Friday, April 17, 2015

Still negative after all this time.

I follow interest rates like no ones business, and I don't even work in that field. This morning rates fell into the 3.54% range. They are all over the map today, but most are still in the 3.62% ish range. They have been telling the true story all along. If things were getting better, interest rates would be rising - not falling.

Housing starts in the West fell almost 20% which was eye widening because we have been having stellar weather. I've been reading credit is harder to come by and I'm guessing that is translating down to the builders as well. This is setting up a super crappy dynamic for renters called a rent trap. Which I'm actually super conflicted about because I have a rental. By the time I was a teenager I fully understood the rent trap even though I didn't know it had a name. We moved every year because we were poor and the landlords raised the rents every year. Luckily I have never had to tell someone I was raising their rent. When they moved I raised.

During the recession I couldn't believe people gave up their houses so easily. People that were not even in trouble just mailed their keys back because everyone was telling them property would never be worth what they paid for it. They were called "strategic defaults". I kept asking Mr S. - where are these people going to live!

During that same time I saw economist after economist say what a bad idea owning property was. And to say it hasn't been painful is an understatement.  But I never saw an article about what a bad idea it was to rent. I hope people are now starting to realize they need to live somewhere and rents have been going up way faster than what happened during the housing crisis. Apparently rents are up a stunning 44% since 2010!!!  I can't even believe it, but it is roughly accurate. I never read even one article during the recession where people were freaking out because their mortgage payment went up 44%. San Francisco is up 52%, and Oakland - yes that Oakland, is up 20% YOY. Can you believe that crap? You'd think the new recession would tamp that down a bit, but even through the whole great recession rents never fell more than 100 bucks a month for my place. I always thought they would cave but they never did. The whole time!

Two more houses fell into price reductions since yesterday in my city. And they aren't the small price reductions like last summer. I don't really know how this is going to work out. Logic tells me prices will fall, but we have had recessionary building levels for 7 years now. And the way things are looking, that isn't going to get better soon. Banks don't like to lend in deflation. Those two things are fighting it out. I don't know which side is going to win.

And even worse I think rates could freak out at some point. The Fed has been trying to get high yield bondholders not to freak out. They have been telling them inflation is right around the corner so people bought bonds to take advantage of this. They are going to run for the exits at some point because they will just get tired of waiting to make money. I don't know when that point will be, but every day I feel like I could wake up to sharply higher interest rates. That is why the Fed is so hellbent on raising rates. It's to pacify those bond holders. I bet they give up before this administration is out. Which is how investors normally work. They hold too long, and sell right before a turn around.

Next week I will talk about how the drought is set to make inflation look worse than it really is AGAIN.

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