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Fed Reserve and Interest Rates
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PostPosted: Tue Jun 19, 2018 4:39 pm GMT    Post subject: Reply with quote

I think it will start slowing over the summer and next year reverse
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bsg61
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PostPosted: Thu Jun 21, 2018 2:21 am GMT    Post subject: Reply with quote

Real Estate Guy wrote:
Fed raised rates again last week. Supposedly will raise 2 more time this year and 3 next. Thoughts on the impact in our local market?


Brought this up with a friend who works in the mortgage market....his reply: "the Fed raising interest rates has nothing to do with mortgage rates, in fact, the mortgage rate went down".

Not sure if he is correct or not.
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PostPosted: Thu Jun 21, 2018 12:26 pm GMT    Post subject: Reply with quote

bsg61 wrote:

Brought this up with a friend who works in the mortgage market....his reply: "the Fed raising interest rates has nothing to do with mortgage rates, in fact, the mortgage rate went down".

Not sure if he is correct or not.


It's indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.

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PostPosted: Thu Jun 21, 2018 11:02 pm GMT    Post subject: Reply with quote

Anonymous wrote:
I think it will start slowing over the summer and next year reverse

Only a recession will cause prices to reverse. Higher rates only slow the rate of price increases when there are more people looking to buy than houses for sale. MA will raise the minimum wage to 15/hr at a time when no one is building affordable housing. There will be a domino effect where everyone will get a raise. We are going to see intense rent and price increases for the lower priced housing in the next few years if there is no recession.
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Real Estate Guy
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PostPosted: Sun Jun 24, 2018 10:33 pm GMT    Post subject: Reply with quote

Quote:
indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.


This is true. The other factor is supply and demand for treasuries. Cone this fall the Fed Reserve is upping the bonds they're letting roll off. I believe this is same time the treasury will be selling more to raise money for our deficit budget. Also the Fed is "projected" to raise 3 more times in 2019 and this could get priced in the fall. I suspect the 10 Year could jump to 4% and thus mortgage rates hit 5.75% by fall/spring. Does anyone agree/disagree? If so, will this have impact on prices?
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Guest






PostPosted: Mon Jun 25, 2018 11:23 am GMT    Post subject: Reply with quote

Real Estate Guy wrote:
Quote:
indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.


This is true. The other factor is supply and demand for treasuries. Cone this fall the Fed Reserve is upping the bonds they're letting roll off. I believe this is same time the treasury will be selling more to raise money for our deficit budget. Also the Fed is "projected" to raise 3 more times in 2019 and this could get priced in the fall. I suspect the 10 Year could jump to 4% and thus mortgage rates hit 5.75% by fall/spring. Does anyone agree/disagree? If so, will this have impact on prices?


Let's do the math, if you were borrowing 500k for 30 years at 4.75% and the rates jumped up to 5.75%, how much higher would your monthly payment increase? About $300 more per month. Most people live paycheck to paycheck and can't afford even another $20 per month. However, I suspect the actual buyers in the Boston area are not like most people. A better question to ask the people on this board, is if 300 more per month a deal breaker for you? How about 600 or 900 more if rates hit 7.75%? At what point, does it affect you? Personally, I don't take notice unless I see an extra 1k per month, before I might start to cut back my expenses a little.
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Guest






PostPosted: Mon Jun 25, 2018 6:16 pm GMT    Post subject: Reply with quote

Anonymous wrote:
Real Estate Guy wrote:
Quote:
indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.


This is true. The other factor is supply and demand for treasuries. Cone this fall the Fed Reserve is upping the bonds they're letting roll off. I believe this is same time the treasury will be selling more to raise money for our deficit budget. Also the Fed is "projected" to raise 3 more times in 2019 and this could get priced in the fall. I suspect the 10 Year could jump to 4% and thus mortgage rates hit 5.75% by fall/spring. Does anyone agree/disagree? If so, will this have impact on prices?


Let's do the math, if you were borrowing 500k for 30 years at 4.75% and the rates jumped up to 5.75%, how much higher would your monthly payment increase? About $300 more per month. Most people live paycheck to paycheck and can't afford even another $20 per month. However, I suspect the actual buyers in the Boston area are not like most people. A better question to ask the people on this board, is if 300 more per month a deal breaker for you? How about 600 or 900 more if rates hit 7.75%? At what point, does it affect you? Personally, I don't take notice unless I see an extra 1k per month, before I might start to cut back my expenses a little.


