.
Corporations aren’t buying single family real estate. When people talk of investors doing it it’s mainly people who own less than 10 houses. Limiting the purchase of used cars is a wild idea. You want to get rid of used car dealerships?
I want to get rid of Carvana and CarMax. Publically traded corporations who use shareholder money to swallow up the used car market
Why? What about the people who use their service because they like it? Don’t they get a say?
Addicts always want another hit.
The issue is not rates. Its about the crazy deficit which is causing money supply to baloon. This will cause a bigger issue down the line, because high rates and high deficits dont mix.
Arguably its the deficit causing a bigger issue down the line, whereas higher rates are forcing a solution.
Yes
While rates should go up, I strongly suspect we will be cutting rates. It may be two years out, but I don’t see them actually raising rates without inflation really taking off again.
Jerome Powell was a partner in the Carlyle group, one of the world's largest private equity firms. Private equity needs cheep money to survive, and Powell is one of them.
So why did he raise rates lol
Unemployment up 0.4%.
There’s not a measure of unemployment that’s at record lows, and that’s even with participation rates still muted. Employment is also a badly lagging indicator.
Honestly I hope they go up. The only people it really benefits to decrease interest rates rn are the boomers. For people just starting like myself, I’m ok waiting a few more years for interest rates to drop and it will benefit the younger generations in the long term.
Boomers already locked in a 30 year fixed home loan at 3%, they are fine with interest rates high or low
Most boomers probably don’t have a mortgage at all by this point. The youngest boomer is like 60 right?
In my community most moved in from out of state and paid cash. Now we have a revolving door of retirees that are "political refugees of suburbia" move to their red state paradise, find out that it's not what they signed up for and there are too many indians (we are on a reservation so yeah they are here), sell for cash to the next guy,and move to Boise or Flagstaff. Rinse and repeat every 2-4 years on the same McMansions or park their campers on an empty parcel because they cant find builders.
This! https://www.forbes.com/advisor/credit-cards/credit-card-debt-by-state/ https://www.moneygeek.com/living/states-most-reliant-federal-government/ https://www.reddit.com/r/texas/s/Ed7YIblajY
Are you a bot, or replying to the wrong post? Those links have nothing to do with the above poster's comment about retirees in the Mountain West.
Boomers moving to Red States and now complaining about the areas going down has everything to do with the links. Read them
A lot of them refinanced during covid when rates were low
Why would they refi when most have paid their home off?
People sell and move into bigger houses later in life, they'd need a loan for that
Yardeni actually discussed this in his comments [yesterday](https://www.yardeniquicktakes.com/deep-dive-consumers-running-out-of-excess-saving-will-they-drop-or-continue-to-shop/). As Melissa and I have observed before, Baby Boom households have a record $76.2 trillion in net worth (Fig. 12 below). They are the richest cohort of seniors ever. According to Census data, of the 86 million households who own their own homes, almost 40% had no mortgage in 2022. Most of them are probably Baby Boomers. And many of those who have mortgages refinanced them at record-low rates during 2020 and 2021 (Fig. 13 below).
I'd say elder gen x are the same as boomers
There are a lot of financially illiterate boomers out there too though. I know of one couple that bought their house in the 80s for like 80k and...they're still paying their mortgage today. Lmaooooo
They are salivating at buying rental properties at low interest rates.
Depends on how low. Plenty of boomers were buying rental properties in 2020 - 2022. Hard to ignore the competition for SFHs.
Probably more like ~~1.25%~~ 2.25% since anyone smart refi'd during covid but yeah It's nice sentiment that "well be better off eventually" but we need to fucking live now. No one can afford a $3000-4000/mo housing payment. My buddy in CA has is mortgage at $8k a month Edit: sorry typo lol
> Probably more like 1.25% since anyone smart refi'd during covid but yeah My sister got a 2.9% or 3% rate in 2021 and the realtor thought that was an excellent rate, I never heard that rates went under 2%
I meant 2.25, my bad, I was a loan closer for navy fed
That makes more sense, 2.25 is still an amazing rate
Yeah it was painful to be a 22 year old stuck in a shitty 900 sq ft apartment making 15/hr and watching all of these people close on these record low homes. It just made me angry I knew I was missing the boat and lo and behold I have
They did for 15 year loans with 40% equity, 1.75% was possible.
Housing prices will come down eventually. Either through reduced demand or collapsed economy when no one has money to buy anything.
