Yes, the Fed matters a lot; nobody disagrees with that.

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Submitted by XBoxBoy on June 9, 2022 - 8:48am

Rich Toscano wrote:
Yes, the Fed matters a lot; nobody disagrees with that.

That's a quote from Rich from another thread, and you know I'm not so sure I agree with that anymore. Take the current situation. Inflation is running high, but how much of that is due to the fed? Some maybe, but what about supply chain issues caused by the pandemic? What about all the free money given away by the federal government? (via the US Treasury, not the fed) What about the war in Ukraine which caused sanctions on Russian gas which has caused gas prices to spike? And lastly I often wonder if in the last year or two a bunch of companies have figured out they can raise prices so they have.

More and more I'm just not convinced the fed is really nearly as effective as conventional wisdom says they are. And if they aren't effective they just don't matter that much.

There so many variables at play here, why do we subscribe so much importance to the fed? How much of what we subscribe to the fed is really caused by the fed and how much is just correlation or coincidence? And isn't the fed more reactive than proactive?

Maybe I don't have much to really say about this, but when I saw Rich's comment it just struck me, "whoa, I'm not so sure I agree with that."

Submitted by deadzone on June 9, 2022 - 8:59am.

Have you looked at the chart of the Fed Balance sheet? That should make it more clear the power of the Fed and how their purchasing of bonds and mortgage assets flooded the economy with money, which is the primary source of inflation today.

If the Fed policy doesn't control everything then why do the financial markets literally move based on Fed action (or inaction). Do you ever watch CNBC or other financial news?

The Fed balance sheet is mostly Purchases of US Treasuries and MBS, with printed money that they just pulled out of the air. The Free money given away by the US Treasury for Pandemic relief was because the Fed printed trillions of dollars and purchased US Treasury bonds. If it were up to a free market, or without Fed money printing, those trillions of pandemic giveaways couldn't have occurred.

Submitted by deadzone on June 9, 2022 - 9:03am.

But you are right it is impossible to know exactly how much of the inflation is caused by Fed money printing (i.e. QE) compared with the other factors. However, the only tool the Fed has to fight inflation is to raise interest rates and reverse QE (i.e. QT)

That's why it appears we are on near certain head on collision with Recession and possible market crash. The Fed has to try to fight inflation, and the only tool to fight it will cause a crash.

Submitted by XBoxBoy on June 9, 2022 - 2:08pm.

deadzone wrote:
Have you looked at the chart of the Fed Balance sheet?

Yes, and while that chart is certainly concerning, I don't share the belief that that chart proves the fed caused all the inflation we are seeing.

deadzone wrote:

If the Fed policy doesn't control everything then why do the financial markets literally move based on Fed action (or inaction). Do you ever watch CNBC or other financial news?

Sorry, I just find this argument to be, "Everyone else believes this, it must be true." Which to me is not a reason to go along with the crowd, but a reason to step back and question the wisdom of this view.

deadzone wrote:

The Free money given away by the US Treasury for Pandemic relief was because the Fed printed trillions of dollars and purchased US Treasury bonds. If it were up to a free market, or without Fed money printing, those trillions of pandemic giveaways couldn't have occurred.

hmmmm.... I don't think I agree. My guess is that fed buying US Treasuries helped the US govt. but I think the US govt. probably could have floated a lot of bonds without the feds help. They might have had to pay a bit more interest, but I'm unconvinced that without the feds QE policy the US govt. wouldn't have been able to give away all the money they did. (Or least close to what they did.)

deadzone wrote:

But you are right it is impossible to know exactly how much of the inflation is caused by Fed money printing (i.e. QE) compared with the other factors.

So, if you really mean what you say, that we can't know how much inflation was caused by the fed, then you have to agree that maybe they aren't nearly as effective as people claim. If we don't know how much inflation was caused by the fed, we probably also don't know how much inflation we are seeing is from fiscal policy, supply shortages, Ukraine war and companies reevaluating their pricing strategies. And if that's true then maybe it's time to admit that maybe, just maybe, the fed really doesn't matters all that much. (And that's my point.)

