We've all debated various theories and scenarios about what might affect this real estate market. However, I haven't seen much discussion about one MAJOR piece: inflation. What do you all think happens if inflation takes hold and interest rates skyrocket to levels not seen since the late-70's/early 80's? If we see high single/low double digit interest rates for home mortgages, don't you think it... [more]
We've all debated various theories and scenarios about what might affect this real estate market. However, I haven't seen much discussion about one MAJOR piece: inflation.
What do you all think happens if inflation takes hold and interest rates skyrocket to levels not seen since the late-70's/early 80's?
If we see high single/low double digit interest rates for home mortgages, don't you think it will grossly affect what is "affordable?"
Sure, mortgage rates are at lows not seen in decades, but the Fed Rate is at a level that it hasn't been at in a half-century and, well, can't really go any lower. It seems to me that, if this rate has to be rapidly taken up (as has even been stated by Uncle Ben) to combat inflation, the housing market could be pounded even further down as the sky-high prices become unaffordable when coupled with high interest rates.
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Response by alpine292
over 17 years ago
Posts: 2771
Member since: Jun 2008
Interest rates will not be going up anytime soon. Right now, the entire WORLD economy is in the toilet so devaluating the dollar won't cause inflation because nearly every other global currency is going down too. If you listened to Peter Schiff and shorted the dollar in anticipation of hyper-inflation, you lost BIG TIME.
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Response by Otto
over 17 years ago
Posts: 128
Member since: Dec 2008
One more scenario to ponder.... if inflation does rear its head in a few years, is there a possibility that the Fed would still keep interest rates down? Anyone with cash is screwed at that point, and all the irresponsible debt-ridden spenders make out like bandits. Any possibility of that happening? Or do Inflation and higher interest rates always go together?
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Response by tech_guy
over 17 years ago
Posts: 967
Member since: Aug 2008
You mean my mortgage balance becomes essentially worthless due to hyper-inflation and my current fixed super-low rate, and I basically bought my apartment for 20% of its total value? Sign me up!
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Response by ruff
over 17 years ago
Posts: 118
Member since: Nov 2008
Otto That may very well indeed by the hidden time bomb in all this. During the Great Depression credit contracted and money was not injected into the systme by the Fed. This time around credit contracted and the Fed has flooded the market and continues to flood with massive amounts of cash.
The big question to ask is are we going for hyper-inflation? Thing not as Alpine points out. The question begs then what? Then what? Perhaps the replacement of the dollar by the Feds with some other form of paper. Dollar depreciation. In which case holding cash will turn out to be a big mistake. The way housing is falling so may the dollar.
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Response by serge07
over 17 years ago
Posts: 334
Member since: Aug 2008
Otto, rates can also rise in a distressed economy like we have today. There are trillions that have to be financed to pay for all the bail-outs and stimulus packages. There is already concern as to how the market will absorb the $2 trillion of US Treasury debt that must be funded this year alone. Foreign governments are also flooding the world markets with debt to finance their own programs so it's far from being a US issue.
The question is who will show up and buy all this garbage? This unprecedented amount of debt supply can certainly push rates up regardless of economic conditions. The bad news is that this can increase up all other consumer loan rates which will not be good news for an already weak global economy.
Interest rates will not be going up anytime soon. Right now, the entire WORLD economy is in the toilet so devaluating the dollar won't cause inflation because nearly every other global currency is going down too. If you listened to Peter Schiff and shorted the dollar in anticipation of hyper-inflation, you lost BIG TIME.
One more scenario to ponder.... if inflation does rear its head in a few years, is there a possibility that the Fed would still keep interest rates down? Anyone with cash is screwed at that point, and all the irresponsible debt-ridden spenders make out like bandits. Any possibility of that happening? Or do Inflation and higher interest rates always go together?
You mean my mortgage balance becomes essentially worthless due to hyper-inflation and my current fixed super-low rate, and I basically bought my apartment for 20% of its total value? Sign me up!
Otto That may very well indeed by the hidden time bomb in all this. During the Great Depression credit contracted and money was not injected into the systme by the Fed. This time around credit contracted and the Fed has flooded the market and continues to flood with massive amounts of cash.
The big question to ask is are we going for hyper-inflation? Thing not as Alpine points out. The question begs then what? Then what? Perhaps the replacement of the dollar by the Feds with some other form of paper. Dollar depreciation. In which case holding cash will turn out to be a big mistake. The way housing is falling so may the dollar.
Otto, rates can also rise in a distressed economy like we have today. There are trillions that have to be financed to pay for all the bail-outs and stimulus packages. There is already concern as to how the market will absorb the $2 trillion of US Treasury debt that must be funded this year alone. Foreign governments are also flooding the world markets with debt to finance their own programs so it's far from being a US issue.
The question is who will show up and buy all this garbage? This unprecedented amount of debt supply can certainly push rates up regardless of economic conditions. The bad news is that this can increase up all other consumer loan rates which will not be good news for an already weak global economy.