I appreciate your input and thoughts. Could you expand on the bolded? Do you have real estate you're thinking about unloading?
I'm not trying to compare this rate increase to what happened in the 80s, for numerous reasons, but I also see the current buyers out there coming in with more cash, and with an influx of international money. While rising interest rates may phase out the average American Joe, it would seem that housing prices will only significantly decline if the cash/international buyer no longer considers it a good investment.
If you go back a few pages, I was just throwing out one theory that could derail the stock market, and that was housing - I prefaced with "this might sound stupid," but if it didn't sound stupid, everyone would know it is coming. I'm yet to hear anyone else throw anything out there and I've asked multiple times.
Months ago, the market couldn't be stopped, everything was perfect - now we're paying close attention to rates and inflation, things change quickly. I stated in that post, the economy hums along on the middle class, when the middle class gets priced out of housing, we run into trouble. You can research almost any metric, housing affordability is currently stretched, every 25 basis points stretches it that much further, 300 basis points and the market goes upside down. Now, I mentioned it isn't upside down like 2008 when you had a waitress with 14 mortgages and an income of $37,000, but nonetheless, your buyers get priced out, prices need to fall to allow them back in.
Use a mortgage calculator and look at what happens to housing costs for every 25 basis points - 25 basis points in itself isn't huge cause for concern, but rapid acceleration and 150 points in a year most certainly starts to become one.
IMO, in new construction, we're starting to see the impacts of higher costs coupled with rising rates, only a matter of time until that spills over into existing houses. Everyone would like a new house, not everyone can afford one, hence the drop YoY drop of almost 8% in new homes sold Jan compared to Jan. If it was as simple as investors having cash to buy them, this wouldn't be occurring. We're late cycle, we've got rising rates - rates fall, prices go up (rates, affordability, price all go hand in hand)... What you need to start considering is what happens in the inverse of that? Historically, the Fed needs 500 basis points to combat a recession, right now they've got about 150 and we're late in the cycle - they need to move, they're aware. If you read between the lines of Powell's testimony today, he knows this - hence my comments earlier about the game of chicken.
Even if we were to get 25 points a quarter (and that is aggressive on anyone's scale), that brings us to 350 points in 2 years (still 150 short of the amount that is historically needed to combat a recession). While a recession sounds improbable now, it is on the horizon - the economy is going to overheat... Years of ZIRP accompanied by endless QE being unwound, it is basically unavoidable. Some smart economists and fund managers are saying there are warning signs starting to show. Personally, I think you've got to be a fool to miss the inflation starting to tick up.
My comments about preservation are simply trying to get off the greedy path, and onto the smart path, that way when a recession hits (and it will at some point by 2020), we're well-prepared to come out stronger in the aftermath.
My strategy is keeping the path right now, and slowly beginning to hedge with gold. Gold isn't the smart move during rising rates, but when we hit the tipping point and rates stop rising, we'll be at a recession, and you'll want to own gold then as rates will have nowhere to go but down.
