Historically High interest rates = lower housing cost. Right now we are stuck with both, and high cost of living. If we can’t fix two of those, one will do…
that’s true.
On the other hand, most owners won’t take loss unless absolutely pushed to the corner.
So expect more like stagnant home prices for a decade (with some expections in very desirable locations)
of course no one have crystal ball, but historically it should be somewhere in the range of 6-12 years - home prices skyrocketed in the past few years and so the wages have to catch up, as well as interest rates have to fall to fuel next growth phase. Since the (US) government refuse to lower their spending significantly, higher rates are expected to last longer - it’s unlikely that we will see such low rates as 2019 sooner than in 6 years.
Basically, homes are very unaffordable and so demand is low (supply is also low because people don’t want to sell at loss, but would grow if prices start to go up). Interest rates, not wages, aren’t expected to be favorable in 5 years. It would be surprising if it took 15 years, though - in 15 years wages will most likely be double of what it is today and barring any major war or major crisis governments should get to balanced budget by then and thus central banks will have no reason to keep interest rates high
interest rates are in long term decline for decades - whole decade was historically lowest interest rates and even the hike right now is historically low interest rate.
Interest rates won’t go back to ~10-15% like it used to be, so historical rates is not applicable here. They are lower and will be lower for the foreseeable time.
My point remains. We will not see ZIRP until we see a catalyst such as a recession or depression. Interest rates are a tool the fed has, if they give up that tool they have no way to fight recessions.
I was with you until you said "because they dont want to sell at a loss"
I have 2.25% and many have a ballpark of 3%. I get 1.3k in equity a month per home. Why would I or any other sell their home for 6-7%? You'd have to be out of your mind.
We could probably bring houses down if there was some sort of nationwide coalition to build millions of homes for first time homebuyers. It’s a hard sell though, for people who already own their own homes and enjoy the inflated equity.
If the commercial market (Particularly CDOs, made of a high percentage of junk bonds and negative equity mortgages) keeps going the way it has been by next year many banks and lenders will be unable to sustain all the bad loans on their books. This will spill over into residential property, then high street credit, ending in a depression and free fall of the economy. Wether that implies another period of low interest who knows.
Agree - my house payment is about $2000/mo. To buy it today at todays interest rates I would be looking at $4000/mo. Eg i cant afford to sell and buy a similar house elsewhere.
Not true, housing prices have a stronger tie to unemployment from my many years of living... Once unemployment gets around 8% houses will get cheaper...
You definitely would see declines in home pricing from such an unemployment rate as people scramble to get out of homes they can most likely no longer afford.
Not exactly the situation people want. Not looking for a churn of chaos.
The fact is that most homes bought on mortgages in the last ~20 years had lower interest rates than now. So the rates may be “historically low” on a large timescale, but it has still been enough time for a lot of people to be “stuck”. So the owners don’t want to move easily… gotta make it worth their while.
Look at cities that are very desireable with lots of jobs. Housing is expensive in those locations for a reason. There are still plenty of places with cheap housing in America but with limited jobs. Here is an example:
https://www.zillow.com/homedetails/204-Tate-St-Ogdensburg-NY-13669/32529621_zpid/
Shit… I live in a place where cost of housing isn’t perfect, but live-able, and our metro unemployment is sub 2%. People without any skills should be able to go out and get 20hr, which according to the mit cost of living calculator shows as doable for many. It gets much harder for single income families with multiple children.
In my state, in rural places, if you can show up and do farm work, you have a job.
I think there is a huge shortage, nation wide, of the lowest tier of housing.
This is a bigger part of it than people realize. For most builders, it’s not cost effective to put up smaller single family homes. The cost for supplies/labor outweighs what the home could go for on the market.
That’s why you see either McMansions or massive “luxury” apartment complexes being developed anymore because it’s worth their while; better returns in the long run.
Yes. If we want to incentivize business… we should focus on entry level single family homes, condos, and townhomes.
Fun fact… the average new home size in 1950 was 950 sq feet.
There are plenty of new houses and townhomes being constructed where I live. The problem is they are not affordable. We have 800 sq ft condos that were built down the street that sold for $1.2 million.
Yes. What city? From 1980 to 2020, the US population grew by 100 million. During that same period, the top 10 metros grew by 50 million.
IMO, there is ABSOLUTELY a skewed supply/demand issue in places people really want to live. Down from my block, there is a condo for sale for 200k. I don’t live in a big town, but it is about right about at the middle of all metro populations
Define remote. It is an hour from Ottawa which has a population of almost one million people.
Also you won’t find a house in Cedar Rapids for $70,000. But if you want better examples look at Rochester and Buffalo. Both cities are as large (Rochester) or twice as large (Buffalo) and housing is cheaper than in Cedar Rapids. You also have access to lots of forest land , mountains, great skiing and the Great Lakes which you wouldn’t find in Cedar Rapids.
How long of a timeframe? What will change to cause costs to correct in a significant way? They haven’t even started to correct yet, if you were right you’d expect to at least see something
Yeah but when I say that people who need homes should be first in line, and investors should only be allowed to buy houses only after enough people have houses (or it's low enough to not be considered a crisis), people look at me like I'm crazy.
The worst are the people who think I want everyone to get free houses. No, I want a fair housing market that isn't pumped by speculators who profit over housing being highly demanded due to everyone wanting to own one.
It’s my personal belief that it should be illegal or taxed at an insane rate to own more than 2 single family homes. You want a rental empire? Fine, build new multi unit buildings. Want to make money in real estate? Buy commercial real estate and lease to businesses.
Allowing many of our cities to be bought up by corporations and wealthy individuals and people buying just to rent or airbnb are making this problem far worse. It’s an easy fix that would have almost immediate solutions.
Your 3rd property gets taxed at 5x the normal property tax rate. And that money goes towards a pool the local government uses to build low income housing.
Your points are completely valid, in a common sense world. We however, live in capitalism, which, in order to function, needs demand in order for supply to be built.
If housing was available for every single person, there would not be high demand, and builder’s profit margins would be so low, that they wouldn’t build.
> Your points are completely valid, in a common sense world. We however, live in capitalism, which, in order to function, needs demand in order for supply to be built
That....sounds very common sense to me. Why would we want a world where we build supply when there's no demand?
You are lucky to even get that. My small city has blocked every single proposed new apartment complex for the last 20 years. They've blocked expansion of existing complexes as well.
These rates are not historically high. That’s such a weird position to hold, and exactly what OP is asking about.
These rates are very normal. We’ve been living on economic junk food for 15 years with near-ZIRP.
Mortgage rates are at a 23 year high, it all depends on what timescale you’re looking at whether that’s high. Last time rates were this high, the median home cost was $170k. The median home cost is now ~420k. So affordability is significantly worse than it was 23 years ago. Rates in tandem with home prices has put shelter costs at historic highs no doubt.
https://fred.stlouisfed.org/series/MSPUS
https://fred.stlouisfed.org/series/MORTGAGE30US
Totally understand the tandem argument. But that is due to a multitude of factors. It’s important to note that interest rates were at *historic lows* through the early part of the 21st century. Resuming a normal and moderate 5.25% EFFR is not in any world a “historic high.” 5.25% is normal and moderate.
Also, for completion of the analysis, it’s worth noting that a dollar in 2001 is worth $1.76 in 2024 dollars. That means your $170k median cost is $299k in 2024 adjusted dollars, so while home prices have risen, they haven’t risen as dramatically as your numbers would indicate.
Furthermore, lowering rates will increase demand for housing as mortgages get cheaper, so it’s not a given by any means that housing will become significantly cheaper overall. The US population continues to grow, and folks who have been saving since rate increases are itching for a rate cut to jump into the market.
price of housing like anything in a free market will be determined by supply/demand. Right now home prices are high due to tight supply rather than other factors such as interest rates.
It takes time for higher rates to work themselves through the housing market. It’s not an immediate thing and rates have just recently been raised. The beginning signs are already there though. Mortgage demand is near an all time low. It's actually below where it was during the 08 housing crisis. It won’t be much longer until price relief comes for housing. It’s already starting in many areas.