I save about $4K/month after all expenses (including 401k & 529 contributions). $300 extra per month is noise. $1K, I'd probably notice. Not that it would stop me from buying a property.

In the long run, everything inside of 128 is going up in price. How many years before shitholes like Revere and Chelsea are untouchable? Buyers who went balls deep in '07 aren't on this board complaining about how overpriced their purchases were.
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PostPosted: Tue Jun 26, 2018 2:56 am GMT    Post subject: Reply with quote

Anonymous wrote:
Anonymous wrote:
Real Estate Guy wrote:
Quote:
indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.


This is true. The other factor is supply and demand for treasuries. Cone this fall the Fed Reserve is upping the bonds they're letting roll off. I believe this is same time the treasury will be selling more to raise money for our deficit budget. Also the Fed is "projected" to raise 3 more times in 2019 and this could get priced in the fall. I suspect the 10 Year could jump to 4% and thus mortgage rates hit 5.75% by fall/spring. Does anyone agree/disagree? If so, will this have impact on prices?


Let's do the math, if you were borrowing 500k for 30 years at 4.75% and the rates jumped up to 5.75%, how much higher would your monthly payment increase? About $300 more per month. Most people live paycheck to paycheck and can't afford even another $20 per month. However, I suspect the actual buyers in the Boston area are not like most people. A better question to ask the people on this board, is if 300 more per month a deal breaker for you? How about 600 or 900 more if rates hit 7.75%? At what point, does it affect you? Personally, I don't take notice unless I see an extra 1k per month, before I might start to cut back my expenses a little.


I save about $4K/month after all expenses (including 401k & 529 contributions). $300 extra per month is noise. $1K, I'd probably notice. Not that it would stop me from buying a property.

In the long run, everything inside of 128 is going up in price. How many years before shitholes like Revere and Chelsea are untouchable? Buyers who went balls deep in '07 aren't on this board complaining about how overpriced their purchases were.


Is the $4000 / mo surplus just you, or you plus spouse?
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Guest






PostPosted: Tue Jun 26, 2018 2:29 pm GMT    Post subject: Reply with quote

Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Real Estate Guy wrote:
Quote:
indirect, if I recall. Mortgage rates follow the 10-year note and the 10-year correlates with the expectation of future Fed rates. So a change in the Fed rate wouldn't affect mortgage rates if that change was already priced in, for instance.


This is true. The other factor is supply and demand for treasuries. Cone this fall the Fed Reserve is upping the bonds they're letting roll off. I believe this is same time the treasury will be selling more to raise money for our deficit budget. Also the Fed is "projected" to raise 3 more times in 2019 and this could get priced in the fall. I suspect the 10 Year could jump to 4% and thus mortgage rates hit 5.75% by fall/spring. Does anyone agree/disagree? If so, will this have impact on prices?


Let's do the math, if you were borrowing 500k for 30 years at 4.75% and the rates jumped up to 5.75%, how much higher would your monthly payment increase? About $300 more per month. Most people live paycheck to paycheck and can't afford even another $20 per month. However, I suspect the actual buyers in the Boston area are not like most people. A better question to ask the people on this board, is if 300 more per month a deal breaker for you? How about 600 or 900 more if rates hit 7.75%? At what point, does it affect you? Personally, I don't take notice unless I see an extra 1k per month, before I might start to cut back my expenses a little.


I save about $4K/month after all expenses (including 401k & 529 contributions). $300 extra per month is noise. $1K, I'd probably notice. Not that it would stop me from buying a property.

In the long run, everything inside of 128 is going up in price. How many years before shitholes like Revere and Chelsea are untouchable? Buyers who went balls deep in '07 aren't on this board complaining about how overpriced their purchases were.


Is the $4000 / mo surplus just you, or you plus spouse?