Submitted by deadzone on June 9, 2022 - 4:18pm.

You almost have to be a flat earther not to recognize the role of the Fed in the current asset bubbles. If the USG tried to raise 4-5 trillion by selling bonds on an open, free market, interest rates would not only be higher, but orders of magnitude higher. It would not have been possible. The Fed has been buying treasuries and MBS non-stop since 2009. Why? To keep the asset bubbles blown up because the economy relies on wealth effect.

When it comes to blowing up asset bubbles in stocks and RE, the Fed is VERY GOOD at their job. They have been extraordinarily successful in accomplishing this via QE. Now this policy is being tested for the first time with real inflation. I guess at this point it isn't important what caused the inflation, either way the Fed has to act which will risk a market collapse. But come on, be serious, Fed balance sheet, money supply, more than doubling during pandemic, of course that is going to lead to inflation.

Submitted by Rich Toscano on June 9, 2022 - 8:05pm.

Well, I guess I was wrong... some people do "disagree with that"! So thanks for chiming in.

I get your perspective, but fwiw (and I am not an expert here), I do think they matter. More than you seem to think they matter anyway.

Some quick/simplified thoughts:

- Supply chains and the war -- the whole world is dealing with these issues, yet core inflation is running a lot higher in the US than in other developed countries (and most emerging countries for that matter). So those cannot be used to excuse high inflation here... a big chunk of the high inflation in the US is demand-driven, not supply driven.

- I do agree that this is the result of the federal govt stimulus (no coincidence that the US had the biggest stimulus by far, and now it has the highest underlying inflation).

- The above two thoughts don't actually really address the question of whether the Fed matters, though. Which is to say -- it doesn't really matter what caused the inflation... the Fed's job is to make the inflation go away. Or put another way (and Jpow said this himself) - supply is what it is, and the Fed has to calibrate demand to that supply in order to get inflation to target.

- So, if you think the Fed doesn't matter, that's the same as saying that they can't - or won't - reign in demand. I disagree on the "can't" -- they can jack up rates until they cause a recession, if need be. The "won't" is more arguable but my view is that they really are committed to fighting inflation. And even if they blink before it's really reigned in - they can still make a difference, and if they blink it's probably because they HAVE made a difference and have blown up some market or something.

- Also, I would argue that they've already proven they can make a difference. My view is that we've had a raging equity bubble going, and it's probably in the middle of bursting, and you can more or less trace the beginning of that bursting exactly to a big pivot in Fed policy.

- More directly you can see the impact on bond markets. So far this is the worst year EVER for bonds... I think that can be traced directly back to the Fed pivoting to a much more aggressive policy.

- And then there's housing... you can bet that the housing market of this summer will look very, very different from that of last summer -- due entirely to the change in the bond market, which is due in turn to the Fed-driven rise in rates.

- You might think - maybe rates are up because inflation is up, not because of the Fed. But if you look at rates and inflation, you will see that inflation was running quite high while rates stayed low for a while... the main inciting incident for higher rates was a pivot in Fed policy.

A lot left out here but in brief, that's why it's my view that "the Fed matters a lot".

(NB: This is not an endorsement of the obsessive, singular focus on the Fed as exhibited by some of our forum members.)

Submitted by deadzone on June 9, 2022 - 9:11pm.

Rich Toscano wrote:

(NB: This is not an endorsement of the obsessive, singular focus on the Fed as exhibited by some of our forum members.)

Yet you agree with my points on the Fed controlling the economy. Do you not agree that the Fed policy is the primary, if not only, reason for this asset bubble that's been brewing since 2009? Is there some other reason, besides QE and ZIRP, that caused or enabled this?

And you also seem to agree that this mega bubble in equities is going to crash. Which is the only logical conclusion if you accept that the Fed QE caused the bubble, the Fed reversing this policy must then burst the bubble as it has in the previous bubble crashes.

Submitted by XBoxBoy on June 11, 2022 - 1:34pm.