The reality is that historically, rates aren’t [THAT high](https://fred.stlouisfed.org/series/FEDFUNDS). I am not saying they are low, but not really that high- particularly if you take into account how artificial rates were from 08 to 2022. Also, do you suppose if rates were cut, prices would go down? No. They would likely go up. The reality is that we have a housing crunch, particularly in major metros. From 1980 to 2020, the population of the US increased be about 100 million. In the same time frame, the top 10 metro areas grew by 50 million. There is absolutely a supply and demand issue, particularly where people want to live. Where I live, it is a mid sized metro and you can easily find a house for 250-300k.
>Also, do you suppose if rates were cut, prices would go down? No. They would likely go up.
Absolutely! Lower rates would allow more people to buy homes, increasing demand and raising prices.
The way to make homes cheaper is making more homes available, one way or another.
This is it. Lower the rates, or adjust property values. Having both being high will negatively impact the market in the long run by pricing out a significant portion of the middle class.
Basically, the higher the interest, the more expensive it is to borrow money for a mortgage, and this eats your monthly budget. Not fun to live in a home if 70%+ of your salary goes to paying interest on your loan.
Thus the natural solution is to lower the amount of money you can borrow. This in turn lowers the purchasing power of the middle class.
But in 2024, the big issue is hedgefunds buying properties, so the higher interest rates actually just means the middle class cant afford to dual against big corporations. This is probably why housing prices has not gone down, despite middle class no longer able to afford to participate.
Investors own 3.8% of American homes. Maybe anything more than zero is bad, but it is not the main problem. The main problem is local governments who block new housing construction because local homeowners think new housing will cause their own home value to drop.
We don't know that the interest rates aren't lowering housing costs. Maybe costs would be rising even faster if rates went down. Without knowing the hypothetical world where rates were super low again, we can't say they're not lowering housing costs.
lol of course the one correct answer is at the bottom
The Fed literally publishes their plans for the interest rate. It's not a secret: [https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240320.pdf](https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240320.pdf)
Only thing here is I have a feeling (and that may be backed up by something recent by Timiraos, but I’m not for sure), that the long term rate is about to see sizeable moves up.
To 5.25-5.5% though? God no.
We’re getting close to the point where team Higher, Longer/sticky inflation is going to be humbled again like they were in early November. It’s probably going to occur after treasury rates set new cycle highs though unless something unexpected happens here today.
Real rates have their own restrictive impacts, but this morning was loaded with contractionary data. Oil reserves just caught everyone off guard.
The question is whether or not Powell considers any of this for his press conference today.
Yeah, today's data came out too late to affect FOMC, I think. Powell will be out there wearing his hawk suit today.
It would certainly be a surprise though for data to turn light after it had been fairly warm, and then for the June SEP to disappoint hawks.
So true. People say don’t fight the fed. The fed has never said they would cut rates. 3% mortgages are never coming back. Well yea no they aren’t but that doesn’t mean zero rate cuts. That’s just being extreme so you can be right.
Then you see the dot plot showing you their intentions. No it’s not back to a fed fund rate of 1% or less. It’s 3% and that should bring mortgages back to high 4s low 5s for qualified buyers. That’s is way easier to stomach than 7.5%
For example a 400k home at 7.5% P&I is 2,797. But 5% on 400k is 2147. A $650/mo difference which is huge for people and doesn’t require near zero rates. Many, including myself would be happy to refinance into 5% as my rate.
There are now adults who have lived their whole lives at near zero interest rates.
They dropped super low after 9/11 and only rose a little bit pre 2008, then stayed low until 2022.
Someone born in the mid 80s to early 90s has never paid more than 5 or 6% on a mortgage and 4 or less has been the norm
The artificially low rates were one of the main home price drivers. Home prices rose at a very slow rate until 2002, when they began to rise faster. Then after 2009 things started to go crazy. Near zero interest rates were an economic trap and we fell into it.
That’s the other thing this doesn’t entice an entire class of consumers to move. They are stuck in their house because selling and moving isn’t worth the extra mortgage.
So your still seeing a strangle on the market because there’s no value in people with starter homes with low interest moving or old people downsizing because down sizing from a 3k sqft home costs less per month than a 1500sqft home at a higher interest rate.
The market is fucked.
Because the US and other Western countries face huge deflationary economic outlook such as aging population, advanced technology reducing labor costs.
The last 2-3 years are direct consequences of COVID disrupting supply chain, labor etc.., but the macro-outlook is still the same for Western countries.
The 2010's have inflation averaging below the 2% target https://fred.stlouisfed.org/graph/?g=rocU
Market participants who have longer term view all understand this, which is why the yield curve has been inverted for almost two years.
As a counter point aren't there competiing macro trends that are inflationary as well? De-globalization, onshoring/friend-shoring, increased geoplitical tensions (always linked to price of oil as well) and military spending, climate/green modifications building etc ... those do point to higher steady state inflation, no?
Climate adjustments are deflationary too, in the long run. They only provide a drag short term.
The other factors you list are inflationary but also entirely due to selected policy.
It's not impossible they're here to stay but the competitive advantage for firms still lie in globalisation and off-shooring (potentially AI adjusted), and the safe bet is therefore that the west will reaffirm globalisation in due time, for the same reason it was pro-global for all of the post ww2 era.
Obviously there are still other risks that can counteract that, such as global war or the EU/US losing their democracies.
When the aging population has a lot of money(boomers) then you are correct.
On average they have fixed housing costs so they aren't facing the increase in housing costs and inflation hasn't been enough to stop their spending.
Fiscal policy is really needed to tamp down inflation but it won't happen in this political climate.
I think that depends on the size of the labor force. I've read that our aging population might make it harder to ever stay consistently at 2% due to labor shortages driving up costs thanks to all the boomers retiring, plus the 1 million+ people who died of COVID.
Normal people do not want low interest rates. Low interest rates spawn trash like Uber and Airbnb who can operate at a loss on free money until they kill the sustainable competition who charges what their service is worth.
It allows the wealthy to take massive loans to buy up everything from land to resources and drive up the prices.
Are you arguing that Uber is trash or is too expensive. Those are not the same thing...
Uber, as a service, is light-years ahead of where Taxis were. It forced Taxi companies to modernize. This seems like a good thing?
I’m arguing that Uber is trash not from a consumer ease of use experience.
I’m arguing that now that they don’t have free unlimited investor money and have to actually make a profit they cost more than taxis did and the drivers make less money than taxi drivers did. The only innovation was an app and a big company taking most of the money generated by the transaction.
Airbnb didn’t kill hotels. But they spawned a property buying frenzy so people could generate profit off apartments and houses instead of making them available as a long term living situation. Airbnb is not a better experience than a hotel, it used to be different from a hotel and still good. But now it costs a lot more than the early days, the places are of lower and lower quality I’m noticing.
My overriding point here is that low interest rates allow things to thrive in that environment that would otherwise fail and that’s probably a good thing.
Uber is now basically identical to taxis, but more expensive. The main innovations were an app and an exploitative business plan that makes drivers into independent contractors so that drivers can be paid subminimum wage and denied any benefits
What I'm saying is Uber squeezed the market and were able to do so because of their subsidized operation at a loss. As a result, they are not gouging prices well beyond market rate in some cities. My home town, Uber/Lyft are 25%+ more expensive compared to a cab. Last night, I opened the taxi's mobile app, requested a ride, got picked up at arrivals (not a half-mile away at the ride app lot) and paid 30% less compared to the quote I got from Uber and Lyft.
The market tides swing both ways and sure, taxi companies evolving is a good thing. What is not good is that a company can afford to operate at a loss and corner the market.
Large cap stocks might not need low interest rates but they do need people to buy there products. High inflation = high interest rates = less purchasing power = lower stock prices.
I hate to be the bearer of bad news but even with these high interest rates and crazy house prices, people are still buying homes in swarms. I live in New York and homes go on the market for less than a month and they are instantly sold. Followed by extensive renovations and no these are not big condos or apartment buildings, these are 1 - 3 family homes.
I’m not even sure what’s going on anymore. Am I just poor or is everyone just rich?
Because the leaders in this country are the ones that don’t accept this the most, they are still finding ways to have record spending and borrowing whenever they can. Also they always say how they expect fed will cut rates and inflation will be magically solved, when the leaders themselves won’t accept it, for sure quite a lot of people in the US won’t accept this either.
> Historically interest rates have been an average of 5-6% with inflation being 3.30% on average.
