Much Higher Interest Rates for Much, Much Longer

Prices of homes need to be lower with higher interest rates. We bought our first house in 1979 at 12% interest but we bought an older home that was in line with our income. Where I live now even crappy homes cost a lot more than many people can afford.
 
homes prices are not determined by rates since many will just step down a notch to what they can afford .
the higher priced homes here have cash bidding wars .

what typically happens is supply drys up because there are a lot less sellers .

few want to replace an existing low mortgage .

so we have more buyers then sellers here .

local economics determine prices not rates like a see saw
 

mathjak107 said:
homes prices are not determined by rates since many will just step down a notch to what they can afford .
the higher priced homes here have cash bidding wars .

what typically happens is supply drys up because there are a lot less sellers .

few want to replace an existing low mortgage .

so we have more buyers then sellers here .

local economics determine prices not rates like a see saw
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IMO this is a key factor. Small and regional banks in the U.S. are under stress due to a combination of commercial real estate loans, potential losses from higher interest rates, and a record amount of loans maturing. The banking industry is addressing concerns to prevent systemic issues, aiming to encourage capital raising and asset selling to improve the capital situation without causing mass bank failures.

The timeline of the current economic challenges is expected to span over the next two years, with key differences noted between past financial crises and the current environment, emphasizing the importance of prioritizing policy actions towards smaller banking institutions to prevent insolvency.

source:
Why Hundreds Of U.S. Banks Are At Risk Of Failing
 
Just curious, how much interest can you get on your savings in the US? Is the interest taxable?
Here in the UK interest rates are falling and high street banks are offering 4 to 5%. The average tax payer gets £1k allowance before the interest is taxed, but there are tax free savings accounts where you can save up to £20k per tax year.
 
Capt Lightning said:
Just curious, how much interest can you get on your savings in the US? Is the interest taxable?
Here in the UK interest rates are falling and high street banks are offering 4 to 5%. The average tax payer gets £1k allowance before the interest is taxed, but there are tax free savings accounts where you can save up to £20k per tax year.
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pretty much same rates and taxable
 
Pepper said:
It interests me so much that while screaming and complaining about cost, Americans are buying stuff, lots of stuff, all the time. Yet they are complaining they can't get more, more, more. Even our poorest poor have expensive cell phones, TVs, Ipad, you name it. There was a time people knew they might have to actually save up for stuff out of their league. We think we can spend what the 1% spend, that we somehow all "deserve" it.

My mom taught me to "save for the rainy day." Not that I always listen, but I understand her POV.

PS. "out of their league"
Yes, some things actually are
Just because we see something doesn't mean it can belong to us, and so what if it isn't?
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You have plenty of people who buy things they can't afford. People prioritize things in strange ways...buying the newest cell phone but not being able to pay their rent. It's become an entitled society in many ways.
 
mathjak107 said:
homes prices are not determined by rates since many will just step down a notch to what they can afford .
the higher priced homes here have cash bidding wars .

what typically happens is supply drys up because there are a lot less sellers .

few want to replace an existing low mortgage .

so we have more buyers then sellers here .

local economics determine prices not rates like a see saw
Click to expand...
What I was trying to say and I did a poor job of explaining is that the cost of housing compared to income is way out of proportion to the last time interest rates were higher. I could understand prices being higher when interest rates are lower but now many people are getting priced out because of the rates.

We don’t have a lot of homes for sale in northern Nevada because people aren’t giving up their low rates. Houses are no longer selling in a few days like before.

But we still have many cash buyers from California that over pay because it seems cheap to them. That has affected our entire economy in a negative way. Our homeless population now includes the working poor which it never used to.
 
Investors buying up houses has been a major factor in increasing their prices and keeping them high. This money is coming from the uber wealthy that don't care about intrest rates because they are wallowing in so much cash that they can afford to pay top dollar without batting an eye.
 
Real estate investors accounted for 26.1% of low-priced home purchases in the U.S. during the fourth quarter of 2023, Investors bought only 13.6% of mid-priced homes and 15.9% of high-priced homes sold during the same period, so really not much in the scheme of things
 
Interest rates in the early 1980s were in the low 20%. The young are crying about "high" interest rates at 6%. Are they kidding?

Interest rates can't come down as governments are spending money like it grows on trees!
 
dilettante said:
The issue in the video is that the large bulge of population has or is retiring now. That means rebalancing their investment funds more conservatively and drawing those down into cash to invest very conservatively into CDs or Savings Accounts and living off it.

The scarcity developing from it is a reason why interest rates will stay high. That's the cheap money slipping out of Wall Street's fingers as well as commercial borrowers.
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I can see that moving from equity investments to US treasuries would be taking money from commercial borrowers, but if people are getting CDs or putting the money into Savings Accounts, that means the banks would be using that money to give loans, which can put some of it right back into commercial borrowers hands.

Also, there are more conservative investments that are funds for commercial borrowers, for example, Microsoft corporate bonds instead of Microsoft stock.