Rich Toscano wrote:
I do think they matter. More than you seem to think they matter anyway.

Well, don't get me wrong. I'm not really arguing that the fed doesn't matter, more I'm questioning if they are as important as general wisdom says they are.

Rich Toscano wrote:

- Supply chains and the war -- federal govt stimulus

- The above two thoughts don't actually really address the question of whether the Fed matters, though. Which is to say -- it doesn't really matter what caused the inflation... the Fed's job is to make the inflation go away. Or put another way (and Jpow said this himself) - supply is what it is, and the Fed has to calibrate demand to that supply in order to get inflation to target.

That's an interesting way to look at it. I guess what I've been wondering is how effective is the fed? We had bubbles before the fed was around and we still have bubbles with the fed. Maybe bubbles happen and the fed has fairly little impact on them. Maybe fiscal policy has a much bigger impact than fed policy. Keep in mind that most fed policy is much more reactive than proactive.

None of that is to say the fed is completely helpless, More to say that the fed's tools are slow to take effect and the power of those tools is for the most part much more limited than people currently think.

Rich Toscano wrote:

- So, if you think the Fed doesn't matter, that's the same as saying that they can't - or won't - reign in demand. I disagree on the "can't" -- they can jack up rates until they cause a recession, if need be. The "won't" is more arguable but my view is that they really are committed to fighting inflation.

Just to clarify, I don't think the fed doesn't matter at all, or that I think they can't or won't try to stop inflation. More I wonder if this wave of inflation was caused by factors other than the fed policy why do we think fed policy will be what matters to stop it? And assuming it does go away in a year or two, how will we know that it was the fed that was responsible for stopping it? If forces outside the feds control, (ie pandemic stimulus, supply chain disruptions, war in Ukraine) all reverse and inflation dies out, how will you know how effective the fed was?

Rich Toscano wrote:

- Also, I would argue that they've already proven they can make a difference. My view is that we've had a raging equity bubble going, and it's probably in the middle of bursting, and you can more or less trace the beginning of that bursting exactly to a big pivot in Fed policy.

I'm not sure I'd agree we're in an equity bubble, but I would argue equities went down because the equity markets believe the fed is super important. I don't argue that an awful lot of people do believe the fed is super important. (Actually, my point of this thread was to say, "ahem... actually I don't believe that." And saying that I knew darn well I was not in the mainstream.) Also, trust me, I don't in any way fault you for the original quote, it was totally understandable. I just thought it would be good to have a thread to force myself to think through some of these issues a bit more.

Rich Toscano wrote:

- More directly you can see the impact on bond markets. So far this is the worst year EVER for bonds... I think that can be traced directly back to the Fed pivoting to a much more aggressive policy.

- And then there's housing... you can bet that the housing market of this summer will look very, very different from that of last summer -- due entirely to the change in the bond market, which is due in turn to the Fed-driven rise in rates.

- You might think - maybe rates are up because inflation is up, not because of the Fed. But if you look at rates and inflation, you will see that inflation was running quite high while rates stayed low for a while... the main inciting incident for higher rates was a pivot in Fed policy.

A lot left out here but in brief, that's why it's my view that "the Fed matters a lot".

At this point we probably end up diving off to arguments about what "a lot" means. Not sure this distinction means anything, but I would think of the fed mattering a lot if their policies directly affect the economy in a substantial way. What I see you describing is how market participants react to the fed who they perceive as being important. Maybe think of it this way. If market participants actually believed that if Punxsutawney Phil saw his shadow on Groundhogs day the market would tank, and sure enough that happened, would you say that Punxsutawney Phil mattered a lot? I wouldn't but I can understand the view that others would argue that. So, I wonder if we have an ineffective fed but a market that believes the fed is very powerful, and sure enough any little policy change has repercussions that are larger than the policy and far reaching. I'm not sure I fully believe that myself, but I think it's well worth pondering. (And I think Bernanke used to remark about how managing investor expectations was more important than actual policy, but maybe I'm misremembering Bernanke's quotes.)

Submitted by Rich Toscano on June 11, 2022 - 2:46pm.