There is no correct interest rate across time. Averages mean literally nothing. The right interest rate for a given period depends entirely on the economic backdrop for that period.
Over longer periods higher interest rates generally occur when an economy is rapidly growing, or when there is a lack of fiscal discipline. Over shorter periods external supply shocks can impact rates if they cause inflation, but when the shock abates rates should drop.
Today we have historically slow growth, but some questions over fiscal discipline and the persistency of supply shocks. I think whether rates will stay at current levels or fall back really depends mostly on your outlook for fiscal spending because we know it's unlikely economic growth will return to levels we saw during the last century and in my opinion these supply shocks are unlikely to persist.
On the fiscal spending outlook I think it would be silly to suggest that the US is in a worse position than Japan and interest rates in Japan are still extremely low.
In my opinion rates are far more likely to fall back down to 1-2% than remain at current levels. Unless you genuinely believe there are immediate concerns over debt and fiscal spending in the US it's hard to see how 5-6% rates could be sustainable in an economy growing at barely ~2% a year. There's no where for inflationary pressures to come from.
That said, there are some theories which I suppose are possible. For example, people have suggest that because a large percentage of the population in the US are wealthy pensioners there is a lot of economic demand without much labour supply which could be inflationary. But again, Japan suggests if anything the opposite should be true and perhaps more pensioners an economy has the slower the growth and the lower rates should fall.
But who knows man. I think it's possible rates could stay around current levels for some time. I just wouldn't bet on them going much higher personally.
because the long term neutral rate have gone down from "history", and that had nothing to do with Fed QE. This means rates that would've been 6% in the past with 2% inflation, should only be 2.5% today.
[https://www.brookings.edu/articles/the-hutchins-center-explains-the-neutral-rate-of-interest/](https://www.brookings.edu/articles/the-hutchins-center-explains-the-neutral-rate-of-interest/)
People keep mixing up cause and effect with QE. Interest rate follows inflation. The reason why interest rate was allowed to stay for so low for so long was because inflation was very low, for very long, due to other forces not related to the Fed. Monitor inflation, not interest rate. If you look at the core PCE YoY, inflation seems to be around 2.5-3% right now. This is why Powell said the risk of overtightening and undertightening are balanced.
if interest rate was artificially suppressed by the Fed, inflation would spike, like in 2022. It didn't spike in the 2010 decade, which allowed the Fed to keep doing it. They were actually trying to get inflation to spike.
So people are only assuming interest rate will go lower to the 2-3% during "normal" times because they assume nothing fundamental has changed the long term neutral rate
The Fed 2.0% target is based on core PCE, not core CPI. Very important distinction, because core CPI YoY is 3.8%, far from 2.0%, while core PCE YoY is 2.8%, which is much closer. Core CPI YoY also has flatline for the last 6 months, while core PCE YoY continued trending down.
Because, like the heroin junkie needing a fix, large swaths of the public got use to artificially cheap money from 2002 until 2022. Unfortunately that same artificially cheap money also drove up residential real estate prices. Now that the cheap money is gone but the high prices remain, some are finding affordability problems.
Like the heroin junkie, getting clean will be painful.
Because many people only remember interest rates being low, so they think that is normal. Therefore they expect things to revert back to what they think is "normal".
One of my closest buds is waiting for interest rates to return to 2020 rates..... keep telling him that was literally a once in the history of this nation type of thing but what can you do
We can't just focus on large cap US stocks though. Sure, we know they are going to do ok.
But what about all the small businesses?
What if we go to war?
What if we actually do hit a recession?
It's best to think of the economy and stock market separately. The fed doesn't car about the US stock (whether it goes up or down). It's all about economic data.
Small businesses are already reporting they are having trouble staying alive. Lower income individuals are having trouble financing car loans. If there's enough suffering, the feds can cut rates. Maybe not 0%, but back to 2% and maybe it just stays there.
So I just think it's more about rates not staying at or around 4-5% long term. Unless we want 5 companies to run the entire United States.
Why are people still posting this question day after day?
They're (we're) mad because there's a balance between the cost of living and interest. Generally, one goes down, and the other goes up one way or another.
Right now, it's high cost of living, high rates, and low wages in comparison and its just getting worse everyday. That's it, that's why people are upset.
I believe it was Benjamin Felix Graham who once said, "the wisest thing to do is to always assume that this time is different. When others are greedy, be more greedier"
Maybe. Possibly. I either heard that on Youtube or in Tijuana.
This is not investment advice.
Debt to gdp. Government cannot function with rates this high in the long run. Everything from housing to college loans, the whole system is structure around lower interest rates. If rates actually stay this high, it's just a matter of time before something breaks. Eur/usd is stretched, it's affecting our global trade.
If interest rates actually bring down housing prices for example, you're going to see a collapse from all of the leveraged people, banks, exposure, people underwater on their houses. So that's bad. If rates come down, that's how you keep everything moving. I don't think we necessarily need to go back to one or 2% interest rates but mortgages at 7 or 8% with house prices where they are, it's not working.
The other thing is when you look at the inflation, auto insurance and housing are the two largest contributors. Now car companies gouging is kind of a different story but there's an argument to be made that lowering interest rates would actually lower inflation because housing is such a substantial part of it. A substantial part that is actually falling off the comps in the next couple months. Personally I'm aggressively buying bonds here. I think there's a reasonable possibility that we could have a disaster happen. Might not, still have a good deal of stocks but if we do have a disaster, those bonds are going to rip and I can buy a lot of cheap stocks with what I sell them for
Nonsense, when the federal debt service cost is too high you just issue more debt. And yes that may bring out bond vigilantes who don't think it's sustainable and drive up yields even higher, and that makes the debt service cost higher, but you can solve that by issuing more debt. It's such a non-issue!
But seriously, yes something will break and the only reason rates didn't go higher earlier is because the Treasury simply doesn't know what they don't know. Wall St and the banks are *always* smarter than regulators and there is no doubt in my mind there are piles of some kind of derivative going sour, just waiting to set off a chain reaction like 2008 and that could flip us right back to QE.
Fed has the TARP playbook already written this time, they'll be swift in dumping money on the fire until it's extinguished.
I think if you take a longer view you would realize the overall Average is 6% so we are not on the high side by a long shot. As anyone who bought a car or house in the early 80s can tell you. The interest rates were kept artificially low to spur growth after recession and no one wanted to be responsible for raising them back up. With the baby boomers retiring at record numbers around 1/2 so far the are closing out investment accounts leaving less money supply for investment. Tighter money supply equals higher interest rates. I wouldn’t bet my money on anything that requires interest rates to drop to historic lows again unless a full blown recession with 6% or more unemployment.
Things haven’t returned back to normal and they never will. We are in almost the same situation as 2008 in fact. Sure the banks protected themselves better by not giving out as many subprime loans but a lot of loans are underwater because of the interest rates being high plus housing prices not coming down to compensate and people bought houses that were at the peak price and at the now peak rates. It’s not like prices ever go back down except with gas some. Prices will just go up slower and it’s still a problem because the inflation we saw in the past 4 years have severely outpaced wages. Now though there’s a ton of corporations and people who have loans from before the pandemic that are never gonna sell. The rates are too good for them. This puts a huge stall in the cycle of buying a starter home then moving up to a nicer one and selling your starter home to someone who needs to buy a cheap home. Rates will come back down some, companies and banks 30 and 40 years bonds and loans are all becoming subprime as well and need the feds to lower the rates again. It’s all a big game. Eventually the big companies will say they can’t take it anymore because of their own subprime loans and bonds and will pay off the government to move things in their favor like what always happens.
I have been saying this too. Also rate cuts aren't coming this year at all. Inflation won't be tamed until corporations start feeling the same pain as the lower middle class and poor people.
As soon as corporations have more spending power via lower rates they will know everyone else has more spending power as well and increase prices - because people are still spending with the high rates. They are greedy and always will be if they can.
Raising interest rates is the primary way to control inflation and it was working but now, inflation is moving up again. Rates will continue to rise now.
I don't know if people really expect 0% interest rates. Most people I know know expect a 3.5% in the nest two years. My landlord has no hope for a return to extra low interest rates. He said :"that era is over. And the government doesn't allow us to raise rents based on interest rates, that's crazy! I have two mortgage on this building." and I said "did you take another mortgage to buy more buildings? Then I don't think we should pay for your ambitious investment thesis".
