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You have many who think the stock market responds negatively to rate increases , yet that has not been the case for 20 years .
20 years is a very short period and there're macro cycles longer than this, so important not to limit comparisions to the last 20 years.
There had been a long period, over a decade, when stock and real estate went down as interest rates increased (stagflation of the 70s).
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Originally Posted by mathjak107
Also every time the fed has raised short term interest rates more then 1% in a year the last 40 years , longer term bonds went up in value. Not down , with one exception , 1994.
As a "safe" asset.
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Originally Posted by mathjak107
Investors make the mistake of thinking there is some see saw correlation between asset classes and there isn’t .
All assets react not to what each other is doing but to the underlying conditions in the economy .
It is true that there's no simple predictable relationship, also it only makes sense to look at inflation-adjusted asset prices, not nominal (and the official fake CPI inflation is nothing like real, especially since they removed real estate prices from CPI back in the 80s, so even "inflation-adjusted" prices need correction)
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Originally Posted by mathjak107
Traditionally higher rates mean a bustling economy . That is good for asset prices
Not necessarily bustling economy (your chart only starts from 2000)
The stagflation of the 70s (looks like it's starting again now) was bad economy and high rates (high inflation): https://fred.stlouisfed.org/series/FEDFUNDS
Fed rate was high since the end of the 60s, and kept climbing in zigzag fashion (with temporary drops), for over a decade, stayed overall high throughout, while moving towards its peak in early 80s - stagflation. Stocks fluctuated sidewise - if not adjusted for inflation, if adjust for inflation they plunged during that decade, real estate did the same but overall went down much less (with several busts, ups/downs).
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Originally Posted by mathjak107
argue all you like but there is little correlation to just rates .
economic conditions locally are primary
It depends on the location and local market. Here, where homes are selling for well over asking with many offers, most buyers don't care about mortgage rates, because to win the bid they have to be paying cash.
It depends on the location and local market. Here, where homes are selling for well over asking with many offers, most buyers don't care about mortgage rates, because to win the bid they have to be paying cash.
From 2015 to 2018 we had 9 fed increases …real estate rose in most areas .
Mortgages have been bid up by investors the last year to 4% and homes are still going up with big demand.
So it still reflects no see saw action between rates and values
Looking at the Case Shiller index, from 2015-2019 was not really a steady increase, and the second half of 2018 was actually a decrease. If I remember correctly (maybe not) that was right around when rates got to the highest they had been for awhile.
A ~1% increase in interest rates will absolutely have a negative impact on home prices.
Except go look at the charts that compare ……there is little link until rates were in double digits.
The fed raised rates 9x between 2015 and 2018 and in most desirable areas prices on homes went up .
The 2007 boom was at 6-7% rates ….. here in nyc we were booming in 1987 and I was thrilled to get 8-1/4%.
The misinformed say the same thing about stocks and rates and you can clearly see that is false for more than 2 decades …prices are linked to economies , not rates
Last edited by mathjak107; 03-01-2022 at 06:48 AM..
Except go look at the charts that compare ……there is little link until rates were in double digits.
The fed raised rates 9x between 2015 and 2018 and in most desirable areas prices on homes went up .
The 2007 boom was at 6-7% rates ….. here in nyc we were booming in 1987 and I was thrilled to get 8-1/4%.
The misinformed say the same thing about stocks and rates and you can clearly see that is false for more than 2 decades …prices are linked to economies , not rates
I wasn't talking about stocks.
Don't "most desireable areas" have a lot of cash sales? If so, then interest rates may not effect them much.
But in typical suburban areas and such, it will. I know all RE is local, but pretty sure where I am (Charlotte NC area), prices did come down a bit in late 2018 when rates were rising.
Which still goes back to what I said . Real estate prices are based on local areas…not rates
They just don't get it. Home prices increased because Covid forced stay at home orders for many, which transitioned many households to at least indefinitely explore working from home. Those individuals opted to invest in their current residence instead of purchasing an existing home or seeking new construction. You had a lot of homes that didn't come onto the market.
Also, Covid created a lot of "free" cash in the system. Investment firms looked at rental real estate in regions that were underpriced and bought up as much as they could.
Individuals that are buying homes on the secondary market still qualify. A rise in rates won't likely lower prices, it will just hinder demand a bit, which would just be offset by smaller homes. We've been seeing smaller homes go up for 4-5 years now, as the new generation of home buyers do not prefer to maintain a yard.
Which still goes back to what I said . Real estate prices are based on local areas…not rates
Rates that go from 2-3% to 10-14% would have an effect many new buyers who likely won't have large enough down payment will be shut out of the market. Increases in prices in my area went up 100k every 6 months that isn't normal price increases. Homes on my street sold for 40% less 8 months ago.
I know someone who got asking by 10 buyers they increased the price by 100k and required the buyers to allow renting it back for the same price as the mortgage cost until they found a home or 6 months. They still got 4 offers with those requirements. Then they increased it more to 150k over asking ended up with one buyer all cash no inspection either. They sold the house found a new house in a month closed the deal.
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