Those are all reasonable thoughts on your part xboxboy. In fact I think I probably agree with your feeling that the Fed matters less than the consensus thinks it matters. But that's a low-confidence view on my part.

Submitted by barnaby33 on June 11, 2022 - 5:29pm.

The Fed matters because it can control the supply of the worlds reserve currency, full stop. It has several tools, not just interest rates but: bond purchases, repos, etc.

The Fed is the village by the river. It can take water out of the river or put it in, but it doesn't control downstream use of the river. It's goal would seem to be a stable flow, though it doesn't always accomplish that. Whether it is reactive, or proscriptive it is very powerful in its actions.

One could make the argument that without the Fed Congress couldn't function. People love services, but hate taxes.

Josh

Submitted by bewildering on June 12, 2022 - 4:09pm.

Ok.

Can anyone tell me if not being able to sell MBS is as bad as 2008-9? I just watched Margin call two weeks ago.

https://www.cherrycreekmortgage.com/lous...
June 10th, 2022

During the last forty-four years, my days have begun and ended with the mortgage market. Four painful moments stand out. Today makes five. (There have been many more good days, but even the Fairy Godmother has her limits.)
Mortgages are covered poorly in financial press, as stocks and such are much more entertaining. Today’s events still unfolding will take days for good coverage. Freddie’s weekly survey will not discover today until next Thursday. But the MBS market is real-time, not like old, sleepy S&L days.
Mortgages are covered poorly in financial press, as stocks and such are much more entertaining. Today’s events still unfolding will take days for good coverage. Freddie’s weekly survey will not discover today until next Thursday. But the MBS market is real-time, not like old, sleepy S&L days.
The CPI news this morning was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.

Submitted by deadzone on June 12, 2022 - 8:16pm.

I think we are clearly on the road to things being worse than 2008/2009. Regarding mortgage market, it has been completely manipulated via Fed involvement (through printing money to directly purchase MBS) non-stop since 2009. So in reality we never truly recovered from the 2008 crash or else why has the Fed been continuously purchasing MBS?

Now with inflation out of control, the Fed has no choice but to remove some of their support for the mortgage market and US treasury market. So we will soon find out if there is anything underneath after they pull their rug of support, or does the entire house of cards collapse?

I definitely expect within the next 5 years, there will be an entirely new set of movies, documentaries, etc. Like Margin Call, all over again to explain this crash.

Submitted by sdrealtor on June 12, 2022 - 9:22pm.

Not close to as bad, not the same planet, not the same universe. In 08/09 we were dealing with loans from folks that couldnt payback what they borrowed at 0% interest. The existing loans out there are nearly all very high quality. Any future loans made will be also. There is still massive demand for homes from high quality credit folks. What is out of whack at the moment is affordability. This is simply a pricing issue for loans, MBS and homes that will work itself out over the next few years without a crash

Submitted by bewildering on June 13, 2022 - 7:44am.

sdrealtor wrote:
Not close to as bad, not the same planet, not the same universe. In 08/09 we were dealing with loans from folks that couldnt payback what they borrowed at 0% interest. The existing loans out there are nearly all very high quality. Any future loans made will be also. There is still massive demand for homes from high quality credit folks. What is out of whack at the moment is affordability. This is simply a pricing issue for loans, MBS and homes that will work itself out over the next few years without a crash

Thanks.

Yeah, I am guessing that existing loans are fine as people have priced in with very low-interest rates. although I guess the banks that held on to those loans are now losing money?

What I am curious about is how a bank would fund a mortgage at 6% when inflation is at 9%. I guess that the banks are thinking that inflation will drop eventually and the 6% loan will make money?

I am originally from Europe where people do not get fixed loans for 30 years. Precisely because the banks would lose real money if the inflation gets above the interest rate. My sister is concerned at her monthly mortgage going up by ~$500 when she next renews the mortgage (every few years it gets adjusted with her partilar typ eof laon).