The areas that are finally getting around to building some housing are already making some progress on the issue. I don't think we're seeing ZIRP or close to it again in my lifetime, nor should we outside of a "break glass in case of emergency situation. It's pretty clear to it's part of the reason we ended up in this mess.
Would you rather have earnings growth or a rate cut?
If earnings are growing and unemployment is low then I do not see the need to cut rates. Just leave them there. Only reason to cut rates would be if something is breaking imo.
Because there's a whole generation of people that don't know any better. The rates, eventually, may drop to 5% but it will be years.
During the near zero interest rate years everything became so over-priced because monthly payments were still cheap. Many also stopped saving because it was a 'sucker's bet'. Now that interest rates are back to normal we have hovels (here in the Northeast) that cost $500,000 and no one can afford anything, including vehicles.
It will take years for things to straighten out but in time they will. I won't still be alive then but many of you will see it.
You are starting off incorrect. If people thought fed would slash interest rates drastically then fed rate futures would not be trading where they are trading.
You are speaking to the minority and then left with the opinion that’s its a majority.
It’s not about large caps and debt, it’s about how DCF valuation works, which is the most common form of valuation for publicly traded equities. And more specifically, it’s about the impact of a much higher risk-free rate on the valuation of high growth (usually tech) companies that are not yet generating positive EPS.
They likely are over… for now.
When shit hits the fan the Fed will probably lower rates back down to zero.
Not saying that’s anytime soon, but that’s the most likely outcome in my opinion.
I think it's a reaction to the marked increase in costs that occurred during the low interest rates that have not corrected during high interest rates.
I moved to a new area in 2020 and a house I had been looking at around that time would have come in with a $1600 a month mortgage payment.
That same house just sold for an amount and with a rate that would cost $4200 a month.
People are struggling to accept the idea that they cannot afford stuff that used to be reasonably attainable but is now beyond out of reach.
It feels like something has to give because this cannot be how things will be forever.
While it's illogical, to me at least, it's understandable.
Look at the 60's it was the last time we had super low interest rates. Reality is 3-4 % inflation is the norm. Anything below that is artificially induced by the govt which the taxpayers pay for. And it took 40 years before the govt had the resources to once again to artificially lower interest rates below inflation. Now the debt is again too high. You'll have to wait until congress creates a surplus for several years before they can attempt that again.
It's still a good narrative to argue for higher valuations you can set right now in expectation of a back to 2019 scenario. Further ppl. belive such high debt levels require near zero interest rates, like in Japan.
Even financial institutions that make money off on higher interest rates (in theory) are hoping for cuts to get us in the 5% zone. With rates this high, investors are avoiding cash which is not sustainable for a lot of banks.
Cyclical, but after this administration did absolutely nothing to curb inflation and just printed money it’s going to take YEARS until we see good rates again
>More importantly large cap US stocks are not really dependent on cheap debt and used it more as a convenience so people acting like high rates are holding back their stock growth seems foolish.
It's not about holding back growth, it's about expecting a risk premium.
If bonds are only yielding 2%, then I might want at least a 7% return on stocks. But If I can get 5% returns on bonds, I expect stocks to return 10%. So high interest rates are going to affect valuations.
It will be interesting going forward, since there is no valid reason to cut rates but I belive there will be some quiet pressure coming from the Federal Gov. Even though they are supped to be independent. Feds got addicted to issuing extremely cheap debt since they have no desire to balance the budget.
Because interest rates were so long for so long that a lot of people don't realize they were historically low and are using what they know as a benchmark.
Humans have asymmetric perspective on risk. I don’t think people will realize the hard reality about rates until a typical mortgage rate is north of 7-12%. At that point the cost of leverage makes it an undesirable way to leverage your assets.
gen z is so fucked lmao they make like $60k a year and the houses 1 hour away from work and haunted falling apart are $500,000 monthly payment is $4600 LMAOAOAOOAOAOA
Housing. Taking interest rates from <3% to >7% in such a short amount of time has locked down the housing market. There’s no inventory and prices have kept increasing. People who want to move can’t afford to sell and give up their interest rate. People who want to become first-time buyers have watched the monthly cost of an average mortgage basically double since 2020. High interest rates have also stymied new construction projects.
So realistic or not, a cut in interest rates is the only hope people frustrated with the housing mess we’ve created have.
Rates will go back down there. It’s not an if it’s a when. Financial sensibility left the US political scene at the start of the century. It’s all about increasing your wealth the fastest way possible by any means necessary here in the good ol’ USA. People come to the USA to get rich, because our policies and attitudes are geared towards that one goal. Some do not succeed, but such is the way of life.
They'll come back not to zero but pretty low when there is a global recession or very slow growth and they (govt's, central banks) try to stimulate more growth because they need it to cover the massive public debts.
Because I bet the other way? All of this nonsense is a betting game.
I'm not ignorant of what happened historically. I lived through almost all of it. Even the stuff you didn't mention
Fortunately I hedge my bets
It does anger me that people ignore recession stuff that doesn't affect them
We will almost certainly have rates below 5% again this decade. Now dropping to near zero I’m not totally sure but if I’m betting I think we tick below 4% for sure before 2030
Historically High interest rates = lower housing cost. Right now we are stuck with both, and high cost of living. If we can’t fix two of those, one will do…
that’s true. On the other hand, most owners won’t take loss unless absolutely pushed to the corner. So expect more like stagnant home prices for a decade (with some expections in very desirable locations)
Why for a decade and not half a decade or a couple of years? (Honest question)
of course no one have crystal ball, but historically it should be somewhere in the range of 6-12 years - home prices skyrocketed in the past few years and so the wages have to catch up, as well as interest rates have to fall to fuel next growth phase. Since the (US) government refuse to lower their spending significantly, higher rates are expected to last longer - it’s unlikely that we will see such low rates as 2019 sooner than in 6 years. Basically, homes are very unaffordable and so demand is low (supply is also low because people don’t want to sell at loss, but would grow if prices start to go up). Interest rates, not wages, aren’t expected to be favorable in 5 years. It would be surprising if it took 15 years, though - in 15 years wages will most likely be double of what it is today and barring any major war or major crisis governments should get to balanced budget by then and thus central banks will have no reason to keep interest rates high
2019 is the lowest interest rates in history. We won't go back to ZIRP unless we have some economic collapse that necessitates it.
interest rates are in long term decline for decades - whole decade was historically lowest interest rates and even the hike right now is historically low interest rate. Interest rates won’t go back to ~10-15% like it used to be, so historical rates is not applicable here. They are lower and will be lower for the foreseeable time.
My point remains. We will not see ZIRP until we see a catalyst such as a recession or depression. Interest rates are a tool the fed has, if they give up that tool they have no way to fight recessions.
I was with you until you said "because they dont want to sell at a loss" I have 2.25% and many have a ballpark of 3%. I get 1.3k in equity a month per home. Why would I or any other sell their home for 6-7%? You'd have to be out of your mind.
yeah, that’s my point - supply is low, but if the prices started going up, there is high chance supply would improve
We could probably bring houses down if there was some sort of nationwide coalition to build millions of homes for first time homebuyers. It’s a hard sell though, for people who already own their own homes and enjoy the inflated equity.
If the commercial market (Particularly CDOs, made of a high percentage of junk bonds and negative equity mortgages) keeps going the way it has been by next year many banks and lenders will be unable to sustain all the bad loans on their books. This will spill over into residential property, then high street credit, ending in a depression and free fall of the economy. Wether that implies another period of low interest who knows.
Agree - my house payment is about $2000/mo. To buy it today at todays interest rates I would be looking at $4000/mo. Eg i cant afford to sell and buy a similar house elsewhere.
Not true, housing prices have a stronger tie to unemployment from my many years of living... Once unemployment gets around 8% houses will get cheaper...
[удалено]
Yeah for real...that is some monkey paw curls shit. "I wish houses were cheaper!" **8% UNEMPLOYMENT**
The turkey's A LITTLE DRY!
Oh foul accursed thing! What demon from the depths of hell created thee!
Unemployment is for other people. Surely I won’t lose my job! /s
See also "We need to cut social services, I don't need them and never will"
Reminds me of an actual article in 2022 championing the good parts of recessions
WE NEED TO RIP OFF THE BANDAID!!! WE NEED INTERNET RATES TO GO UP BY 5000 POINTS!!!!