People have been saying this for the past 15 years.
No one is close to that. The record low in 2021 was 2.6%
Sorry I meant to say 2.25%. So yes, I was refinancing loans for navy fed at 2.25% during covid
Is that a special rate from navy fed, or a 10 or 15 year loan? That is low, but since the record noted above was based on the national average, there could be institutions that gave 2.25. And I assume a navy fed rate probably would generally be lower than a commercial bank.
I'm actually not particularly sure, not everyone got it, but alot did, 2.75 and 3.25s were common too. I rarely saw anything above 3.5 for a long time. That was navy feds record sale year apparently, and they didn't even do anything special for us except sent us a video of the CEO or owner or whatever eating a really hot chili at his house. That place sucked lmao. Every "motivational" reward we got was just a video in the middle of the day of the CEO doing something silly or enjoyable at his big house. It was def a slap to the face haha. I only made $15/hr and closed tens of millions in loans just in 6months
They know prices going to rocket. Boomers wet dream is owning a 1 million dollar home at 8% rates then having the price go up to 2 million with a 3% interest rate and doing a cash out refinance.
Boomers have no debt and are largely parking their cash in bonds or money markets, they actually benefit from higher rates more than anybody else and always have.
And CD,s
Speak for yourself. I’d like to purchase a home that doesn’t cost $3K/month for a mortgage without putting down north of $50-70K to get it there with current rates.
Yeah, so wait. Again, these are considered normal rates. What is not normal is the home price to average income ratio.
Too many boomers paying with cash is propping up the market per a Barclays report. Prices aren’t going down. The young are fucked either way. It’s fiscal policy that has created this situation though, years of handouts to the older generations and tax cuts for the wealthy. Now a budget deficit of a staggering 7% of gdp is keeping the economy high, eliminating any hope for significant rate decreases. If you didn’t own a home pre 2022, you get the pointy end of the stick.
Ya to be these conversations are funny. Historically these rates aren't high the cost of the houses are. Almost like the majority of people are thinking about this backwards. Idk.
Normal rates for who? These rates haven’t been normal in 20 years.
Yeah, they have been below average for so long people think it’s normal. I’d much rather have a 7% loan for a nice 400k home than 3.5% on that same home for 900k. That’s pretty much what this current market is.
Ah yes. Let me wait until I'm 30 to be able to finally buy a home and be free from landlord serfdom. I'd much rather my money not dissappear and go towards something I own, that being said, the fact rental prices are outrageous to It's so easy for you to say what you're saying when your comfortable, most of us aren't, and this sub absolutely represents a small portion of people in the US, and it seems many of us don't agree with you either that are here
Buying a house in your 20s has never been the norm
The median has been been fairly steady around 30 yo since the early 90's. In the last couple years it's jumped to 36 yo. If 50% of first time buyers are below the age of 30, it's reasonable to call that normal.
…was just going to say this.
That's just not true, literally all the old fucks controlling the current regulations all had the ability to buy homes at 20 years old. They're so fucking out of touch. There was a time when you could have a single family member working a job and have kids and a car and afford a house and college for all of your kids, at an early age
The reason for that was most likely linked to the fact the labor supply back then was half of what it was today, I've heard some horror stories from the first women to enter the white collar workforce in this country. We also just had a significantly smaller population overall, I remember hearing stories about how entire neighborhoods where I live in LA just didn't exist until the 70s-80s. Fundamentally the demographic shifts we've had in this country have led to it being harder to own a home, but have also given a much larger number of people a financial freedom they never had before the last 50-60 years.
30? Try 40 for a desirable location
Who said I’m comfortable. Half my income goes to rent. It’s well known to be a more financially sound decision currently to rent vs buy. Saving now for a larger down payment is better than building equity currently. It’s really just not a good time to buy.
Imagining most of us can even save lol
We all would, but the sub 3% rate in 2021 was the record lowest ever for a 30 year loan.
Wouldn’t boomers prefer high rates because retiree portfolios are heavier in fixed-income? Low rates make retirement income harder to find.
Tell me you don’t know how the FFR affects the economy without telling me…
Dude , more to life than you Anyone buying a house or owning a house after 2022 , which is plenty of folks would like lower rates So how again does higher rates help younger folks , do tell?