Submitted by bewildering on June 13, 2022 - 7:47am.

deadzone wrote:
I think we are clearly on the road to things being worse than 2008/2009. Regarding mortgage market, it has been completely manipulated via Fed involvement (through printing money to directly purchase MBS) non-stop since 2009. So in reality we never truly recovered from the 2008 crash or else why has the Fed been continuously purchasing MBS?

Now with inflation out of control, the Fed has no choice but to remove some of their support for the mortgage market and US treasury market. So we will soon find out if there is anything underneath after they pull their rug of support, or does the entire house of cards collapse?

I definitely expect within the next 5 years, there will be an entirely new set of movies, documentaries, etc. Like Margin Call, all over again to explain this crash.

I assume that existing homeowners will be fine with priced-in loans. What happens to mortgage brokers and other financial employees is more worrying. My own company is a start up that will be attempting to raise money in 2023. I am guessing it will be harder to raise money now. Although so many investors are sitting on piles of depreciating cash I guess that things might be still ok.

Submitted by scaredyclassic on June 13, 2022 - 8:08am.

bewildering wrote:
sdrealtor wrote:
Not close to as bad, not the same planet, not the same universe. In 08/09 we were dealing with loans from folks that couldnt payback what they borrowed at 0% interest. The existing loans out there are nearly all very high quality. Any future loans made will be also. There is still massive demand for homes from high quality credit folks. What is out of whack at the moment is affordability. This is simply a pricing issue for loans, MBS and homes that will work itself out over the next few years without a crash

Thanks.

Yeah, I am guessing that existing loans are fine as people have priced in with very low-interest rates. although I guess the banks that held on to those loans are now losing money?

What I am curious about is how a bank would fund a mortgage at 6% when inflation is at 9%. I guess that the banks are thinking that inflation will drop eventually and the 6% loan will make money?

I am originally from Europe where people do not get fixed loans for 30 years. Precisely because the banks would lose real money if the inflation gets above the interest rate. My sister is concerned at her monthly mortgage going up by ~$500 when she next renews the mortgage (every few years it gets adjusted with her partilar typ eof laon).

The bank sells the loan. Some entity buys it for some weird reason. It is bewildering.

Submitted by sdrealtor on June 13, 2022 - 8:36am.

scaredyclassic wrote:
bewildering wrote:
sdrealtor wrote:
Not close to as bad, not the same planet, not the same universe. In 08/09 we were dealing with loans from folks that couldnt payback what they borrowed at 0% interest. The existing loans out there are nearly all very high quality. Any future loans made will be also. There is still massive demand for homes from high quality credit folks. What is out of whack at the moment is affordability. This is simply a pricing issue for loans, MBS and homes that will work itself out over the next few years without a crash

Thanks.

Yeah, I am guessing that existing loans are fine as people have priced in with very low-interest rates. although I guess the banks that held on to those loans are now losing money?

What I am curious about is how a bank would fund a mortgage at 6% when inflation is at 9%. I guess that the banks are thinking that inflation will drop eventually and the 6% loan will make money?

I am originally from Europe where people do not get fixed loans for 30 years. Precisely because the banks would lose real money if the inflation gets above the interest rate. My sister is concerned at her monthly mortgage going up by ~$500 when she next renews the mortgage (every few years it gets adjusted with her partilar typ eof laon).

The bank sells the loan. Some entity buys it for some weird reason. It is bewildering.

The banks have capital like our checking and savings accounts. They pay interest on that capital but lend it out at higher rates. Simplified version of how they make money

Submitted by deadzone on June 13, 2022 - 9:00am.

bewildering wrote:
deadzone wrote:
I think we are clearly on the road to things being worse than 2008/2009. Regarding mortgage market, it has been completely manipulated via Fed involvement (through printing money to directly purchase MBS) non-stop since 2009. So in reality we never truly recovered from the 2008 crash or else why has the Fed been continuously purchasing MBS?

Now with inflation out of control, the Fed has no choice but to remove some of their support for the mortgage market and US treasury market. So we will soon find out if there is anything underneath after they pull their rug of support, or does the entire house of cards collapse?

