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Rates skyrocketed in the 1970's because the Fed raised them in an attempt to curtail the inflationary spiral set off by the high (by old standards) federal borrowing to pay for the Vietnam war.
The only way to battle inflation is by raising the cost of money (aka interest rate.) Cheap money is by definition inflationary. When money has little perceived value, people will buy ANYTHING rather than hold cash. And that is why real estate prices are bid higher and higher. "Here, take my worthless money and give me your apartment building or your stock. Not enough money? Here's MORE!"
The Fed is destroying this economy for purely political reasons.
Last edited by Kefir King; 09-29-2017 at 09:12 AM..
You failed to make that point in your post that said the Fed lowered short term rates but long term rates did not go up,(as if they SHOULD for some unknown bizarre reason) but rather they fell (as is completely expected.) And you indicated that this is an example of how the Fed has no influence over mortgage rates. That makes no sense. It is an internally defective argument.
there is no rule that has long term and short term rates following each other .
long term rates are investor views and not the feds . -end of story
assuming because one goes up or down the other ALWAYS will is just wrong .
Rates skyrocketed in the 1970's because the Fed raised them in an attempt to curtail the inflationary spiral set off by the high (by old standards) federal borrowing to pay for the Vietnam war.
The only way to battle inflation is by raising the cost of money (aka interest rate.) Cheap money is by definition inflationary. When money has little oerceived value, people will buy ANYTHING rather than hold cash. And that is why real estate prices are bid higher and higher. "Here, take my worthless money and give me your apartment building or your stock. Not enough money? Here's MORE!"
The Fed is destroying this economy for purely political reasons.
except stocks and bonds plummeted back in the day of high inflation so that is not correct either .
in fact when mortgage rates were heading to 18% real estate took a beating too. it wasn't until inflation fell that things recovered .high inflation is bad for all except possibly gold .. the falling of inflation kicked off the great bull market .
Last edited by mathjak107; 09-29-2017 at 09:14 AM..
there is no rule that has long term and short term rates following each other .
long term rates are investor views and not the feds . -end of story
assuming because one goes up or down the other ALWAYS will is just wrong .
Didnt read what all the argument was about, but I recall reading an article a while back on how the wealthy buy properties. Due to the low short term rates the rich actually take out short term floating rate loans to buy real estate. I believe the Facebook CEO did that because the rates were so damn low that it made no sense to pay for the property in cash nor use a more traditional longer term loan nor any fixed fate loan at any term. I can only assume that many of the high end properties brought in Manhattan by various LLCs were brought this way via short term floating rate personal loans back by the wealth of the buyers. If rates go up I assume that those wealthy buyers would just sell some liquid asset to pay for the loan in full since the raising of rates in general may negatively impact their investment alternatives anyway.
there are different hedging strategies including options and futures on rates to make them transparent but it still does not change the fact no one can predict what will happen to markets , bonds or real estate prices when the fed moves short term rates . their value's all depend on fear ,greed and perception of the future not the feds increases . .
Last edited by mathjak107; 09-29-2017 at 09:15 AM..
there are different hedging strategies including options and futures on rates but it still does not change the fact no one can predict what will happen to markets , bonds or real estate prices when the fed moves short term rates . their value's all depend on fear ,greed and perception .
Then how do you explain large stock index falls every time the fed raises rates a quarter percent, or even HINTS it might do so.
Oh well, if the fed finally decides to curtail inflation, perhaps I will be able to get myself some 15% CD's like my mom left me when she died.
do you see markets making new highs this year as the fed raises short term rates ? i guess you don't watch the markets or you could not possibly say what you did .
s&p 500 , dow and nasdaq all hit record highs . i think nasdaq broke a new high today again .
there is always a knee jerk reaction . but then the markets analyze things and move higher as raising short term rates has been viewed as holding down inflationary pressures stick its head up . even bond rates are lower than just 3 years ago .
all that while the fed has been raising rates multiple times .
Last edited by mathjak107; 09-29-2017 at 09:39 AM..
Then how do you explain large stock index falls every time the fed raises rates a quarter percent, or even HINTS it might do so.
Oh well, if the fed finally decides to curtail inflation, perhaps I will be able to get myself some 15% CD's like my mom left me when she died.
great deal when inflation was 18% . you only lost 3% . it was only after inflation fell they were a deal if you had them . heck i would have loved to buy 30 year bonds back then . if only i had the crystal ball showing how low we would one day fall .
You think the Fed is the problem with RE markets. A lot of expensive properties were all bought by foreigners all cash purchases no borrowing from the Feds here that's what is driving up RE prices.
People will push prices higher if there is value regardless what the rates are, there will be creative borrowing to get the money.
As long as there is a catalyst to push the value up, people will borrow even at ridiculous rates.
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