Only One Way for Rates to Go
Americans have assumed the roller coaster goes one way, legendary bond manager Bill Gross told The Times this weekend. It’s been a great thrill as rates descended, but now we face an extended climb. While rising interest rates will reverberate throughout the economy, they are likely to have a particularly noticeable impact on the housing…
Americans have assumed the roller coaster goes one way, legendary bond manager Bill Gross told The Times this weekend. It’s been a great thrill as rates descended, but now we face an extended climb. While rising interest rates will reverberate throughout the economy, they are likely to have a particularly noticeable impact on the housing market. With rates on 30-year fixed mortgages currently in the mid-5-percent range, every percentage point rise can increase the cost of carrying a home by 19 percent, according to a Columbia prof. Whether there ends up being a proportionate decline in home values remains to be seen, but it’ll certainly add another headwind for the housing market just as some regions have started to see some stabilizing. The only good news for those with existing fixed-rate mortgages is that, to the extent that higher rates correlate with a rise in inflation, real interest rates on your mortgage could fall.
Consumers Face the End of an Era of Cheap Credit [NY Times]
Graphic from The New York Times
Unemployment at 10%. Those of us currently lucky enough to be employed today not spending for fear of being 1 in 10 tomorrow. Consumer spending being, what, 60% of GDP?
Inflation a worry because . . . . anyone . . .
tybur, my point was that if mortgage rates rise 0.50 – 1.00, they will still be rather low historically and not choke the real estate market, nor likely have a detrimental effect on home prices.
History also tells us that at the beginning of rate rises, there’s a rush to buy properties as people want to lock in a rate that they see moving away from them
I’m a firm believer in paying people what they are worth to the organization. If a company has a bloated cost structure that includes wages, salaries and legacy pension costs, it will not survive and everyone looses.
If an investment banker brings in $10B in business, why shouldn’t he gat a decent cut of that business. When times are slow in IB, these jobs get cut very , very quickly in a “don’t ket the door hit you on the way out” fashion.
Let’s stay on topic.
DIBS — “In the early 90s, mortgage rates were well above 7.5% for about 3-4 years.” And they were at 15% in the 80s for a period of time… what’s yer point?
Regardless, I read this NYT’s article as “consumer credit” being the major force anyway. The 3.9% credit cards are out the window and 11-18% will become the norm (again). This will force frugality and dependence on *cash* instead of just charging it. Living within one’s means, building savings, etc. Yes, mortgage rates are part of it, but this city is such an exception to anything rational in that regard… that will take MUCH longer to take root.
“Wage inflation is the most insidious form of inflation”
You sure do hate people who work for a living. Not everyone is so lucky as to be able to “blog” all day.
There are actually people out there working hard to support families. We are the most group discriminated against group in America today.
daveInbedstuy: “Wage inflation is the most insidious form of inflation…”
Because god forbid that wage earners should ever see a reversal of the last 20 years flow of wealth to the rich.
If rates increase because the economy is stronger (likely) then the stock market rally will get very heated before it sells off.
The Fed can only affect very short term rates in an effort to stave off any expected inflation. Central banks around the world are already beginning this process. China and Australia in particular.
The yield curve is still very steep….
http://imgur.com/rydTy
Unless inflation picks up, it’s plausible rates will yo-yo between 5 and 6%, which has been the case for the last few years. Of course, “rates to stay somewhat stable but off historic lows” is not a very sexy headline.
grr. we’re hoping to wait a yr before selling our small place and buying a bigger one, but now i have been wondering if we should accelerate those plans and try to sell/buy in the summer. argh. grr.