Are you concerned about Interest rates?

Shits starting to get a bit real out there atm and the Fed are raising rates.
How are you positioned debt wise and are you concerned of further rate rises? What moves do you have planned if business tails off in the face of rising rates?

Cheers D

I have $1 1/2 m waiting to go on deposit......and I sure dont want to be getting 3 1/2 % when all you hear about is inflation is 10%...........I still recall the early 90s when interest was 21%,and I was getting that rate from a big bank..........free money and the destruction of the saving ethic is what caused the disaster of the last 5 years .........first home buyers paying over a million for a tumble down shack because they were scared someone else would snap it up.........absolute insanity.

Don't really care, myself. Besides cash reserves, my money's mostly invested in inflation resistant investments. Be nice to get a better return on cash reserves, though.

Back in the 60S coffee was a dime and my total annual income would buy 4 new full-size cars.

Nowadays a cup's average price is $3.00, and people's full income would be lucky to afford 2 full-size cars.

Now minimum wage can go + to $15 and in a year's time it will be worth what 10 bucks per could buy last year.

Progress, so some politicians can say Whoopi look what I did.

No debt here other than a 30-year mortgage refinanced summer 2020 and therefore fixed at an absurdly low rate. The increase in interest rate is supposed to bring a small measure of sanity into the real estate market and help curb runaway inflation, right? If higher rates actually manage to do all that it would be a good thing for me.

I say, Let it rain.

The wife and I have worked for twenty years to get to this place.

Debt free for 11 years, paid off two houses, two kids thru school, and the home of our dreams.

A Subaru and a Beamer in the garage.

A well taken care of dad, a some cabbage left over for a trip or two.

Thank you Dave Ramsey.

Interest rates have been artificially low for what, 15 or 20 years now? They now seem to be trending back towards a "normal" median average rate.

Demon69 said:

Shits starting to get a bit real out there atm and the Fed are raising rates.

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You are how old? This is nothing.
Kids, one can send them to school but they know so little.
Finance your new house at 16% and then talk about high rates. BTDT.

BoxcarPete said:

No debt here other than a 30-year mortgage refinanced summer 2020 and therefore fixed at an absurdly low rate. The increase in interest rate is supposed to bring a small measure of sanity into the real estate market and help curb runaway inflation, right? If higher rates actually manage to do all that it would be a good thing for me.

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Kerbing inflation I think is the primary goal, Powell is the new Volcker.
Good hear you're fixed well, over here banks have been pulling those products.

CarbideBob said:

You are how old? This is nothing.
Kids, one can send them to school but they know so little.
Finance your new house at 16% and then talk about high rates. BTDT.

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I think I'm about 30 years younger than you Bob, so am pretty ancient
Financing at 16% of what? 4x earnings? 14x? 20x plus?
I was into my place 23 years ago around 75k (4x ish), post divorce landed me 180k, currently sits all paid at 550kish. But how about the average theoretical joe buying my place at 10x end of last year on a their best tracker? Today their 15k pa interest obligation has bumped up to a cool 26k with base at just 2.25%, he's all eyes to the next MPC meeting Nov 3rd.

Ive a buddy with around 750k o skin in the game in two properties, both bought a while ago now, one he lives in the other is let. He's into refinancing and making use of the excess equity, some of it went to crypto (fucked), some to stocks (drawing down). I asked him late last year where he would be if interest rates moved and he got pretty pissy, I am after all an anti vaxing conspiracy theorist so it was just on his part. His fixed deals are out before the end of the year and now the subject has his attention.

Do you have any idea why USD is so strong? Another thing worth thinking about imo.

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This thread has 8 views!? Could be forgiven in thinking it's a subject most don't want to consider.

The real estate insanity has been caused by near zero interest rates..........agents here dont advertize house prices.......buyers are just supposed to keep wheelbarrowing in money until the others fatigue.........everywhere you look there is crazy price insanity.......just last month a flood prone area tumbledown shack sold for $2.4 M at auction..........one young hopeful says its got a nice view of the river ......back in 2011 ,the view of the river was overhead...........last year the media here are "Ya gotta get on the property ladder"......."Dont matter what you pay,ya cant miss out"..................Now ,the same journalists are all "Young homeowners caught in a debt trap........Cant sell and pay out the mortgage .......House repos,imminent".

The USD is powering ahead due to agressive rate hikes by the fed ........here we get 1/4% and the govt is all shock horror.........the US is going up in full percents and more .........USD is the new crypto,you cant lose ......unless your export product is now 25% more expensive in its target market............big winners again are the Chinese..........their $31 trillion of US currency has jumped 25%,while their own currency has tracked the Euro......win...win ......win.

Demon69 said:

This thread has 8 views!? Could be forgiven in thinking it's a subject most don't want to consider.

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The view counter is broken, see here

john.k said:

The USD is powering ahead due to agressive rate hikes by the fed ........here we get 1/4% and the govt is all shock horror.........the US is going up in full percents and more .........USD is the new crypto,you cant lose ......unless your export product is now 25% more expensive in its target market............big winners again are the Chinese..........their $31 trillion of US currency has jumped 25%,while their own currency has tracked the Euro......win...win ......win.

