Friday, September 11, 2015

If Mortgage Rates Move 2%, Here's What Happens to Housing

January 7, 2015
Record-Low Mortgage Rates Seen Luring Back Japan Buyers

Japan Housing Finance Agency’s 35-year fixed rate loan set a record low of 1.47 percent this month.


“Mortgage rates were already low, so renewing a record low won’t have much impact,” said Yoji Otani, a property analyst in Tokyo at Deutsche Bank AG. An increase in wages is necessary to stoke demand amid rising property prices and building costs that have pushed new apartment prices higher, he said.

Oops. My bad. This is not Japan stuck in ZIRP. This is the ZIRP-free USA! Everyone knows mortgage rates will rise to a more normal 6%, not fall to 2%. Let me try that again.

September 11, 2015
If mortgage rates go to 6%, here's what happens to housing

And as interest rates begin moving back up to more "normal" levels, that could spell trouble for home prices.

Interest rates have been falling for 35 years. If rates really do start going back up over the long-term, which I am extremely skeptical of, then that would require "new normal" analysis.

Want scary? Who thinks housing will be doing fantastic if mortgage rates drop 2% from here? Why did rates drop? Trying to fend off Great Depression II, Return of the Killer Depression?

As a long-term saver and as an observer of underfunded pensions, I'm more concerned about long-term rates falling than rising. Do you have any idea how hard it will be to make money off of money if long-term mortgage rates are a mere 1.5%?

Other than to say that mortgage rates *always* have two ways they can move, even over the long-term, this is not investment advice. There are no sure things.


Mr Slippery said...

I thought the working title was "Great Depression II - Electric Boogaloo".

Stagflationary Mark said...

That's definitely a winner! Might need a good tagline though.

Great Jaws of Depression II

Just when you thought it was safe for your house to go back underwater...

Troy said...

shows that since 2001 Japan has lost the population of Hokkaido or Shikoku among the 25-54 demographic.

The money the 1% is pulling out of the lower quintiles via rents in housing and healthcare is like pushing in the control rods of a nuclear reactor. Inflation can only hit when there's too much money chasing too few products, but ever since we opened our economy to low-wage factory economies we're not exactly facing scarcity any more.

Some people get this, but most don't. The 1970s formed their opinion, but they don't understand what was going on then, and how it was different to now.

Stagflationary Mark said...


Yeah, I started off with a 1970s mindset in 2004. Gold, silver, and oil rising tended to confirm the theory.

Like the 1970s, there was a time to consider getting off the ride though. Hyperinflation theories would soon be tested again, big time. Those who bought silver in either era at $40+ are still licking their wounds.

Further, interest rates don't necessarily rise due to *too much money* chasing *too many bonds*. They rise because there's *too little money* chasing *too many bonds*. I think many people who have shorted long-term bonds over the years don't fully grasp this concept.

Further, the type of money chasing long-term bonds probably isn't the same type of money that would be chasing canned goods. The wealthy don't eat more canned goods than anyone else more than likely, probably a lot less. It's therefore more difficult for canned goods inflation to skyrocket.

Troy said...

I would love to see a 1:1 dollar-for-dollar simulation of our entire economy running.

16GB in my new hackintosh isn't enough for that, though

"Dr. Rus­sell Stan­dish and I have been work­ing on Min­sky now for almost two years now–first using a $125K from INET’s Spring 2011 grant round and then another $80K from a suc­cess­ful Kick­starter cam­paign: Rus­sell as builder (cod­ing in C++ and Tcl/Tk)" (face palm)

Stagflationary Mark said...