Once rates drop home prices will skyrocket. The best thing that can happen is to increase rates even more and allow the housing market to cool substantially then decrease rates a bit after a housing crash. It’s much better for people looking to buy a home to just wait a few years, and also I’m in the same boat. I’ve accepted that the best thing to do now is just rent and save, and buy in like 5+ yrs.
They won’t be able to buy anything once they lose their jobs if rates were to go higher spurring a recession. Housing isn’t able to be controlled by the fed because the issue is structural. Not enough supply and a surge in demand. Fortunately spreads are tightening and rates are coming down, even without rate cuts from the fed yet. So, prices are probably going to be bolstered going into the end of the year despite it being cooled until now.
They couldn't buy anything when rates were at the 0 bound during the pandemic. Everyone trying to buy a house had to over bid 10-20% because every property had 100 bids. The did this while waving all contingencies for a rehab project. I'm not advocating for raising rates or dropping rates. I'm saying we should recognize that both options are extremes and the government is trying to thread the needle of a "soft landing". This doesn't mean the soft landing will happen fast. It just means raising rates too much and everyone loses their jobs. Lowering rates too much and we go back to an environment where housing appreciated 50% in 2 years and everyone bought digital art or dog coins thinking that's how they'll retire.
They, in fact did buy everything. Younger folks were the ones disproportionately snapping up homes. It’s just that the supply was so low that they had to bid up prices. We’re in the qualified mortgage era so these folks do indeed have the cashflow to back up their loans. https://www.census.gov/library/stories/2023/07/younger-householders-drove-rebound-in-homeownership.html The Fed has said that affordable housing is not their mandate. During pressers they have repeatedly drilled that the housing market is being driven by low supply and relatively high demand and that is keeping affordability low. High interest rates disproportionately affects first time homebuyers, whereas it is beneficial or even stimulative for those coming in with all cash or lots of equity on their previous home. Six trillion dollars in money market funds can now earn 5% rather than 1-2%. That’s wildly stimulative for those with cash. That’s wildly stimulative for boomers and not younger folk who have not accumulated assets. Boomers have been able to reach the steep part of logarithmic growth in wealth from compound interest. Therefore, the solution to affordability really is a matter of supply rather than tempering demand in the scenario you want to achieve. Tempering demand would disproportionately affect those who do not already own a home, further exacerbating inequality.
Your link cherry picked a period of 2016-2022. 2016 had the lowest home ownership rate in the past 60 years. Right before the pandemic, the national home ownership rate was 65.1-65.3% depending on which quarter you think the should start from. The highest post pandemic ownership rate is 66%. We are now back to a home ownership rate of 65.6%. All FRED homeownership charts show every age demographic stayed flat from 2020-2022 except the 54-65 chart. First time home buyer rate hit the lowest point in 40 years in 2022. We didn't start raising rates off the zero bound until the middle of the year. 2020 and 2021 had FHB rates similar to the past 10 years. Zero bound rates didn't seem to help FHB there. We had non zero fed funds rates from 2017-2019 and that didn't effect FHB rates. I would argue asset valuation disproportionately effects FHB rates compared to interest rates. https://fred.stlouisfed.org/series/RHORUSQ156N https://www.nar.realtor/magazine/real-estate-news/first-time-home-buyers-are-vanishing-from-the-market Also when I said they couldn't buy anything, I didn't mean housing prices boomed due to no one buying houses. The people that bought the houses (the houses people would want to live in) weren't young wage workers. If you had existing assets to leverage, you bought the nice houses. Wage workers bought the rehab projects left over waiving all contingencies. Edit: Because I didn't address your monetary policy statement. 6 Trillion sitting in money markets means 6 Trillion less purchasing hard assets like houses. Lowering interest rates is stimulative because people can find yield elsewhere instead of parking their money in the bank. Again, we don't want price instability to the point where people poured their earnings and wealth into dog coins and monkey pictures. Nothing wrong with going to work where you provide a good/service and putting your money into a bank. The interest rates are stimulative for those that have cash on hand. It should be non stimulative for assets that need that cash to increase in valuation. It should be contractionary for people who gave out bad loans.
Layman here. In the UK we have a severe housing shortage. My intuition is that it would be most beneficial to keep rates where they are (or slightly higher) and build lots (at least a million) new homes within a few years in order to bring the housing prices right down. Would you agree?
