Wednesday, July 10, 2013

I guess it wasn't an accident.

Listen - I don't know what kind of world this is where J.P. Morgan thinks that higher interest rates don't matter at all because suddenly 40% of buyers are all cash. That is not a normal market! Anyone who can afford to pay cash for a house is probably an investor who will want a return by either selling at a profit, or renting at a profit. If they are counting on the cash driven housing market to save the day - well, I just don't even know what to say. Refi's have had to have fallen off a cliff. Especially for investors who are not cash buyers. Any house you do not live in is a full point higher. So a rental would be at 5.5% interest, roughly. Only about a point lower than the rates that crashed the housing market.

Maybe there are a pool of fund guys sopping up inventory like DF says, or maybe the Chinese see their own economy imploding and are parking cash in the form of houses here. But if investors can't make a profit on these houses, this whole cash game stops.

At any rate, I don't believe they can actually taper - but I'd love to see them try. The market is a complete Potemkin village at this point.


  1. The bigger question in my mind is whether rates clobber the housing market because interest rates clearly do matter or whether values skyrocket because the rates drive inflation higher. If the treasuries go above 6% people will start to get concerned about our ability to service the debt, which could drive rates higher even faster. Once this happens, they won't be able to disguise the inflation and either wages go up to pay for the higher housing and food or we see Greece all over again because the American public doesn't have the will or ability to repay our obligations. Hard to know whether to be long or short in this market, I'm glad my money is tied up in arcade games instead :)- DF

  2. Yeah. I'm not really sure which way it's going to go either. All I know is I hope inflation doesn't get away from them the way interest rates did. I didn't actually think they would start hiking before the fed did. So that was unexpected.

    Video games are the way to go. Something to do while you hide under a rock and see how things sort themselves out.

  3. I'm hoping inflation, people fool themselves into at least being less miserable and it would force the US govt. to address the debt. Higher inflation = higher rates = unsustainability hits. It won't be fun, but 12% interest rates would force our leaders to address the subsidies because there would be no more wealth left to tax.

  4. Agree. Inflation just feels better. Right or wrong. If you go back through the misery index, probably 90% of the time we have been in 2% inflation or better. That is why ( I assume) Bernanke uses this metric. We are used to a certain low level of inflation. Deflation feels terrifying. Wages drop, people get laid off.