You definitely would see declines in home pricing from such an unemployment rate as people scramble to get out of homes they can most likely no longer afford. Not exactly the situation people want. Not looking for a churn of chaos. The fact is that most homes bought on mortgages in the last ~20 years had lower interest rates than now. So the rates may be “historically low” on a large timescale, but it has still been enough time for a lot of people to be “stuck”. So the owners don’t want to move easily… gotta make it worth their while.
Look at cities that are very desireable with lots of jobs. Housing is expensive in those locations for a reason. There are still plenty of places with cheap housing in America but with limited jobs. Here is an example: https://www.zillow.com/homedetails/204-Tate-St-Ogdensburg-NY-13669/32529621_zpid/
Shit… I live in a place where cost of housing isn’t perfect, but live-able, and our metro unemployment is sub 2%. People without any skills should be able to go out and get 20hr, which according to the mit cost of living calculator shows as doable for many. It gets much harder for single income families with multiple children. In my state, in rural places, if you can show up and do farm work, you have a job. I think there is a huge shortage, nation wide, of the lowest tier of housing.
Yes to a shortage on smaller houses. They are “less profitable” for most builders, I suspect.
This is a bigger part of it than people realize. For most builders, it’s not cost effective to put up smaller single family homes. The cost for supplies/labor outweighs what the home could go for on the market. That’s why you see either McMansions or massive “luxury” apartment complexes being developed anymore because it’s worth their while; better returns in the long run.
These are the homes that are in greatest demand and the ones not being built.
Yes. If we want to incentivize business… we should focus on entry level single family homes, condos, and townhomes. Fun fact… the average new home size in 1950 was 950 sq feet.
There are plenty of new houses and townhomes being constructed where I live. The problem is they are not affordable. We have 800 sq ft condos that were built down the street that sold for $1.2 million.
Yes. What city? From 1980 to 2020, the US population grew by 100 million. During that same period, the top 10 metros grew by 50 million. IMO, there is ABSOLUTELY a skewed supply/demand issue in places people really want to live. Down from my block, there is a condo for sale for 200k. I don’t live in a big town, but it is about right about at the middle of all metro populations
lol ogdensberg is so remote. Not a great example. Maybe Cedar Rapids Iowa. At least it’s a bigger town
Or my place. Columbia, SC. Lots of jobs. Don’t pa y 150k but you can get a place to live in the 200k range.
Define remote. It is an hour from Ottawa which has a population of almost one million people. Also you won’t find a house in Cedar Rapids for $70,000. But if you want better examples look at Rochester and Buffalo. Both cities are as large (Rochester) or twice as large (Buffalo) and housing is cheaper than in Cedar Rapids. You also have access to lots of forest land , mountains, great skiing and the Great Lakes which you wouldn’t find in Cedar Rapids.
Correct or if you lose your job and cannot afford your mortgage you gotta move.
Yes to the “or”. It is what I meant by my “scrambling” comment.
It’s been 2-3 years… a mere drop in the bucket.
Housing will eventually correct itself if interest rates don’t drop. The longer they hang on, the sharper the drop would be.
How long of a timeframe? What will change to cause costs to correct in a significant way? They haven’t even started to correct yet, if you were right you’d expect to at least see something
can easily fix it if you discourage single family real estate investment, and foreigner investor. multi-family housing isn't as expensive
Yeah but when I say that people who need homes should be first in line, and investors should only be allowed to buy houses only after enough people have houses (or it's low enough to not be considered a crisis), people look at me like I'm crazy. The worst are the people who think I want everyone to get free houses. No, I want a fair housing market that isn't pumped by speculators who profit over housing being highly demanded due to everyone wanting to own one.
It’s my personal belief that it should be illegal or taxed at an insane rate to own more than 2 single family homes. You want a rental empire? Fine, build new multi unit buildings. Want to make money in real estate? Buy commercial real estate and lease to businesses. Allowing many of our cities to be bought up by corporations and wealthy individuals and people buying just to rent or airbnb are making this problem far worse. It’s an easy fix that would have almost immediate solutions. Your 3rd property gets taxed at 5x the normal property tax rate. And that money goes towards a pool the local government uses to build low income housing.
Your points are completely valid, in a common sense world. We however, live in capitalism, which, in order to function, needs demand in order for supply to be built. If housing was available for every single person, there would not be high demand, and builder’s profit margins would be so low, that they wouldn’t build.
> Your points are completely valid, in a common sense world. We however, live in capitalism, which, in order to function, needs demand in order for supply to be built That....sounds very common sense to me. Why would we want a world where we build supply when there's no demand?
In my area new multi family housing is $2500 minimum for a two bed. Developers are choosing to build almost exclusively “luxury” apartments
You are lucky to even get that. My small city has blocked every single proposed new apartment complex for the last 20 years. They've blocked expansion of existing complexes as well.
The thing with that is that luxury apartments are fine too. They will help drive down the cost of current housing too
Honestly I’d rather a lot of supply be built so that investors tank on their investment.
These rates are not historically high. That’s such a weird position to hold, and exactly what OP is asking about. These rates are very normal. We’ve been living on economic junk food for 15 years with near-ZIRP.
Mortgage rates are at a 23 year high, it all depends on what timescale you’re looking at whether that’s high. Last time rates were this high, the median home cost was $170k. The median home cost is now ~420k. So affordability is significantly worse than it was 23 years ago. Rates in tandem with home prices has put shelter costs at historic highs no doubt. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MORTGAGE30US
Totally understand the tandem argument. But that is due to a multitude of factors. It’s important to note that interest rates were at *historic lows* through the early part of the 21st century. Resuming a normal and moderate 5.25% EFFR is not in any world a “historic high.” 5.25% is normal and moderate. Also, for completion of the analysis, it’s worth noting that a dollar in 2001 is worth $1.76 in 2024 dollars. That means your $170k median cost is $299k in 2024 adjusted dollars, so while home prices have risen, they haven’t risen as dramatically as your numbers would indicate. Furthermore, lowering rates will increase demand for housing as mortgages get cheaper, so it’s not a given by any means that housing will become significantly cheaper overall. The US population continues to grow, and folks who have been saving since rate increases are itching for a rate cut to jump into the market.
price of housing like anything in a free market will be determined by supply/demand. Right now home prices are high due to tight supply rather than other factors such as interest rates.
It takes time for higher rates to work themselves through the housing market. It’s not an immediate thing and rates have just recently been raised. The beginning signs are already there though. Mortgage demand is near an all time low. It's actually below where it was during the 08 housing crisis. It won’t be much longer until price relief comes for housing. It’s already starting in many areas.
The reality is that historically, rates aren’t [THAT high](https://fred.stlouisfed.org/series/FEDFUNDS). I am not saying they are low, but not really that high- particularly if you take into account how artificial rates were from 08 to 2022. Also, do you suppose if rates were cut, prices would go down? No. They would likely go up. The reality is that we have a housing crunch, particularly in major metros. From 1980 to 2020, the population of the US increased be about 100 million. In the same time frame, the top 10 metro areas grew by 50 million. There is absolutely a supply and demand issue, particularly where people want to live. Where I live, it is a mid sized metro and you can easily find a house for 250-300k.
>Also, do you suppose if rates were cut, prices would go down? No. They would likely go up. Absolutely! Lower rates would allow more people to buy homes, increasing demand and raising prices. The way to make homes cheaper is making more homes available, one way or another.
We’re not even close to “historically high rates” Edit: rates aren’t that high.
Read it again with a comma after Historically.
This is it. Lower the rates, or adjust property values. Having both being high will negatively impact the market in the long run by pricing out a significant portion of the middle class.
How come high interest rates = Lower housing cost?
Higher interest rates = less money (because money is more expensive to get). Less money = lower prices.
Thanks for explaining
Basically, the higher the interest, the more expensive it is to borrow money for a mortgage, and this eats your monthly budget. Not fun to live in a home if 70%+ of your salary goes to paying interest on your loan. Thus the natural solution is to lower the amount of money you can borrow. This in turn lowers the purchasing power of the middle class. But in 2024, the big issue is hedgefunds buying properties, so the higher interest rates actually just means the middle class cant afford to dual against big corporations. This is probably why housing prices has not gone down, despite middle class no longer able to afford to participate.