I think it's $5-6K/month including both of our surpluses. Not sure - all I can tell you is that we pay about $3K in housing costs, $3K in day care, probably about $500-750 in bills and groceries, and we easily save over $60K a year without any effort. Truth is, I haven't thought a lot about how much we save. I have certain financial targets that I aim for, like at least $23K/year in 401k contribs, at least $10K/year in 529 contribs, at least $150K emergency fund, at least $50K reserves specifically for home repairs & renos, etc. So long as I am on target, I put the rest of my money into my mortgage, with the goal of paying down the roughly $300K balance in the next 5 years. I'd prefer to be completely debt free.
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Real Estate Guy
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PostPosted: Tue Jun 26, 2018 3:17 pm GMT    Post subject: Reply with quote

It seems the consensus is that prices are safe pending a recession where people lose jobs. Maybe that will be the case. What impact will their be as the Fed Reserve continues to increase the roll off of their balance sheet? I'm not a master economist, but if the Fed keeps on track I believe they will be allowing 50 billion a month to roll off. They claim to continue at this pace for 3 years or so, reducing by 2-1/2 to 3 Trillion over this span. By letting these securities roll off, doesn't that increase supply? This at the same time our Treasury will be issuing a large new amount for our fiscal deficit(this fall)? So the question I have is who's going to buy all these? Interest rates have been suppressed big time by the opposite. I'm wondering if the increased supply could spike rates? Also, since the Fed is not buying bonds and injection stimulus won't this also cause money contraction in the economy? These 2 issues have caused other recessions in the past and I don't think we've ever seen as much stimulus, which leads to risk of the perfect storm?
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Guest






PostPosted: Tue Jun 26, 2018 4:29 pm GMT    Post subject: Reply with quote

Real Estate Guy wrote:
It seems the consensus is that prices are safe pending a recession where people lose jobs. Maybe that will be the case. What impact will their be as the Fed Reserve continues to increase the roll off of their balance sheet? I'm not a master economist, but if the Fed keeps on track I believe they will be allowing 50 billion a month to roll off. They claim to continue at this pace for 3 years or so, reducing by 2-1/2 to 3 Trillion over this span. By letting these securities roll off, doesn't that increase supply? This at the same time our Treasury will be issuing a large new amount for our fiscal deficit(this fall)? So the question I have is who's going to buy all these? Interest rates have been suppressed big time by the opposite. I'm wondering if the increased supply could spike rates? Also, since the Fed is not buying bonds and injection stimulus won't this also cause money contraction in the economy? These 2 issues have caused other recessions in the past and I don't think we've ever seen as much stimulus, which leads to risk of the perfect storm?


The Fed barely moved long term rates while building their balance sheet and has barely moved rates while unwinding their balance sheet. The biggest danger is from the growing national debt. Once we hit 2 x GDP in the next 15- 20 years, we risk another financial crisis like the one in 2008. Out next recession will be triggered by the upcoming financial crisis in China.
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Real Estate Guy
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PostPosted: Tue Jun 26, 2018 6:48 pm GMT    Post subject: Reply with quote

Quote:
Out next recession will be triggered by the upcoming financial crisis in China


Interesting. Care to elaborate on when/how you think this will happen?
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Guest






PostPosted: Wed Jun 27, 2018 12:51 am GMT    Post subject: Reply with quote

Real Estate Guy wrote:
Quote:
Out next recession will be triggered by the upcoming financial crisis in China


Interesting. Care to elaborate on when/how you think this will happen?


It's hard to predict exactly when it will happen because China is a de-facto dictatorship and can do a lot to avoid a depression in China. Almost every Chinese bank is leveraged at least 50:1 and some as high as 100:1. The price to earning ratio of condos in the major Chinese cities is 200:1 - people have to work 200 years to pay for an average condo. Boston's price to income ration is 6:1.

China's financial crisis will be triggered when their government lets a few big banks fail, much like what happened to Bear Stearns and Lehman. The contagion will be much like the one in 1998 and probably will trigger a recession in the US because the US economy is so closely tied to China's.

If we continue to rack up trillion dollar deficits every year, we could face another financial crisis in the future. I'm hopeful the next president after Trump will do a better job of reducing the federal deficit and avoid disaster, but I'm not sure.
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bsg61
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PostPosted: Thu Jun 28, 2018 5:32 pm GMT    Post subject: Reply with quote

Interesting. I have been looking into "safe" investments for my SEP IRA in this choppy market with the Bank of China offering the highest rate on a short term CD (I think it was 2.10% for a 3 month brokered CD).

Fidelity tells me Bank of China is as safe as any other bank, with a branch office in New York and FDIC insurance.
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Elrond



Joined: 27 Feb 2013
Posts: 41
Location: Boston, MA

PostPosted: Thu Jun 28, 2018 9:20 pm GMT    Post subject: Reply with quote

Why go there? Blue Hills Bank in Southie will give you a 2% rate on a MMA
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