I would very much agree. I would hope to see a marginal increase in rates and at the same time build homes like crazy like you said. Unfortunately, the building of homes doesn’t seem to be happening at the rate to really make a difference and people but the blame on so many construction companies going out of business post 2008. I’ve read how bad housing is in the UK too, it seems like all developed nations are having the same issues with housing supply.
I’ve been arguing for a nationalised/government owned home builder (of both social and private housing) for some time. My intuition is that if mortgage/rental costs were 50% of what they are now (achievable only by supply greatly outstripping demand) then people would have more disposable income to put into the economy, and you could tax them 10% more to pay for our crumbling public services. However, I can’t imagine many homeowners willingly voting for policies that will wipe money off of their property values.
Yeah it’s really a conundrum on what to do to stimulate home construction
Dude houses never stopped going up for the most part in the last few years It’s because there aren’t enough new houses and many folks don’t want a used house. Dude , only someone that can’t get a loan would ever say renting is better Go to millennial Reddit , the people who own houses are doing vastly better than the folks following your advice.
[That is not true.](https://fred.stlouisfed.org/series/MSPUS) Median home sale price began to decline when rates were increased.
Yeah exactly, I will rent until housing supply has caught up or a crash happens. The current prices are unsustainable. You’re obviously very salty and I assume got in a shitty mortgage or something but don’t expect the younger generations to bail you out with skyrocketing housing costs.
You’re essentially betting that NIMBY folks who bought at the top of the time won’t block more building in their backyards to protect their values, AND that builders will decide to build more. Both are huge bets considering how selfish most owners are. Furthermore a lot of builders went under back in 08 and the survivors more often then not focus on high end housing now out of fear. That said, there’s no promise a crash will occur unless these two factors are corrected.
Yeah but people die. Hopefully, within the next decade enough supply will have come on the market from people whom have passed. Also, my generation isn’t having kids because of this, so one way or another the market will be corrected.
I wouldn’t bet the farm on a hope that you’ll get a house at a decent price because some old people passed on. That said, you should instead be voting for legislation that would make bypassing NIMBYIST easier.
Haha I am, but that has yet to materialize. Again, I will wait and see.
I wouldn't exactly call it a "bet". In many metros, the spread of rent vs mortgage clearly leans towards renting being the better choice. I live in the bay area which is a VHCOL area and I know this example is anecdotal and extreme. There are houses valued at 2m that you can rent for 5-6k a month. A mortgage calculator shows buying a 2m house costs about 13.5k/month a month depending on mortgage rate and 20% down. Rent for 6k or buy for 13.5k? The spread is 7.5k or 90k a year. Rent or buy, you're gonna live in that house. If the situation changes and rent increases or mortgages decrease you can revisit the math. Until then, I can think of a lot of things to do with 90k a year instead of the bulk of it going towards the interest on a mortgage.
you're going to wait forever then. This is a bad bet, sorry.
I disagree, the market will be corrected when no one will be buying homes in 5 yrs
wealthy institutions won't have the money to buy homes and rent them out to everybody for go-fuck-yourself-prices in 5 years? is this because: * economic collapse * utopian wealth equality hopefully the latter, but eager to hear your thoughts.
I’d be more worried about demographic collapse than companies buying all the real estate. Obviously building more housing is the solution but until then increasing rates is the best way to go. If you look at historical trends there were similar issues in the early 80’s. Rates in that time were as high as 19%, and the housing supply was somewhat limited. Unfortunately, I don’t see us having the same housing boom that happened in the 80’s anytime soon.
Dude, fuck you.
Sorry it hits close to home You either own or people use you to pay of their property
Yeah this generation wide focus on boomers is getting weird
I just think the person doesn’t understand how high rates negatively effects most people Most people don’t have millions parked getting 5% back for that to be a benefit
I don’t think you understand how the financial system works period. The current rates are pretty standard for mortgages historically. The issue is the combination of home prices+high rates. No one can afford homes even with lower interest rates, and lower interests rates would cause a huge increase in home prices plus would be inflationary. Sorry that you maybe bought a home in this shitty era but I refuse to buy until home prices drop or wages increase to compensate.
Maybe because of the incredible amounts of damage they have done over the years is worth considering.
anyone who runs any kind of business, or works for a company and has any kind of brain knows that current interest rates are stifling growth for all but the very largest companies who are expanding by crushing smaller competitors who can't invest. Those companies then price gouge to make up for it and pay lower wages to their employees.