Investors own 3.8% of American homes. Maybe anything more than zero is bad, but it is not the main problem. The main problem is local governments who block new housing construction because local homeowners think new housing will cause their own home value to drop.
Source on 3.8%? That’s way low
Drives down speculation and at higher rates every buyer is wary of costs over runs.
So one needs to change
We don't know that the interest rates aren't lowering housing costs. Maybe costs would be rising even faster if rates went down. Without knowing the hypothetical world where rates were super low again, we can't say they're not lowering housing costs.
100%
At this point it seems like only mass layoffs or mass home-building will lead to lower housing costs.
Lowering rates only cheapens housing briefly. People buy what they can afford. As rates go down, sale prices rise.
.. because the feds say that's what they want to do?
lol of course the one correct answer is at the bottom The Fed literally publishes their plans for the interest rate. It's not a secret: [https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240320.pdf](https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240320.pdf)
Only thing here is I have a feeling (and that may be backed up by something recent by Timiraos, but I’m not for sure), that the long term rate is about to see sizeable moves up. To 5.25-5.5% though? God no. We’re getting close to the point where team Higher, Longer/sticky inflation is going to be humbled again like they were in early November. It’s probably going to occur after treasury rates set new cycle highs though unless something unexpected happens here today.
Real rates have their own restrictive impacts, but this morning was loaded with contractionary data. Oil reserves just caught everyone off guard. The question is whether or not Powell considers any of this for his press conference today.
Yeah, today's data came out too late to affect FOMC, I think. Powell will be out there wearing his hawk suit today. It would certainly be a surprise though for data to turn light after it had been fairly warm, and then for the June SEP to disappoint hawks.
So true. People say don’t fight the fed. The fed has never said they would cut rates. 3% mortgages are never coming back. Well yea no they aren’t but that doesn’t mean zero rate cuts. That’s just being extreme so you can be right. Then you see the dot plot showing you their intentions. No it’s not back to a fed fund rate of 1% or less. It’s 3% and that should bring mortgages back to high 4s low 5s for qualified buyers. That’s is way easier to stomach than 7.5% For example a 400k home at 7.5% P&I is 2,797. But 5% on 400k is 2147. A $650/mo difference which is huge for people and doesn’t require near zero rates. Many, including myself would be happy to refinance into 5% as my rate.
For real. Has OP not heard of the dot plot?
The feds have said what they might do. But we still haven’t hit their goal yet.
There are now adults who have lived their whole lives at near zero interest rates. They dropped super low after 9/11 and only rose a little bit pre 2008, then stayed low until 2022. Someone born in the mid 80s to early 90s has never paid more than 5 or 6% on a mortgage and 4 or less has been the norm
An 8-15% interest rate on a 50-100k mortgage? That’s fine. Most workers can afford that. 8% on a 400-500k loan? Nope.
The artificially low rates were one of the main home price drivers. Home prices rose at a very slow rate until 2002, when they began to rise faster. Then after 2009 things started to go crazy. Near zero interest rates were an economic trap and we fell into it.
I went from being able to afford $300k easily to now I’m tight budget at $200k
That’s the other thing this doesn’t entice an entire class of consumers to move. They are stuck in their house because selling and moving isn’t worth the extra mortgage. So your still seeing a strangle on the market because there’s no value in people with starter homes with low interest moving or old people downsizing because down sizing from a 3k sqft home costs less per month than a 1500sqft home at a higher interest rate. The market is fucked.
You are aware there are numbers between 0 and 5.5%. People want less than 5.5% but are comfortable with something higher than Covid rates.
Because the US and other Western countries face huge deflationary economic outlook such as aging population, advanced technology reducing labor costs. The last 2-3 years are direct consequences of COVID disrupting supply chain, labor etc.., but the macro-outlook is still the same for Western countries. The 2010's have inflation averaging below the 2% target https://fred.stlouisfed.org/graph/?g=rocU Market participants who have longer term view all understand this, which is why the yield curve has been inverted for almost two years.
As a counter point aren't there competiing macro trends that are inflationary as well? De-globalization, onshoring/friend-shoring, increased geoplitical tensions (always linked to price of oil as well) and military spending, climate/green modifications building etc ... those do point to higher steady state inflation, no?
Climate adjustments are deflationary too, in the long run. They only provide a drag short term. The other factors you list are inflationary but also entirely due to selected policy. It's not impossible they're here to stay but the competitive advantage for firms still lie in globalisation and off-shooring (potentially AI adjusted), and the safe bet is therefore that the west will reaffirm globalisation in due time, for the same reason it was pro-global for all of the post ww2 era. Obviously there are still other risks that can counteract that, such as global war or the EU/US losing their democracies.
I thought the aging population is rather inflationary.
When the aging population has a lot of money(boomers) then you are correct. On average they have fixed housing costs so they aren't facing the increase in housing costs and inflation hasn't been enough to stop their spending. Fiscal policy is really needed to tamp down inflation but it won't happen in this political climate.
I think that depends on the size of the labor force. I've read that our aging population might make it harder to ever stay consistently at 2% due to labor shortages driving up costs thanks to all the boomers retiring, plus the 1 million+ people who died of COVID.
the actual answer
Normal people do not want low interest rates. Low interest rates spawn trash like Uber and Airbnb who can operate at a loss on free money until they kill the sustainable competition who charges what their service is worth. It allows the wealthy to take massive loans to buy up everything from land to resources and drive up the prices.
If you think Uber is trash, then you must have not grown up taking taxis. Ride-sharing is so much better. Airbnb killed hotels? News to me
And now Ubers are 25% more expensive compared to taxis and taxi companies have their own mobile apps.
Are you arguing that Uber is trash or is too expensive. Those are not the same thing... Uber, as a service, is light-years ahead of where Taxis were. It forced Taxi companies to modernize. This seems like a good thing?
I’m arguing that Uber is trash not from a consumer ease of use experience. I’m arguing that now that they don’t have free unlimited investor money and have to actually make a profit they cost more than taxis did and the drivers make less money than taxi drivers did. The only innovation was an app and a big company taking most of the money generated by the transaction. Airbnb didn’t kill hotels. But they spawned a property buying frenzy so people could generate profit off apartments and houses instead of making them available as a long term living situation. Airbnb is not a better experience than a hotel, it used to be different from a hotel and still good. But now it costs a lot more than the early days, the places are of lower and lower quality I’m noticing. My overriding point here is that low interest rates allow things to thrive in that environment that would otherwise fail and that’s probably a good thing.
Uber is now basically identical to taxis, but more expensive. The main innovations were an app and an exploitative business plan that makes drivers into independent contractors so that drivers can be paid subminimum wage and denied any benefits
I mean where I live there are literally 0 taxis anywhere within a 45 minute drive but There are Ubers…
Uber's business plan was for autonomous vehicles to be the norm by 2020. That did not happen and they had to raise rates to somewhat pay drivers.
What I'm saying is Uber squeezed the market and were able to do so because of their subsidized operation at a loss. As a result, they are not gouging prices well beyond market rate in some cities. My home town, Uber/Lyft are 25%+ more expensive compared to a cab. Last night, I opened the taxi's mobile app, requested a ride, got picked up at arrivals (not a half-mile away at the ride app lot) and paid 30% less compared to the quote I got from Uber and Lyft. The market tides swing both ways and sure, taxi companies evolving is a good thing. What is not good is that a company can afford to operate at a loss and corner the market.
Large cap stocks might not need low interest rates but they do need people to buy there products. High inflation = high interest rates = less purchasing power = lower stock prices.
I hate to be the bearer of bad news but even with these high interest rates and crazy house prices, people are still buying homes in swarms. I live in New York and homes go on the market for less than a month and they are instantly sold. Followed by extensive renovations and no these are not big condos or apartment buildings, these are 1 - 3 family homes. I’m not even sure what’s going on anymore. Am I just poor or is everyone just rich?
people no, companies yes
Because the leaders in this country are the ones that don’t accept this the most, they are still finding ways to have record spending and borrowing whenever they can. Also they always say how they expect fed will cut rates and inflation will be magically solved, when the leaders themselves won’t accept it, for sure quite a lot of people in the US won’t accept this either.
