Poll: When will interest rates first rise back above 6%?

When will interest rates first rise back above 6%?

  • Before 2012 (6%, 7 Votes)
  • 1st Half of 2012 (13%, 16 Votes)
  • 2nd Half of 2012 (18%, 22 Votes)
  • 2013 (20%, 25 Votes)
  • 2014 or 2015 (27%, 34 Votes)
  • 2016 to 2021 (10%, 13 Votes)
  • Later than 2021 (6%, 8 Votes)

Total Voters: 125

This poll was active 06.26.2011 through 07.02.2011.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

26 comments:

  1. 1
    Pegasus says:

    What interest rates? 30 year mortgages, 90 day T-bills????

  2. 2
    Blurtman says:

    Never. A USG debt default would ensue. QE 2,056 would act to prevent this.

  3. 3
    Toad37 says:

    No clue whatsoever. Not even worth the effort to guess.

  4. 4
    CCG says:

    By Blurtman @ 2:

    Never. A USG debt default would ensue. QE 2,056 would act to prevent this.

    Agree. The War on Savers is Job 1.

  5. 5
    Hugh Dominic says:

    RE: CCG @ 4 – What I still can’t figure out is how they have managed to destroy the dollars value, create price inflation, but still keep the CPI low so that inflation indexed government payments (ss, TIPS) do not rise.

  6. 6
    Pegasus says:

    By Hugh Dominic @ 5:

    RE: CCG @ 4 – What I still can’t figure out is how they have managed to destroy the dollars value, create price inflation, but still keep the CPI low so that inflation indexed government payments (ss, TIPS) do not rise.

    It is the weighting of each portion of the index and removing things that inflate a lot at times and replacing them with very stable things. For example gasoline is only about 5 percent of the total. Home prices were removed and replaced with rents. Reagan and Clinton both did some things to make the inflation rate smaller. They are now talking about moving to the chained index where as an item rises consumers replace it with something else. For example if beef prices double and the consumer switches to chicken which is stable there is no inflation according to this method. Ultimately the consumer will be forced to eating dirt or soylent green where there is an unlimited supply and the government will declare there is no inflation.

  7. 7
    ARDELL says:

    RE: Pegasus @ 6

    Cost of living has always been tough to bring into any sense of reality. When buying a home, people sometimes ask what the average utility bills are, but that varies from owner to owner, even in the same house.

    I can’t even pin it to age as my three daughters, only two years apart in age, have a huge variance in cost of living. I think it goes along with the more you make, the more you waste, even if none are making much.

    Rents do not vary as much over time as home prices. In 1982 I moved from a one bedroom apartment with rent of $540 a month to a “twin” home (attached to one other) with a big yard on a cul-de-sac and 3 levels for <$45,000. The one bedroom rents there today are just under $1000, slightly less than double. The houses are selling for $200,000, more than 4X the price.

  8. 8
    Macro Investor says:

    By Pegasus @ 6:

    By Hugh Dominic @ 5:

    RE: CCG @ 4 – What I still can’t figure out is how they have managed to destroy the dollars value, create price inflation, but still keep the CPI low so that inflation indexed government payments (ss, TIPS) do not rise.

    It is the weighting of each portion of the index and removing things that inflate a lot at times and replacing them with very stable things. For example gasoline is only about 5 percent of the total. Home prices were removed and replaced with rents. Reagan and Clinton both did some things to make the inflation rate smaller. They are now talking about moving to the chained index where as an item rises consumers replace it with something else. For example if beef prices double and the consumer switches to chicken which is stable there is no inflation according to this method. Ultimately the consumer will be forced to eating dirt or soylent green where there is an unlimited supply and the government will declare there is no inflation.

    That’s part of it. Mostly it’s because everything is outsourced to very cheap labor. That deflation is counter balancing a lot of the monetary inflation.

  9. 9
    Pegasus says:

    RE: Macro Investor @ 8 – I agree. I was just responding to why the CPI index itself does not reflect true inflation or deflation. It’s rigged. Competitive global wages mean only one thing. Our standard of living will continue to fall until we reach global parity which means less income to buy less things which means deflation in the long run.

  10. 10
    Scotsman says:

    2016-2021, or later.

    While I originally thought market forces would act to raise rates, I’ve changed my mind.

