You think 4% is slow, what about 5%?

[Joe Flacco]

"declining rates" have not occurred on the natural basis. Our monetary policy has been one of the primary factors and there definitely is a natural limit to how low they could go. The whole QE circus has also been a big factor and is also unsustainable. Everything YOU know is based on THOSE two facts; you've never experienced anything different.

It has occurred on a natural basis. You think that it has not. Show me some evidence of rates declining artificially. Declining growth is why rates have continued to decline. You think that rates are supposed to be at some artificial level and detached from the economy why? You make no sense.

 

[J Grant]

"declining rates" have not occurred on the natural basis. Our monetary policy (direct meddling participation by the govt) has been one of the primary factors and there definitely is a natural limit to how low they could go. The whole QE circus has also been a big factor and is also unsustainable. Everything YOU know is based on THOSE two facts; you've never experienced anything different.

A lot of us have whiplash at how fast things are changing - in everything - socially, economically, every which way - all we can do on our end as appraisers is stay on top of it as it plays out in RE.

Who woulda thought that a global pandemic, which in its initial phase had businesses shutting down would result in the sky high price RE market ? I for one did not.

 

[Terrel L. Shields]

Everything YOU know is based on THOSE two facts; you've never experienced anything different.

Exactly. There are a number factors playing out. 1 - home prices are sky high. 2- Wages and incomes are going up slowly if not the top10% of earners and are not and likely not in the future going to catch up with inflation, especially housing inflation. 3 - the Fed is on a tight rope wire. They raise rates and watch the stock market plunge only to have to lower rates meaning they never get inflation under control. 4- As long as governments continue to assault the fossil fuel business, oil prices will remain high relative to what they were. There is a reason the 1990s were good- low energy prices. 5 -Our trade deficit is high and as we import more oil, it only gets worse. 6- If not for illegal immigrants and legal refugees, our population would be falling. The white population is already in negative growth. But the educated population is predominately white and Asian. Population growth is predominately Hispanic and black. In the future will we have the skilled population to compete against Europeans. On average 40% of EU residents have a college degree (i.e.- "tertiary" degree) where as 35% of US and among the US, 60% of students are women who tend to take courses at a much lower rate in engineering, math, science, and technology. (STEM) And a few countries have rates near 60% advanced degrees - Iceland, Lithuania, Luxembourg, Switzerland, Norway, etc. Only Luxembourg has a higher average income however although the "middle class" is considered to be broader in Europe.

Because Europe has such high taxes, it is also problematic for the cost of living. The large houses we are building today may be a plus in the future as we will see more than Junior living in the basement. We'll have Jr. and wife in basement and their grandparents in an ADU or the attic room.

Switzerland costs 141% more than the US to live in but they earn more but on average thus are still 9% behind the US for disposable income. Same for most European countries. Many such countries take 50% of your income but a lot of services are "free" - a relative term I suppose. Free medical, education, etc. isn't really "free" is it?

As the spread between income and house prices increase many families will live in multi-generational housing and we will be depending upon S. America and Africa to feed us because corporate America will own all the farmland. Family farms are fast disappearing.

There are at least 7 countries with higher incomes on average, but only 6 with higher buying power and they are not big countries - Norway, Luxembourg, Bermuda, Qatar, Macao, and Singapore. NY and LA are already 2 of the most expensive places in the world to live - comparing to Singapore, Paris and Vancouver. When prices like that spread to Texas, Florida and Tennessee, you will see a population much impoverished.

Show me some evidence of rates declining artificially.

The FED dictates rates and as a consequence they are not able to return to "normalcy". We returned to normalcy when Volcker raised rates and stopped inflation, then the rates could return to a more normal range of 4-6%. Until Greenspan there were NEVER rates so low and the consequence is that the banks made a killing borrowing short term and selling long. By going to zero, the FED places itself into a position to require a future depression to get the rates to even the most modest of rates.