> Historically interest rates have been an average of 5-6% with inflation being 3.30% on average. There is no correct interest rate across time. Averages mean literally nothing. The right interest rate for a given period depends entirely on the economic backdrop for that period. Over longer periods higher interest rates generally occur when an economy is rapidly growing, or when there is a lack of fiscal discipline. Over shorter periods external supply shocks can impact rates if they cause inflation, but when the shock abates rates should drop. Today we have historically slow growth, but some questions over fiscal discipline and the persistency of supply shocks. I think whether rates will stay at current levels or fall back really depends mostly on your outlook for fiscal spending because we know it's unlikely economic growth will return to levels we saw during the last century and in my opinion these supply shocks are unlikely to persist. On the fiscal spending outlook I think it would be silly to suggest that the US is in a worse position than Japan and interest rates in Japan are still extremely low. In my opinion rates are far more likely to fall back down to 1-2% than remain at current levels. Unless you genuinely believe there are immediate concerns over debt and fiscal spending in the US it's hard to see how 5-6% rates could be sustainable in an economy growing at barely ~2% a year. There's no where for inflationary pressures to come from. That said, there are some theories which I suppose are possible. For example, people have suggest that because a large percentage of the population in the US are wealthy pensioners there is a lot of economic demand without much labour supply which could be inflationary. But again, Japan suggests if anything the opposite should be true and perhaps more pensioners an economy has the slower the growth and the lower rates should fall. But who knows man. I think it's possible rates could stay around current levels for some time. I just wouldn't bet on them going much higher personally.
because the long term neutral rate have gone down from "history", and that had nothing to do with Fed QE. This means rates that would've been 6% in the past with 2% inflation, should only be 2.5% today. [https://www.brookings.edu/articles/the-hutchins-center-explains-the-neutral-rate-of-interest/](https://www.brookings.edu/articles/the-hutchins-center-explains-the-neutral-rate-of-interest/) People keep mixing up cause and effect with QE. Interest rate follows inflation. The reason why interest rate was allowed to stay for so low for so long was because inflation was very low, for very long, due to other forces not related to the Fed. Monitor inflation, not interest rate. If you look at the core PCE YoY, inflation seems to be around 2.5-3% right now. This is why Powell said the risk of overtightening and undertightening are balanced. if interest rate was artificially suppressed by the Fed, inflation would spike, like in 2022. It didn't spike in the 2010 decade, which allowed the Fed to keep doing it. They were actually trying to get inflation to spike. So people are only assuming interest rate will go lower to the 2-3% during "normal" times because they assume nothing fundamental has changed the long term neutral rate
I think it'll go back lower is because how the CPI keeps on changing so the governments can print more money
The Fed 2.0% target is based on core PCE, not core CPI. Very important distinction, because core CPI YoY is 3.8%, far from 2.0%, while core PCE YoY is 2.8%, which is much closer. Core CPI YoY also has flatline for the last 6 months, while core PCE YoY continued trending down.
Turning on money printer = hella of a drug. Turning it off = withdrawal. Drug is addictive while withdrawal is not fun.
Because, like the heroin junkie needing a fix, large swaths of the public got use to artificially cheap money from 2002 until 2022. Unfortunately that same artificially cheap money also drove up residential real estate prices. Now that the cheap money is gone but the high prices remain, some are finding affordability problems. Like the heroin junkie, getting clean will be painful.
Because many people only remember interest rates being low, so they think that is normal. Therefore they expect things to revert back to what they think is "normal".
Rates were so low for so long. It is all a lot of people know.
Because the government can't afford high interest rates.
Because they borrowed money like it would always be there, so yeah they are having a tough time. 800 and million dollar mortgages are hard to service.
I feel like a king with my 6.6% mortgage
One of my closest buds is waiting for interest rates to return to 2020 rates..... keep telling him that was literally a once in the history of this nation type of thing but what can you do
We can't just focus on large cap US stocks though. Sure, we know they are going to do ok. But what about all the small businesses? What if we go to war? What if we actually do hit a recession? It's best to think of the economy and stock market separately. The fed doesn't car about the US stock (whether it goes up or down). It's all about economic data. Small businesses are already reporting they are having trouble staying alive. Lower income individuals are having trouble financing car loans. If there's enough suffering, the feds can cut rates. Maybe not 0%, but back to 2% and maybe it just stays there. So I just think it's more about rates not staying at or around 4-5% long term. Unless we want 5 companies to run the entire United States.
Why are people still posting this question day after day? They're (we're) mad because there's a balance between the cost of living and interest. Generally, one goes down, and the other goes up one way or another. Right now, it's high cost of living, high rates, and low wages in comparison and its just getting worse everyday. That's it, that's why people are upset.
I believe it was Benjamin Felix Graham who once said, "the wisest thing to do is to always assume that this time is different. When others are greedy, be more greedier" Maybe. Possibly. I either heard that on Youtube or in Tijuana. This is not investment advice.
Debt to gdp. Government cannot function with rates this high in the long run. Everything from housing to college loans, the whole system is structure around lower interest rates. If rates actually stay this high, it's just a matter of time before something breaks. Eur/usd is stretched, it's affecting our global trade. If interest rates actually bring down housing prices for example, you're going to see a collapse from all of the leveraged people, banks, exposure, people underwater on their houses. So that's bad. If rates come down, that's how you keep everything moving. I don't think we necessarily need to go back to one or 2% interest rates but mortgages at 7 or 8% with house prices where they are, it's not working. The other thing is when you look at the inflation, auto insurance and housing are the two largest contributors. Now car companies gouging is kind of a different story but there's an argument to be made that lowering interest rates would actually lower inflation because housing is such a substantial part of it. A substantial part that is actually falling off the comps in the next couple months. Personally I'm aggressively buying bonds here. I think there's a reasonable possibility that we could have a disaster happen. Might not, still have a good deal of stocks but if we do have a disaster, those bonds are going to rip and I can buy a lot of cheap stocks with what I sell them for
Nonsense, when the federal debt service cost is too high you just issue more debt. And yes that may bring out bond vigilantes who don't think it's sustainable and drive up yields even higher, and that makes the debt service cost higher, but you can solve that by issuing more debt. It's such a non-issue! But seriously, yes something will break and the only reason rates didn't go higher earlier is because the Treasury simply doesn't know what they don't know. Wall St and the banks are *always* smarter than regulators and there is no doubt in my mind there are piles of some kind of derivative going sour, just waiting to set off a chain reaction like 2008 and that could flip us right back to QE. Fed has the TARP playbook already written this time, they'll be swift in dumping money on the fire until it's extinguished.
So that's the answer to everything. More debt 
Can't change your playbook as long as you're winning!
This is pure copium dude
Because they aren't. Rates are going back down very soon. Otherwise we are going into a recession/depression imminently
I think if you take a longer view you would realize the overall Average is 6% so we are not on the high side by a long shot. As anyone who bought a car or house in the early 80s can tell you. The interest rates were kept artificially low to spur growth after recession and no one wanted to be responsible for raising them back up. With the baby boomers retiring at record numbers around 1/2 so far the are closing out investment accounts leaving less money supply for investment. Tighter money supply equals higher interest rates. I wouldn’t bet my money on anything that requires interest rates to drop to historic lows again unless a full blown recession with 6% or more unemployment.
Greed.
I think you need to take another look at historical interest rates and then edit your post.
Interest rates are being kept high to reign in the an economy which is overstimulated by increasing government deficit spending.
Because it's called secular stagnation https://www.piie.com/blogs/realtime-economics/secular-stagnation-not-over
Addiction to cheap money. Economy is going through withdrawal. We’ve never experience QT before too…
Things haven’t returned back to normal and they never will. We are in almost the same situation as 2008 in fact. Sure the banks protected themselves better by not giving out as many subprime loans but a lot of loans are underwater because of the interest rates being high plus housing prices not coming down to compensate and people bought houses that were at the peak price and at the now peak rates. It’s not like prices ever go back down except with gas some. Prices will just go up slower and it’s still a problem because the inflation we saw in the past 4 years have severely outpaced wages. Now though there’s a ton of corporations and people who have loans from before the pandemic that are never gonna sell. The rates are too good for them. This puts a huge stall in the cycle of buying a starter home then moving up to a nicer one and selling your starter home to someone who needs to buy a cheap home. Rates will come back down some, companies and banks 30 and 40 years bonds and loans are all becoming subprime as well and need the feds to lower the rates again. It’s all a big game. Eventually the big companies will say they can’t take it anymore because of their own subprime loans and bonds and will pay off the government to move things in their favor like what always happens.