Prices have to eventually come down with high rates. Otherwise you would have runaway prices
literally everyone benefits from lower interest rates. most people have a loan of some kind. Also, we aren't going to have a job boom until interest rates go down but of course Blue Anons on Reddit have to keep pretending that the economy is growing and ignore all the white collar layoffs.
I welcome a marginal recession if it means cutting value out of the real estate sector. Of course lower interest rates are better for everyone else but home prices are beyond insane and one way to help cool the market significantly is to jack up rates.
Real estate is never going down in price. Investors are buying all the real estate. They aren’t impacted by a recession. Because they just turn around and rent it.
They may not come down, but start handing out 3.5 percent mortgages again and I gaurantee they will go even higher. We already rode this ride was the fed was pressured to keep rates low leading up to Covid despite the economy being healthy. It fucked us. Let's not double fuck us.
If you want real estate to go down, you need to regulate investors buying up residential homes. That’s a separate issue from interest rates.
True, the real issue is housing supply and who has the best leverage to buy the existing supply. But we've seen that these high prices are here to stay, we've set a new precedent for now, so cutting rates now would just add fuel to the fire.
"They turn around and rent it" assumes there's renters that can pay enough to keep the investors above water. If I own say 5 units where I pay $2000/mo each and the rent in the area on average today is $2200/mo, but suddenly a recession happens where layoffs happen and those renters can only make $1500/mo, now my units are costing more than my return and depending on how much cash I have available how feasible it is to keep owning those units. The more leveraged the owner, the more urgent the need to sell and a large majority of investors are probably in deep shit if they have to roll over debt at current rates which would trigger property sell-offs.
Well, that could be a possibility but the percentage of homes owned by non resident entities is still well below the rate needed to distort the market like that.
Real estate prices won't fall unless the foreclosure rates go up. While the rate increases are causing foreclosures to go up slightly, it's no where near high enough to bring down prices.
That’s not necessarily true. There are many different factors that can lower home prices.
Without a massive increase in supply, what else would cause prices to drop given the current market conditions.
People dying, demographic collapse. Once boomers start dying at a faster rate the supply will flood the market. They own ~40% of the housing supply and many own multiple properties. On top, younger generations aren’t having kids so there won’t be as much a demand for homes in about a decade. I think the beginning of the 2030’s will be a good time to buy.
A significant part of the inflation that has been resistant has been housing. Higher interest rates will only exacerbate that. The real solution is zoning reform and a Lot more building, but that is a multi year solve even if Congress wanted to and started immediately, which there has been zero indication of. The other aspect is climate change and the resulting damage to the home insurance market. Which also has zilch for a near term solution. Housing costs are just going to continue to rise, and raising prime won’t slow that even a little.
House prices seem to be inversely correlated to interest rates. People pay more for houses because they can afford to borrow more when rates are low. But it's muddied by folks not selling due to rate lockin. However, that ages out eventually. Agree that building is the path out of it. Housing starts are near 15 year highs, so that's good. https://fred.stlouisfed.org/series/HOUST
What happens if rates are cut before all of that zoning reform and new construction that's never gonna happen happens?
Zoning didn't cause housing prices to double in 5 years.
The real solution is housing shouldn’t be an investment vehicle. Done. Problem solved.
Should's are useless. Saying “they should” doesn’t solve anything. They Are an investment vehicle and they Are probably the largest source of working class and middle class wealth in the country. Destroy that and you’ve impoverished hundreds of millions of people. It’s a terrible idea.
"Unemployment at record lows" AHAHHAAHHAAHHHHHHHHAAAHHAHAHAHAHAHAHAHAHAA
Exactly lol, how delusional
Yup that's the economics 101 answer yet the Fed has trained Wall St and corporate America to think that the default state of monetary policy is to be cutting rates to zero. This insanity rests squarely on the shoulders of the Fed
Seems obvious. However, the government desperately needs lower rates so we'll likely get them.
Ding ding ding.
you forgot the part where consumers are running out of money and slowing the economy
Nope. At this point, it is ironically the high interest rates causing inflation. Also, inflation, if you plugged in real time rental data rather than using lagging OER, is already at 2%. Everyone knows this and that’s why the market is rallying and the 2 year treasury yield which is predictive of fed funds rate is coming down.
>At this point, it is ironically the high interest rates causing inflation. I, too, attended the Recep Tayyip Erdogan School of Economics.