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The dollar has been strong for a while now. I think its strength is largely due to the demand for high quality collateral, which is priced in dollars. The big boys are getting nervous and starting to take a look each other.

Well, OP wants a yes or no answer.
Short answer is No.
Long answer is Noooooooooooo.
Rising interest rates made it a lot easier to buy a waterfront home. Kraft 5# Finance does not care about interest rates.

Demon69 said:

How are you positioned debt wise and are you concerned of further rate rises?

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Other than my mortgage, I have always refused to borrow money unless I am making more off of it than I am paying in interest. $8k more and my property is paid for.

I use credit cards for almost all purchases and pay the balances every month. My goal is to obtain a $50,000 total credit line across multiple cards.

It requires almost zero effort; all funds are 100% insured against fraud, there is no collateral needed and it's free. So, why not?

No, I'm not concerned about interest rates. People who paid 2x what a property is actually worth, using a mortgage with a limited time fixed rate; they definitely have a reason to be concerned.

How is it not clear that the central banks planned this? They knew damn well that it wasn't sustainable and that interest rates would have to rise.

The conspiratorial part of me cannot help but consider the "what if's". Such as; what if the plan was to confiscate property through foreclosure and "resell" to the highest bidder... large investment firms like BlackRock/BlackStone, Vanguard and Berkshire Hathaway.

I dunno, maybe I'm full of shite and too young to realize this is cyclical. Either way, I cannot help but feel that millions of people just got sucked into a debt trap far worse than 2008.

When the bubble pops, I wouldn't be suprised if big daddy government will have a convenient plan for people to 'stay in their homes' but lose ownership rights as an alternative to foreclosure eviction.

If we've learned anything from the past few years; people would accept it without a second thought. They would complain for a minute but move on - just thankful and relieved that they weren't put out on the street.

People only see themselves being cheated when it happens to them exclusively. When everyone gets screwed at the same time; it's a bad economy.



In the UK:




Canada:

Here my take on things.
There was a baby boom and it made for lots of worker bees to support all the hives.
We knew this would taper off. But . Covid.. during good times. Many worker bees thought this a good time to quit working and/or retire.
Now not enough workers so super low unemployment meaning not so great people get and hold jobs and wages go up.
Many boomers have cash so they continue to spend.
We do not want to allow more worker bees to enter the colony for political reasons so we we be short.
The government(s) have usable only one hammer in their toolbox and it is interest rates.
High enough interest rates will kill inflation.
We need the unemployed in the USA up by 6 to 8 million people from where it is now.
Will this mean recession? Are those 30 years younger than me understanding this dive?
We are going through a transition of the end of baby boom and into smaller families.
Covid just lit it off a bit faster.
Perhaps 20 -30 years back we should have been saying to make more babies.
Now the world is top heavy with longer lives and we do not have the worker bees under us to support it.
The time has come to cull the economies, standard of living and company profits all around.

While you or I may have nothing exposed to higher rates a lot of people and companies and buying power does.
Do not think for one second that if you do not have loans, credit cards or stock that this will not effect you.

We are in for a correction.
No way with the current situation we allow the USA to bring in more workers to balance the equation unbalanced by the end of the boom.
We will take a hit.
Bob

Not me, at this point I am pretty bullet proof. I have been through several downturns so I know what is coming. However, if you are younger than me and have personally signed on to a big prime plus interest rate on a lot of equipment you may be screwed with the coming recession. Hard times is the only way to restore the value of money.

A few years ago (when interest rates were low AND business was growing like crazy) . . . we decided to purchase land and build a larger facility that had good engineering space and top shelf manufacturing space. We borrowed close to $7.6 million to get this done and put in a load of cash on top of that and we couldn't be happier with the building. SBA + Local bank financing - I learned a ton about interest rates / financing and the games that are played. Here is how it worked out:

Bank interest rate is calculated on a 360 day year - so when they say 5.25%, they really mean 5.33%
SBA interest rate is awesome at 2.48% . . . but fees for SBA, CDC, and CSA add up quick so actual rate is really 4.26%
Given the components of local bank and SBA interest rates plus fees and amounts borrowed from each - the average interest rate is about 4.9%

Inflation since we took out the loan totals roughly 17% . . . that means for every dollar we borrowed in 2019, we are actually saving (17% - 4.9%) = 12.1% on our money as we pay the mortgage back (inflation outpacing interest rate). Today, the dollare we pay our mortgage with is worth $0.85 compared to the value of the dollar we borrowed.

Oddly, the bank has now approached us and said they would wave all pre-payment penalties if we wanted to pay down their portion of the loan. That is simply because they have a lot of money out on a loan that is earning them a fraction of what the present loan rate is.

Perhaps the best place to be in a high inflation environment is to have a large mortgage loan at a fixed rate that was used to pay for a significant asset that is keeping pace with or outpacing inflation. When we moved into our building, it was valued at roughly 20% more than the loan amount. Today it is worth roughly 50% more than the loan amount.