evestor1 said:
We are too far inflated to raise interest rates much higher. Let's talk home mortgage. 100k home in 1980 is worth 500-600k today. 10% then was 800ish/month. 10% today is 4000-5000/month.
My personal belief is that we have two choices. Low interest rates or ruin the most valuable asset Americans own. I'm willing to believe we won't ruin property value considering almost everything is tied to it (wealth,taxes,debt)
IMO, Texas and other oil economy dependent States reset their economies in the 80's. I lived way north of the Red River for half that period and no one in those States knew what was happening "down south". However, the north, east, and midwest got their economic reset's a few years later. I don't think an economic reset is out of the question today.
The Ben Bernanke Zero Interest Rate Policy created artificial demand with printing dollars, buying debt with those freshly pumped out dollars and flooding the economy with cheap cash and low interest rates, along with President Obama issuing more debt at $20 trillion. Bernanke studied The Great Depression and his graduate work theory was focused on the policy he laid forth noted above - and to his credit, I truly believe it worked. That's why Ben was chosen to succeed Alan Greenspan in 2006. Now that the economy is growing again the engines have to be reversed via interest rate normalization, otherwise this artificial demand bubble will pop.
Yes, higher interest rates would kill the "value" of a home, yet we have done it before. Personally, I went through it in the 80's in Texas and the 90's in the Midwest, and I arrived in the desert southwest at the bottom of their 2nd cycle in the late 90's. Value decay would not be something new. Bottomline is, policy will now be inflating dollars via tight money supply and higher interest rates so that $20 Trillion can start being paid down with those inflated dollars. .... Just the opposite of creating an artificial economy with pumping out cash and low interest rates to stimulate artificial growth, that had its beginning in 2008. 10 Years of artificial demand and it certainly could be the next 10 years of the reverse.
For me, I would never tie my wealth to a house - ever. I got a hellava education in 1983/84 with a $24K loss on a 9 month old home - that's not an investment, it's a gamble. All the years thereafter, whether it be family gatherings or office water cooler talk, I bit my tongue when I heard the "elders" tell young people to "buy a house, build equity and quit pissing money down the drain on rent". Ha, I could have rented a long time with that $24K I lost on an "
investment". I don't hear the "buy a house..." quip much anymore, but I chuckle when I do. From this experience came a math equation I used to determine if renting or buying is the best solution for any market where I lived. I lost $24K and had an income of $28K, or 85.7% of my income. The $24K was the best cost of tuition for an education that allowed me to be a lot smarter than had it happened later in my life with wealth tied to a house .... and it's paid off many times over my career. On the other hand, I have friends and former workmates that experienced total devastation in their lives, late in life, with little chance to recover, due to wealth tied to a house. I don't recommend it. Houses collect dust, money collects interest.