I definitely expect within the next 5 years, there will be an entirely new set of movies, documentaries, etc. Like Margin Call, all over again to explain this crash.

I assume that existing homeowners will be fine with priced-in loans. What happens to mortgage brokers and other financial employees is more worrying. My own company is a start up that will be attempting to raise money in 2023. I am guessing it will be harder to raise money now. Although so many investors are sitting on piles of depreciating cash I guess that things might be still ok.

Well in theory, those homeowners who have fixed low interest rate mortgages will be fine, as long as they don't lose their jobs in the upcoming recession. And as long as they didn't take on too much additional debt. But those are two big IFs, especially the second one.

One of the big concerns is how much additional debt (via HELOC, Cashout Refis and general credit card debt) do many homeowners have. This debt does not have fixed interest rate. And obviously interest rates are going up rapidly.

So clearly the housing market is getting killed now from lack of demand point of view due to interest rates. But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Submitted by bewildering on June 13, 2022 - 9:11am.

deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

Submitted by sdrealtor on June 13, 2022 - 9:47am.

The housing market is not getting killed. Inventory is still a small fraction of what it traditionally is. Lots of homes selling every week albeit less than a couple months ago but more choices is helping meet the unfilled demand. It’s a market coming back into balance. I pour over data many hours a week. I’m not seeing sign a ton of equity withdrawal this time around like 17 years ago. DZ has never owned a home, never participated in the housing market and knows very little about it. If you want a weekly blow by blow follow the two weekly housing monitor updates i post. That’s what is going on around here

BTW in SD overall we had 15% less homes listed in May 2022 than May 2021.

Submitted by deadzone on June 13, 2022 - 9:50am.

bewildering wrote:
deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

I think the reality is many people did over-extend and continue to be up to their eyeballs in dept. That is the American way. That's why we are in a bubble and when bubbles pop there is no such think as a "soft landing".

Submitted by sdrealtor on June 13, 2022 - 9:52am.

deadzone wrote:
bewildering wrote:
deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

I think the reality is many people did over-extend and continue to be up to their eyeballs in dept. That is the American way. That's why we are in a bubble and when bubbles pop there is no such think as a "soft landing".

No one cares what you "think" you have no data to support that

Submitted by deadzone on June 13, 2022 - 10:02am.

sdrealtor wrote:
The housing market is not getting killed. Inventory is still a small fraction of what it traditionally is. Lots of homes selling every week albeit less than a couple months ago but more choices is helping meet the unfilled demand. It’s a market coming back into balance. I pour over data many hours a week. I’m not seeing sign a ton of equity withdrawal this time around like 17 years ago. DZ has never owned a home, never participated in the housing market and knows very little about it. If you want a weekly blow by blow follow the two weekly housing monitor updates i post. That’s what is going on around here

BTW in SD overall we had 15% less homes listed in May 2022 than May 2021.

Believe what you want but the shitshow is just beginning.

Submitted by deadzone on June 13, 2022 - 10:03am.

sdrealtor wrote:
deadzone wrote:
bewildering wrote:
deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

I think the reality is many people did over-extend and continue to be up to their eyeballs in dept. That is the American way. That's why we are in a bubble and when bubbles pop there is no such think as a "soft landing".

No one cares what you "think" you have no data to support that

There is plenty of data out there, not just my opinion.

Submitted by an on June 13, 2022 - 10:32am.

deadzone wrote:
sdrealtor wrote:
deadzone wrote:
bewildering wrote:
deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

I think the reality is many people did over-extend and continue to be up to their eyeballs in dept. That is the American way. That's why we are in a bubble and when bubbles pop there is no such think as a "soft landing".

No one cares what you "think" you have no data to support that

There is plenty of data out there, not just my opinion.


What's the % of home owners are over-extended and up to their eyeballs in debt? Last I check, it's much harder to get a loan today than 15 years ago. No liar loans, no no-docs loan, have to have a good LTV and cash reserve. So, would love to see data on this statement.