I find all the financial discussions confusing because everything appears to be simultaneously good and bad. If employment goes up we are safer from recession but more in danger of inflation. If people don't save money it is bad, but when people save more of their money it is also bad because it means they don't have confidence, slow their spending, and then we get recession.

High interest rates are bad, but then the bond rates are great for fixed income.

How is it that nothing is ever unequivocally good?
 
Muskrat said:
A lot of this goes back to individual circumstances. Inflation is relative to what you currently think you need.
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What I need is inflation to slow down just a bit. We are frugal and try to shop only once every 3-4 weeks. (nothing special, just necessities). Now, just this past month, almost everything that we buy has increased by 20%. (in one month). Not sure how much more we can cut out or down. :mad:
 
I agree.
Murrmurr said:
You hit all the main points. I don't always agree w/Zeihan, but most of us knew we'd eventually be paying for the fed's recklessness during the pandemic. I got 3 bank deposits I didn't ask for, each well over a thousand bucks..."covid relief" deposits. And I didn't get covid, didn't lose a job over covid, wasn't effected by covid. And you can't return that money. But I knew I'd be paying it back one way or another.
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our stimulus money went into high yield savings, which then wasn't yielding too much, but now is yielding ~5% (about inflation rate). Over all, it was highly inflationary to those who are susceptible to inflation.
 
leastlongprime said:
I agree.

our stimulus money went into high yield savings, which then wasn't yielding too much, but now is yielding ~5% (about inflation rate). Over all, it was highly inflationary to those who are susceptible to inflation.
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I had a feeling that spending mine quick was the best way to go, so that's what I did. At least it supported some businesses.
 
dilettante said:
The issue in the video is that the large bulge of population has or is retiring now. That means rebalancing their investment funds more conservatively and drawing those down into cash to invest very conservatively into CDs or Savings Accounts and living off it.

The scarcity developing from it is a reason why interest rates will stay high. That's the cheap money slipping out of Wall Street's fingers as well as commercial borrowers.
Click to expand...

the myth that retirees will sell out of stocks and move to cash instruments is a myth that won’t die .

most retirees with investments don’t sell out . one needs equities unless they are going to draw very low safe withdrawal rates from cash instruments.

most retirees with investments range from 40-60% equities.

cash instruments and less then 40% equities cannot support 4% inflation adjust spending safely

current research is showing that equities should increase in retirement as well .

the current thinking is that one should reduce down to about 40% equities about 5-8 years pre retirement , hold that level 5-8 years thru retirement, then ramp back up to 60% again .

its called the red zone

The Portfolio Size Effect And Optimal Equity Glidepaths
 
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Teacher Terry said:
What I was trying to say and I did a poor job of explaining is that the cost of housing compared to income is way out of proportion to the last time interest rates were higher. I could understand prices being higher when interest rates are lower but now many people are getting priced out because of the rates.

We don’t have a lot of homes for sale in northern Nevada because people aren’t giving up their low rates. Houses are no longer selling in a few days like before.

But we still have many cash buyers from California that over pay because it seems cheap to them. That has affected our entire economy in a negative way. Our homeless population now includes the working poor which it never used to.
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California is guilty of screwing up the whole nation's housing market and you know what? The politicians could not care LESS.
HGTV and all the flipper shows are also guilty.
 
mathjak107 said:
the myth that retirees will sell out of stocks and move to cash instruments is a myth that won’t die .

most retirees with investments don’t sell out . one needs equities unless they are going to draw very low safe withdrawal rates from cash instruments.

most retirees with investments range from 40-60% equities.

cash instruments and less then 40% equities cannot support 4% inflation adjust spending safely

current research is showing that equities should increase in retirement as well .

the current thinking is that one should reduce down to about 40% equities about 5-8 years pre retirement , hold that level 5-8 years thru retirement, then ramp back up to 60% again .

its called the red zone

The Portfolio Size Effect And Optimal Equity Glidepaths
Click to expand...

Er, the story is that a large fraction of the population is cashing out and living on their retirement savings. Some of that means selling off higher-risk equities and moving the money to safer havens, but it is far from the entire change. It can mean things like paying off remaining mortgage and other consumer loan balances too, or relocating to a retirement home and installing upgrades to support late-in-life needs. Or just buying that "last new car" in today's hyperinflated auto market.

If it wasn't true and already well underway there wouldn't be any panic over it on Wall Street.
 
boomers have been retiring for a decade already and about 65% of boomers already retired .

the click bait articles have been telling us how markets will be in trouble since before they retired .

the fact is boomers retiring have not sold off nor have they effected markets .

boomer wealth has already started passing to their kidswho invest much of it.

so as markets go on to new highs the myth is a bust
 
Taking refuge in CDs, bonds, etc instead of stocks just insures that many, especially those that live into their late 80's and beyond will be eking out the end of their retirement savings on fumes.

If you retire at 70 and expect to live to 85 that is still a 15 year span, plenty of time to take a hit in the stock market and recover. I just passed the "red zone" and added 10% to my stocks and now at 70/30.

I'm w mj's thinking 1000%.
 
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There is a huge difference between parroting a politically motivated narrative and reality. Watch the video, which reflects reality.
 

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