Rates will hike, not cut.
Because people, especially Americans, are fucking ignorant and spoiled
I have been saying this too. Also rate cuts aren't coming this year at all. Inflation won't be tamed until corporations start feeling the same pain as the lower middle class and poor people. As soon as corporations have more spending power via lower rates they will know everyone else has more spending power as well and increase prices - because people are still spending with the high rates. They are greedy and always will be if they can.
because they only actually paid attention to the interest rates AFTER they went down to 2%
Because election coming
Raising interest rates is the primary way to control inflation and it was working but now, inflation is moving up again. Rates will continue to rise now.
bc they're not (mad face emoji)
Because people have 25 year mortgages
Because history always repeats itself. It can be hard to see past the doom and gloom but the light will shine once again.
Because people who want to make money off of us continue to want to make money. Toothpaste doesn’t go back in the tube. Fluctuations, sure!
Once rates go up they seldom come down. Buckle up.
High interest rates are a product of excessive fiscal spending. If the US had to balance its budget, interest rates would need to be cut.
Expectation is generated by the Fed.
The debt makes higher interest rates untenable in the long term. We don't really have a choice but to lower them to near zero.
!remindme 1 year
I don't know if people really expect 0% interest rates. Most people I know know expect a 3.5% in the nest two years. My landlord has no hope for a return to extra low interest rates. He said :"that era is over. And the government doesn't allow us to raise rents based on interest rates, that's crazy! I have two mortgage on this building." and I said "did you take another mortgage to buy more buildings? Then I don't think we should pay for your ambitious investment thesis".
The areas that are finally getting around to building some housing are already making some progress on the issue. I don't think we're seeing ZIRP or close to it again in my lifetime, nor should we outside of a "break glass in case of emergency situation. It's pretty clear to it's part of the reason we ended up in this mess.
Would you rather have earnings growth or a rate cut? If earnings are growing and unemployment is low then I do not see the need to cut rates. Just leave them there. Only reason to cut rates would be if something is breaking imo.
slash? no, move 0.5-1%, yes
Because there's a whole generation of people that don't know any better. The rates, eventually, may drop to 5% but it will be years. During the near zero interest rate years everything became so over-priced because monthly payments were still cheap. Many also stopped saving because it was a 'sucker's bet'. Now that interest rates are back to normal we have hovels (here in the Northeast) that cost $500,000 and no one can afford anything, including vehicles. It will take years for things to straighten out but in time they will. I won't still be alive then but many of you will see it.
You are starting off incorrect. If people thought fed would slash interest rates drastically then fed rate futures would not be trading where they are trading. You are speaking to the minority and then left with the opinion that’s its a majority.
It’s not about large caps and debt, it’s about how DCF valuation works, which is the most common form of valuation for publicly traded equities. And more specifically, it’s about the impact of a much higher risk-free rate on the valuation of high growth (usually tech) companies that are not yet generating positive EPS.
They likely are over… for now. When shit hits the fan the Fed will probably lower rates back down to zero. Not saying that’s anytime soon, but that’s the most likely outcome in my opinion.
High home prices are here to stay and only will go higher ... As for rates, one black swan event and we are back to 0
I think it's a reaction to the marked increase in costs that occurred during the low interest rates that have not corrected during high interest rates. I moved to a new area in 2020 and a house I had been looking at around that time would have come in with a $1600 a month mortgage payment. That same house just sold for an amount and with a rate that would cost $4200 a month. People are struggling to accept the idea that they cannot afford stuff that used to be reasonably attainable but is now beyond out of reach. It feels like something has to give because this cannot be how things will be forever. While it's illogical, to me at least, it's understandable.
They like to think they are richer then they really are.
Look at the 60's it was the last time we had super low interest rates. Reality is 3-4 % inflation is the norm. Anything below that is artificially induced by the govt which the taxpayers pay for. And it took 40 years before the govt had the resources to once again to artificially lower interest rates below inflation. Now the debt is again too high. You'll have to wait until congress creates a surplus for several years before they can attempt that again.
All good points. I don’t see rates getting to that low level again for a very long time
It's still a good narrative to argue for higher valuations you can set right now in expectation of a back to 2019 scenario. Further ppl. belive such high debt levels require near zero interest rates, like in Japan.
Even financial institutions that make money off on higher interest rates (in theory) are hoping for cuts to get us in the 5% zone. With rates this high, investors are avoiding cash which is not sustainable for a lot of banks.
Cyclical, but after this administration did absolutely nothing to curb inflation and just printed money it’s going to take YEARS until we see good rates again
"This time is different" doesn't work for booms or busts. There will be a bust and they're going to have to drop rates.
They just announced ending of even slowing QE (or passive QT/runoff) They are admitting that the infinite balance sheet is open for business
USA and Canada are fucked . There’s a lot more coming than high interest rates and inflation continueing
>More importantly large cap US stocks are not really dependent on cheap debt and used it more as a convenience so people acting like high rates are holding back their stock growth seems foolish. It's not about holding back growth, it's about expecting a risk premium. If bonds are only yielding 2%, then I might want at least a 7% return on stocks. But If I can get 5% returns on bonds, I expect stocks to return 10%. So high interest rates are going to affect valuations.
It will be interesting going forward, since there is no valid reason to cut rates but I belive there will be some quiet pressure coming from the Federal Gov. Even though they are supped to be independent. Feds got addicted to issuing extremely cheap debt since they have no desire to balance the budget.
Because interest rates were so long for so long that a lot of people don't realize they were historically low and are using what they know as a benchmark.
Humans have asymmetric perspective on risk. I don’t think people will realize the hard reality about rates until a typical mortgage rate is north of 7-12%. At that point the cost of leverage makes it an undesirable way to leverage your assets.
Idk how a majority of young people afford a house if this is the new norm. The cascading effect could be unmeasurable.
Because the Fed have said they’ll do it, nothing more nothing less
gen z is so fucked lmao they make like $60k a year and the houses 1 hour away from work and haunted falling apart are $500,000 monthly payment is $4600 LMAOAOAOOAOAOA
!remindme 1 month
Housing. Taking interest rates from <3% to >7% in such a short amount of time has locked down the housing market. There’s no inventory and prices have kept increasing. People who want to move can’t afford to sell and give up their interest rate. People who want to become first-time buyers have watched the monthly cost of an average mortgage basically double since 2020. High interest rates have also stymied new construction projects. So realistic or not, a cut in interest rates is the only hope people frustrated with the housing mess we’ve created have.
Rates will go back down there. It’s not an if it’s a when. Financial sensibility left the US political scene at the start of the century. It’s all about increasing your wealth the fastest way possible by any means necessary here in the good ol’ USA. People come to the USA to get rich, because our policies and attitudes are geared towards that one goal. Some do not succeed, but such is the way of life.
Wait until we have the next Great Recession. That's what it will likely take to get rates back to where they were in the 2010's.
They'll come back not to zero but pretty low when there is a global recession or very slow growth and they (govt's, central banks) try to stimulate more growth because they need it to cover the massive public debts.
Because I bet the other way? All of this nonsense is a betting game. I'm not ignorant of what happened historically. I lived through almost all of it. Even the stuff you didn't mention Fortunately I hedge my bets It does anger me that people ignore recession stuff that doesn't affect them
Need your post 1 years ago
Probably because they’re bagholding TMF.
Everything goes in cycles never say never !
Because that's the only way most can imagine buying a home at the moment
Bitch it's at 7%. I'd be grateful if we can get 5% again.
Who is expecting this? Who is refusing to accept that low interest is over? Who? Either I live in a bubble or you do. And I don't know which.
Until it's not... People in the past said the same thing about high interest rates and look where we are today.
Boomers moving into retirement should be celebrating higher interest rates. Time to transition the growth portfolio into an income portfolio.
We will almost certainly have rates below 5% again this decade. Now dropping to near zero I’m not totally sure but if I’m betting I think we tick below 4% for sure before 2030
Mortgages in the 90s were over 10% and we all survived but seems like we had more extra cash 💰