 

[Charles West]

Exactly. There are a number factors playing out. 1 - home prices are sky high. 2- Wages and incomes are going up slowly if not the top10% of earners and are not and likely not in the future going to catch up with inflation, especially housing inflation. 3 - the Fed is on a tight rope wire. They raise rates and watch the stock market plunge only to have to lower rates meaning they never get inflation under control. 4- As long as governments continue to assault the fossil fuel business, oil prices will remain high relative to what they were. There is a reason the 1990s were good- low energy prices. 5 -Our trade deficit is high and as we import more oil, it only gets worse. 6- If not for illegal immigrants and legal refugees, our population would be falling. The white population is already in negative growth. But the educated population is predominately white and Asian. Population growth is predominately Hispanic and black. In the future will we have the skilled population to compete against Europeans. On average 40% of EU residents have a college degree (i.e.- "tertiary" degree) where as 35% of US and among the US, 60% of students are women who tend to take courses at a much lower rate in engineering, math, science, and technology. (STEM) And a few countries have rates near 60% advanced degrees - Iceland, Lithuania, Luxembourg, Switzerland, Norway, etc. Only Luxembourg has a higher average income however although the "middle class" is considered to be broader in Europe.

Because Europe has such high taxes, it is also problematic for the cost of living. The large houses we are building today may be a plus in the future as we will see more than Junior living in the basement. We'll have Jr. and wife in basement and their grandparents in an ADU or the attic room.

Switzerland costs 141% more than the US to live in but they earn more but on average thus are still 9% behind the US for disposable income. Same for most European countries. Many such countries take 50% of your income but a lot of services are "free" - a relative term I suppose. Free medical, education, etc. isn't really "free" is it?

As the spread between income and house prices increase many families will live in multi-generational housing and we will be depending upon S. America and Africa to feed us because corporate America will own all the farmland. Family farms are fast disappearing.

There are at least 7 countries with higher incomes on average, but only 6 with higher buying power and they are not big countries - Norway, Luxembourg, Bermuda, Qatar, Macao, and Singapore. NY and LA are already 2 of the most expensive places in the world to live - comparing to Singapore, Paris and Vancouver. When prices like that spread to Texas, Florida and Tennessee, you will see a population much impoverished.

The FED dictates rates and as a consequence they are not able to return to "normalcy". We returned to normalcy when Volcker raised rates and stopped inflation, then the rates could return to a more normal range of 4-6%. Until Greenspan there were NEVER rates so low and the consequence is that the banks made a killing borrowing short term and selling long. By going to zero, the FED places itself into a position to require a future depression to get the rates to even the most modest of rates.
View attachment 60894

I think the Fed is going to pander to the masses on the inflation rate as it is completely natural in an economy that had it's money supply increased so much in such a short period of time. There is essentially nothing the fed can do about that except stop the pump priming which as far as I know they haven't started yet to draw down. I'm waiting for the new PPI numbers next month which will lay the foundation for the rest of the year.

 

[Joe Flacco]

Exactly. There are a number factors playing out. 1 - home prices are sky high. 2- Wages and incomes are going up slowly if not the top10% of earners and are not and likely not in the future going to catch up with inflation, especially housing inflation. 3 - the Fed is on a tight rope wire. They raise rates and watch the stock market plunge only to have to lower rates meaning they never get inflation under control. 4- As long as governments continue to assault the fossil fuel business, oil prices will remain high relative to what they were. There is a reason the 1990s were good- low energy prices. 5 -Our trade deficit is high and as we import more oil, it only gets worse. 6- If not for illegal immigrants and legal refugees, our population would be falling. The white population is already in negative growth. But the educated population is predominately white and Asian. Population growth is predominately Hispanic and black. In the future will we have the skilled population to compete against Europeans. On average 40% of EU residents have a college degree (i.e.- "tertiary" degree) where as 35% of US and among the US, 60% of students are women who tend to take courses at a much lower rate in engineering, math, science, and technology. (STEM) And a few countries have rates near 60% advanced degrees - Iceland, Lithuania, Luxembourg, Switzerland, Norway, etc. Only Luxembourg has a higher average income however although the "middle class" is considered to be broader in Europe.

Because Europe has such high taxes, it is also problematic for the cost of living. The large houses we are building today may be a plus in the future as we will see more than Junior living in the basement. We'll have Jr. and wife in basement and their grandparents in an ADU or the attic room.