I sincerely hope you're right and we'll see another 2008 style crash. Although, it seems like you think it'll be even worse. Fingers cross that you're right.

Submitted by sdrealtor on June 13, 2022 - 10:35am.

deadzone wrote:
sdrealtor wrote:
deadzone wrote:
bewildering wrote:
deadzone wrote:
But the wildcard is how much stress will occur due to other debt, job losses, huge losses in stock portfolios, etc.

Yes. I do wonder about households. Hopefully, most people didn't overextend to buy properties. My worry is that a serious recession will hurt families that needed two wage earners to afford even the low-interest mortgage.

I think the reality is many people did over-extend and continue to be up to their eyeballs in dept. That is the American way. That's why we are in a bubble and when bubbles pop there is no such think as a "soft landing".

No one cares what you "think" you have no data to support that

There is plenty of data out there, not just my opinion.

I know. Im the one who actually looks at it every day

Submitted by gzz on June 13, 2022 - 10:38am.

“ What I am curious about is how a bank would fund a mortgage at 6% when inflation is at 9%.”

They borrow at 0% in checking and 3% in savings accounts, loan at 6%.

There’s no human right to get a return on your savings above inflation. China has had inflation that is double savings account rates for about 30 years now.

All the recent drama is making people forget the long term worldwide trend is aging demographics and a glut of savings.

Submitted by an on June 13, 2022 - 10:55am.

gzz wrote:
“ What I am curious about is how a bank would fund a mortgage at 6% when inflation is at 9%.”

They borrow at 0% in checking and 3% in savings accounts, loan at 6%.

There’s no human right to get a return on your savings above inflation. China has had inflation that is double savings account rates for about 30 years now.

All the recent drama is making people forget the long term worldwide trend is aging demographics and a glut of savings.


Talking about demographics, millenials have started their house buying later the previous generations, so a huge chunk of them are getting to their mid 30s, so they'll be looking to buy. It's still extremely difficult and costly to build here in CA, so simple econ 101 (supply vs demand) tells me either they can't buy here, or they'll have to reduce their expenditure somewhere else to buy here. Or, they can choose to rent here, which will continue to drive up rent as their move out of their parents' homes.

There are more millenials than baby boomers. Also, another fact to consider is, people are living longer and they don't downsize like the used to. So, the supply will continue to be constraint, unless those baby boomers sell. Something tells me, they are sitting on a paid off home with very low tax rate. So, economic crash wouldn't matter to them.

Submitted by sdrealtor on June 13, 2022 - 11:08am.

Not paid off quite yet:)

Submitted by deadzone on June 13, 2022 - 11:25am.

an wrote:

What's the % of home owners are over-extended and up to their eyeballs in debt? Last I check, it's much harder to get a loan today than 15 years ago. No liar loans, no no-docs loan, have to have a good LTV and cash reserve. So, would love to see data on this statement.

I sincerely hope you're right and we'll see another 2008 style crash. Although, it seems like you think it'll be even worse. Fingers cross that you're right.

Revolving credit at all time high, jumped 20% in April. Meanwhile interest rates going to the moon. Not a good recipe for housing market or economy in general.

https://www.cnbc.com/2022/06/09/credit-c...

Submitted by an on June 13, 2022 - 11:29am.

deadzone wrote:
an wrote:

What's the % of home owners are over-extended and up to their eyeballs in debt? Last I check, it's much harder to get a loan today than 15 years ago. No liar loans, no no-docs loan, have to have a good LTV and cash reserve. So, would love to see data on this statement.

I sincerely hope you're right and we'll see another 2008 style crash. Although, it seems like you think it'll be even worse. Fingers cross that you're right.

Revolving credit at all time high, jumped 20% in April. Meanwhile interest rates going to the moon. Not a good recipe for housing market or economy in general.

https://www.cnbc.com/2022/06/09/credit-card-balances-spike-after-stimulus-checks-helped-reduce-debt.html


Who are the people with the most removing credit? How many of them are home owners? How long have they own their home? Interest going to the moon doesn't mean much to anyone who have locked into their 30 years fixed at 3%.

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