    Having chosen to muddle on for a decade or more, the government must act to keep rates low in an effort to control the cost of existing and new federal debt. This is really the only consideration. Low rates will not spur demand under current circumstances, but it will stabilize the cost of deficit funded government programs and allow the banking industry to ever so slowly recapitalize.

    Finally, Bernanke has done everything he said he would do when he wrote his PHD thesis on how to handle exactly the situation we are in. While it may not be working as he thought it would, he has stuck to the original plan. The final and only part of that plan not yet implemented is to cap rates through government mandate. I expect we will see that eventually as market pressure continues to build for higher rates in response to inflationary (dollar destruction) pressures and the perception of increased risk.

    Like a dead fish eventually sinks to the bottom, so will our economy slowly, or so slowly, shed debt, reduce incomes, and re-balance with the rest of the world. Managed decline.

  11. 11
    CCG says:

    RE: Scotsman @ 10

    401(k)s will be forcibly converted to .gov debt after another, larger “flash crash”, for our own protection of course. That should put a nice bid under them for a while at least. The equity markets won’t like it, but the Fed can just buy the indexes up as they’ve threatened to do in the past, thus preserving the appearance of health.

    Edit: Hilarious, the Fed has bought 104% of Trashury issuance since QE II started:
    http://blogs.forbes.com/michaelpollaro/2011/06/21/the-end-of-qe-ii-impact-on-the-treasury-market/

    No way they’re going to stop that, whatever story they make up to cover it. Maybe after the Messiah’s re-election they can try easing off just a little bit, which will immediately crater the world again of course.

  12. 12
    David Losh says:

    RE: CCG @ 11

    very funny article that tries to justify the antics of the banking sector of the economy.

  13. 13
    David Losh says:

    RE: Pegasus @ 6RE: ARDELL @ 7

    “The one bedroom rents there today are just under $1000, slightly less than double. The houses are selling for $200,000, more than 4X the price.”

    The point is that just because there is a spike in pricing, like there currently is with housing, that doesn’t equate inflation.

    “For example if beef prices double and the consumer switches to chicken which is stable there is no inflation according to this method.”

    Let me take that a step further in the economy of the consumer. If gas prices rise we drive less, and pay less for other goods to compensate. We have a budget. When Wal Mart was the only place to get a discount people flocked there. Now I can buy better at QFC, and Safeway.

    Even though prices are rising consumers are spending less, and getting more for the dollars. The value of the dollar is buying real, tangible, goods, of value, rather than any old thing we happen to see.

    My theory has been that governments have tried to spark inflation by tinkering with fiscal policy. It hasn’t work. It has only given wind fall profits.

    Profits would need to be reinvested to be productive. I only see greater cash reserves. I see, and we’ve talked about, the growing wealthy class. Until there is some circulation of these profits the consumer will watch what they buy, and when they buy it.

    Right now, I think that’s what we are seeing in housing. People want cheap, good, well appointed, value before they pony up the dough.

  14. 14
    LocalYokel says:

    Q
    E
    3

    QE reminds me of SPQR and Gibbon’s book and I sink into a malaise.
    Then, I remember that I need to go walk my dog and get some fresh air.
    Perspective, folks. Perspective.

  15. 15
    Scotsman says:

    “. . . the main point to take away is that household incomes are not moving up so why would home prices? To the contrary household incomes have fallen in the last decade. This is interesting because the housing bubble occurred in the midst of this falling in income. Access to credit became a substitute for real income. ”

    And low rates were a big component of that:

    http://www.doctorhousingbubble.com/ponzi-financing-era-over-in-united-states-and-world-income-revenues-unable-to-service-debt-greece-japan-bondholders-defaults/

  16. 16
    Scotsman says:

    RE: CCG @ 11

    Yup, it’s all about keeping deficit financing costs low. We’ll get caps on rates, restrictions on capital flows, converted retirement funds, more phony accounting standards/gimmicks and a boatload of FED fun and games before we see rising rates, at least here in the U.S. And the dollar will continue to fall to bring it all into balance with the rest of the world. The U.S. consumer will ultimately pay the price.

    On the other hand, it was a nice day- started to clean up the ski boat, getting ready to fill it up with some of that $4.00/gal. gas and continue living life.

  17. 17
    ARDELL says:

    RE: David Losh @ 13

    David: ” The value of the dollar is buying real, tangible, goods, of value, rather than any old thing we happen to see.”