Switzerland costs 141% more than the US to live in but they earn more but on average thus are still 9% behind the US for disposable income. Same for most European countries. Many such countries take 50% of your income but a lot of services are "free" - a relative term I suppose. Free medical, education, etc. isn't really "free" is it?

As the spread between income and house prices increase many families will live in multi-generational housing and we will be depending upon S. America and Africa to feed us because corporate America will own all the farmland. Family farms are fast disappearing.

There are at least 7 countries with higher incomes on average, but only 6 with higher buying power and they are not big countries - Norway, Luxembourg, Bermuda, Qatar, Macao, and Singapore. NY and LA are already 2 of the most expensive places in the world to live - comparing to Singapore, Paris and Vancouver. When prices like that spread to Texas, Florida and Tennessee, you will see a population much impoverished.

The FED dictates rates and as a consequence they are not able to return to "normalcy". We returned to normalcy when Volcker raised rates and stopped inflation, then the rates could return to a more normal range of 4-6%. Until Greenspan there were NEVER rates so low and the consequence is that the banks made a killing borrowing short term and selling long. By going to zero, the FED places itself into a position to require a future depression to get the rates to even the most modest of rates.
View attachment 60894

A common theme with you guys is this "normal" rates. Normal rate is whatever the economic conditions dictate and economic conditions with declining growth over the last 40 years has dictated lower and declining interest rates. Normal rates is not 4-6%. Look at your chart. From 1870 to like 1960 was like almost 90 years the rate being below 4% except for that short spike around 1920. Was that nearly a century of artificially low rates?

 

[Joe Flacco]

The fear of rising rates is way overblown. The post WWII period, the last time in history when rates were actually increasing, it was one of the most prosperous periods in this country. Booming economy dictates higher rates.

Anyway the point is, none of us have experienced a real booming economy. The kind of booming economy that dictates higher and increasing trend in rates. "I have been through several cycles and I've seen it and know it all" is the wrong mindset.

 

[Terrel L. Shields]

Normal rate is whatever the economic conditions dictate

Yes and 'normal' has never been zero. That is pure invention of (bad) government as represented by the Fed. No person loans money at zero. The market never gets that low. It has no historic precedence and creates a "new abnormal" - "This time it's different" has never been a new normal. It is always the same. Go back and read MacKay's book on "Extraordinary popular delusions and the madness of crowds" - been around for 180 years then pick up a copy of Chas. Kindleberger's book with title of "Manias, Panics, and Crashes" - Those who ignore history are doomed to repeat it.

 

[Terrel L. Shields]

The post WWII period, the last time in history when rates were actually increasing,

At the end of the war the interest rates were 1.7% and we went into an inflationary period. During the 50s interest rates were around 6% at the bank, you were expected to pony up 20%-50% depending upon the loan and autos were 8% and higher. A 'second' carried by the seller was typically 10%.

 

[George Hatch]

We burned most of the investors in the secondary market back when you came in by not allowing the TBTF lenders to fail. The federal govt subsequently had to step it to replace the private investors and function as the secondary market - they're the only ones who were buying the paper. By not allowing the mortgage interests to float on its own and without competition from the feds we end up with what we have now - it's more profitable to borrow and arbitrage the balance than it is to save or invest.

This is exactly how the income inequality has exploded. It's also how the big lenders have been able to function as if they have no skin in the game - because they do have no skin in the game. The profits are private and the losses are public, which is also a factor in inflation as well as the income inequality.

Let them fail and then we'll see what the real appetite for risk is. Then we'll see how much sense the no-look appraisals mean to them. We don't have RE bubbles. We have been having finance bubbles.

 

[Joe Flacco]

Yes and 'normal' has never been zero. That is pure invention of (bad) government as represented by the Fed. No person loans money at zero. The market never gets that low. It has no historic precedence and creates a "new abnormal" - "This time it's different" has never been a new normal. It is always the same. Go back and read MacKay's book on "Extraordinary popular delusions and the madness of crowds" - been around for 180 years then pick up a copy of Chas. Kindleberger's book with title of "Manias, Panics, and Crashes" - Those who ignore history are doomed to repeat it.

If that is the case then what Volker did by raising rates to fight inflation was also pure invention of bad government since it has never happened before. It had no historic precedence.

But no. That is what the economic conditions at the time dictated.