Wednesday, October 19, 2005

Interest Rates Continue to Rise

Interest Rates continue to rise. The bubble is being squeezed.


  1. What amazes me is that right now, we are still talking about interest rates being lower than for most of my (30+) years on this planet, and yet the typical economic debate would characterize interest rates at 9 or 10% as extreme. At those kind of rates, the bubble will collapse into a black hole, and yet those rates are quite reasonable to expect.

  2. "At those kind of rates, the bubble will collapse into a black hole, and yet those rates are quite reasonable to expect."

    Great point.

  3. Speaking of 10% mortgage rates, check out this from PMI Mortgage Company Fall 2005 report (listing Boston as riskiest mkt again!):

    Federal Funds Rate
    "Following the September 20th meeting, the Federal Open Market Committee (FOMC) raised its target federal funds rate by 25bps to 3.75% for the eleventh consecutive increase since June 2004 (despite speculation that the macroeconomic effects of the hurricanes could cause a slowing of the monetary tightening).
    According to the latest FOMC statement, the current monetary policy remains “accommodative.” Over the past 15 years, the average spread between inflation and the federal funds rate has measured 1.5%, reaching as high as 4% on two separate occasions. If inflation rises to 5.5% or 6.0%, as the current spot price of gold indicates, then conceivably the federal funds rate could settle to a level of 7.5% to 8.0%, with a prime lending rate as high as 10% or 11%. These numbers imply that both long- and short-term mortgage rates are set to rise further, causing home affordability to weaken, especially in certain housing markets that are ranked near the top of our U.S. Market Risk Index. For borrowers with adjustable rate mortgages and piggybacks, this could mean significant payment shock."

    Look here for whole repoort:

  4. "causing home affordability to weaken"

    LOL. It won't cause home affordability to weaken for those of us who want to pay cash or make a big downpayment. In fact, it won't cause home affordability to weaken at all. It will make it more difficult to rent a house from the bank while it duplicitously calls you the owner, but that's about it.

  5. Also, if you start to see these defaults due to higher interest rates, you will see why those stodgy old lenders of years' past always wanted to lend at fixed rates to people who could make a 20% downpayment.