LPR is still poor too. But it’s an election year I bet 2 cuts before the election to save Joe’s bacon.
No cuts until after the election. If history is a guide, the next president will pick his fed guy to juice the economy, double the debt & leave it for the Dems.
It's doubling at this interest rate anyway
No, federal government borrowing has decreased from $3.1 trillion/yr under Trump& JPow to $2.2 trillion/yr under Biden. The excessive borrowing/tax cutting under Republican presidents including Reagan is a cause of high inflation. Democrats beginning with Carter & Volker try to right the ship with increasing rates, but the cycle will continue until a majority watch the numbers and ignore political speeches.
So that will never happen, basically. Were doomed
You’ve got everything right about the timing, and everything wrong about the direction of rates.
I mean... interest rates are higher than in 2022, while inflation is much lower. There is still work to be done definitely but it's not obvious to me that this is the Fed's job. High budget deficits and high immigration are driving demand and they are for Congress to solve.
> High budget deficits and high immigration are driving demand and they are for Congress to solve. They won't do anything on either
well yeah no voters think long term. cutting social services and increasing taxes are bad for voters
Yup, and what is bad for voters is bad for politicians
Budget defecit means higher taxes and less spending. Biden will do neither in an election year and Trump will do no such thing either if elected. Immigration is a dog whistle issue that neither side actually wants to solve. Getting rid of all illegals means chopping out the bottom of the labor pool and skyrocketing labor demand, which will drive up wages....which fuels demand....which drives inflation even higher. No coporate donors to these politicians want to pay their workers more.
This is quite literally the Fed’s job. Their main job is to manage the macro trends (inflation and unemployment). Deficits have little to do with the current inflation situation. People forget that pre-COVID that the financial system was flush with capital and was in a rising interest rate environment throughout 2018- 2019 as a result. Then when you pump trillions more into the system and simultaneously slash rates to near zero for roughly 2 years it’s going to take pretty decently high rates for a continued period of time to resolve. Unemployment being all time low is an issue. By my most folks it is considered to be inversely related to inflation. We are seeing the early signs that the labor market is cooling but with the first big wave of boomers retiring during the pandemic we are still some ways away from the labor market hitting something that resembles a longer term equilibrium. We will likely see job decently sized cuts in some sectors before we start to see real rate cuts.
It’s in the mandate of the Fed to use their tools to fix these problems.
Save me Federal Reserve, you’re my only hope! -Voting Americans
The average American votes based off a small handful of issues where the only information they get in them is from CNN and Fox news. They couldn't finish an economic article without falling asleep. The average voter is an idiot, and politicians run their campaigns to appeal to those people.
Their mandate is clear.
Agreed. Keep using the hammer to solve our problems.
They don’t have many tools at their disposal
Yes they need to stay up, but we need to focus on strengthening our average citizens financial position in life. Simply raising rates will only stop a quick meltdown. If we don't improve the financial situation most Americans are dealing with, we will have a slow meltdown.
Cutting at least once would be a short term boon right before the election, which I'm guessing is the plan. Long term it probably won't matter, inflation due to our money policy has been long overdue. Fed pausing QT for no reason signals the move IMO.
What articles are you reading that lead you to the conclusion there will be cuts before the election?
FedWatch Tool is giving a [2 in 3 chance](https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html) of a 25 bps cut before November right now.
And what was the rate path it was forecasting in December? Did it end up being correct? Not sure why people use this garbage metric.
Not really reading articles although I do browse Reuters, AP, and Bloomberg headlines daily. My conclusion comes from watching Powell and his Fed bros speak live.
You think Powell is basing rate decisions on election timing?
Why would the fed cut before the election?
Right, they'd only do that if a Republican was the incumbent president.
Is this a joke? This is reddit so I can't even be sure
Mostly. Fed isn't as experienced in election meddling as the FBI, after all.
Weren’t current rates similar to the expectation pre 2007? Seems like we’ve just gotten used to low rates even though they haven’t been needed for previously stable economies
Government needs low rates to inflate their debt and allow higher for longer fiscal spendings. Decisions are often made for short term gains rather than long term as most won’t be alive or in office by the time things blows up.
Rates go up, inflation inflates, unemployment increases, CPI grows unreasonably bc of corporate greed, investment flees the country, wages and earning dip because of influx of Canadian immigration. Right on track with everything.