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

[George Hatch]

It's the govt meddling that has enabled the wild swings. Not just on the increase but also on the decrease.

If an investor gets burned they make up for it by increasing their rate on the next one. Not by doubling down on their risky decisions.

No matter what, you can't decouple the pricing from the incomes being used to pay for that pricing.

 

[Terrel L. Shields]

Volker did by raising rates to fight inflation was also pure invention of bad government

Indeed it was. We spent more than we took it, and let stagflation take over. Had we managed inflation correctly it would have been controlled in the mid 70s. They let it run in fear the economy would slow more.

 

[Charles West]

The volatility in the federal funding rate really started to pop in the 60s, peaked in the 80s and has been held artificially low lately mainly to fund federal spending. We now have 30 trillion in debt and everything else will have to compete with the debt service so don't expect agrarian rates.

 

[Joe Flacco]

Please cut it out with the artificially low rates stuff. "Artificially low rates" is just another main stream media story.

 

[George Hatch]

What do you think would have happened to interest rates if the feds had simply allow the lenders to fail? If the feds hadn't stepped up their purchased of those loans on the secondary market and left it to the private investors? What effect would such losses have had on mortgage underwriting and loan qualifications and LTVs?

In commercial appraising one of the techniques for developing an overall capitalization rate is to build it using a mortgage/equity buildup where the rates of return of and on investment capital is broken down between that portion of the purchase price that's being funded in a mortgage vs that portion being funded by the equity. It includes consideration of perceived risks of loss of the investment.

Cap rates for multi-family were pushing 10% in the 1990s, now they're frequently below 5% and sometimes below 4%. What is that telling you about the returns the banks and the investors are expecting on their investments?

 

[Joe Flacco]

What do you think would have happened to interest rates if the feds had simply allow the lenders to fail? If the feds hadn't stepped up their purchased of those loans on the secondary market and left it to the private investors? What effect would such losses have had on mortgage underwriting and loan qualifications and LTVs?

In commercial appraising one of the techniques for developing an overall capitalization rate is to build it using a mortgage/equity buildup where the rates of return of and on investment capital is broken down between that portion of the purchase price that's being funded in a mortgage vs that portion being funded by the equity. It includes consideration of perceived risks of loss of the investment.

Cap rates for multi-family were pushing 10% in the 1990s, now they're frequently below 5% and sometimes below 4%. What is that telling you about the returns the banks and the investors are expecting on their investments?

If they let the banks fail then government bonds would be bought driving yields lower. You believe otherwise?

What were cap rates for multi family during the 40's? What did the tell you?

 

[George Hatch]

During WWII (which very nearly broke us) and it's aftermath? Puhleeze. How about we stick to the economies we've seen in our own lifetimes?

Stop looking for the diversion and consider the question as I asked it.

My point is that the RE market has always previously returned to long term trendline and that trendline has always paralleled the wage/population trends. The previous cycle was an aberration that was *created* by misconduct and which didn't fully correct also via misconduct. People committed crimes and made bad choices without being subsequently punished or penalized as is supposed to occur when we operate per the rule of law.

 

[Joe Flacco]

During WWII and it's aftermath? Puhleeze. How about we stick to the economies we've seen in our own lifetimes?

Stop looking for the diversion and consider the question as I asked it.

Before WWII. Following the depression when rates declined to similar levels compared to today. What was the cap rates for multi family then and how does that compare to today?

I can tell you are getting irritated. I would be too after talking about crash is around the corner for six years now.

What you have experienced in your lifetime is very limited compared to history. You lived probably only 20 years more than me. Very arrogant for you to think that you have seen it all. That's why you are wrong and will continue to be wrong.

 

[George Hatch]

Irritated? Not even. You don't have what it takes to annoy me. I have always had an interest in how human behavior has manifest in the economy so that's why I've been following it. That's why I usually bring up these other factors in these discussions in addition to the numbers for the supply and demand. Factors which contribute and affect the demand.


And you're right; 6 years ago I could not have predicted the fed would continue to lower interest rates for so long as a means of keeping the bull run going. Neither did you. The fed didn't even start the (highly immoral) QE giveaways until 2019. And just for the record, I never predicted the timing of the market swing; I just said it was possible to reverse at that time which continues to be true today. The market psychology is both unpredictable and has the potential to be volatile. I always said that.

As for cap rates prior to the 1970s they would obviously have been higher before the existence of the secondary market. Didn't you ever watch "it's a wonderful life" where the liquidity ended at the local lender and once that money was lent out there wasn't any more? In that situation you had better believe those bankers had skin in the game and were taking a more cautious approach to their underwriting. And expecting bigger returns to offset their risks.

 

[Joe Flacco]

All I am saying is that what you have experienced in your lifetime may not be applicable to what is possibly happening. That is the appropriate state of mind.

If comparing to a period in the past I feel that the post WWII period has a lot of similarities to what is possibly happening. That could also be wrong.

As far as the real estate market, I don't see a crash anytime soon with supply situation what it is. I see something start to change with that then I may begin adjusting my views.