    I don’t know, David. Sounds like good rhetoric, but not what I’m seeing out in the real world. What I’m seeing is a lot of people spending what they have to spend. If they have less they spend less, if they have more they spend more. We were better off with 5% passbook savings accounts for the many years that was a fixed savings rate. At today’s interest rates, there’s no incentive to save.

    David: “Right now, I think that’s what we are seeing in housing. People want cheap, good, well appointed, value before they pony up the dough.”

    First and foremost they want to buy something worth having, and something they can see themselves living in for 10 years or more. Whether it’s cheap or expensive, they don’t want a “stepping stone” house to something else. I don’t think you can say everyone wants “cheap”, as that clearly is not the case. What they don’t want is a short term purchase, and rightly so.

  18. 18
    David Losh says:

    RE: ARDELL @ 17

    You’re making excellent points here, and the up shot is exactly what I would make; that interest rates will rise to attract investors, and savers.

  19. 19

    […] rates have been very volatile in June. This Poll Post on Seattle Bubble and the chart below are a good reminder that interest rates were at 5.5% in the […]

  20. 20
    ARDELL says:

    RE: David Losh @ 18

    There were a lot of very happy little old ladies when short term interest rates were at 17% to 20%. :) Not so many happy home buyers. I posted a 40 year history of mortgage rates over on RCG to help people with their guessing in the poll.

    Personally I think it’s going to be a political tug of war, which makes it anyone’s guess.

  21. 21
    Blurtman says:

    Fed Seen Purchasing $300 Billion in Treasuries After QE2

    June 27 (Bloomberg) — The Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.

    While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.

    The central bank, which injected $2.3 trillion into the financial system after the collapse of Lehman Brothers Holdings Inc. in September 2008, will continue buying Treasuries to keep market rates down as the economy slows. The purchases are supporting demand at bond auctions while President Barack Obama and Republicans in Congress struggle to close the gap between federal spending and income by between $2 trillion and $4 trillion.

    “I don’t think the Fed wants to remove accommodation in any way, shape or form,” said Matt Toms, the head of U.S. public fixed-income investments at Atlanta-based ING Investment Management, which oversees more than $500 billion. “It’s quite natural for them to reinvest cash,” he said. “That effectively maintains the accommodative stance.”

    http://www.businessweek.com/news/2011-06-27/fed-seen-purchasing-300-billion-in-treasuries-after-qe2.html

  22. 22
    BillE says:

    It will be interesting to see what happens in the next few months. Along with the supposed end of QE2, there is the QRM issue. I don’t really have much faith that either will be as advertised. Still, I can hope that rates rise and 20% down payments become the norm. Cull some of the fluff from the market and let’s see how many are really in a position to buy. I’ve heard a lot of dogging in the media about how long it would take most families to save 20%. They fail to mention that prices coming down more would reduce that time.

  23. 23
    Scotsman says:

    Larry Lindsey weighs in on why we won’t be seeing higher interest rates any time soon:

    “. . . a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.

    The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.”

    http://online.wsj.com/article/SB10001424052702304657804576401883172498352.html?mod=rss_opinion_main

  24. 24

    […] Last summer we ran a poll that asked the question “When will interest rates first rise back above 6%?“ […]

  25. 25
    Jonness says:

    We are caught in a liquidity trap. Interest rates are engineered lower in order to spur borrowing and spending; thus, stimulating the economy. We see evidence of this type of consumer behavior in the prior tax credit splurge and the current record low interest rate splurge, both of which temporarily buoyed house prices. In short, people think they are getting a good deal, and they are tricked into borrowing huge amounts of money and going into deep debt for 30 years. As predicted, I’ve already seen plenty of tax credit wonders come back as short sales or REO’s. It’s the nature of the game we are playing. Most people who miss it, have not factored in the length of time it will take to get out of this mess. As long as we kick the can down the road, not much gets fixed. This allows more people to fall victim to the madness. But it also extends out the period of opportunity.

    The current goal is to get people to borrow money in order to shore up the economy. But the Fed has a big problem. People are broke. So interest rates go down, and a few suckers jump in and prop up prices. But then the next round of people don’t want to jump in unless rates are even lower than they were when the previous round. Unfortunately, when you hit the zero bound, you can’t lower rates any lower, so you are stuck in a quagmire for a very long time.

    Many people think low interest rates occurred by magic or happenstance, so they feel the need to jump in immediately before they miss a once-in-a-lifetime opportunity. But a year goes by, and rates are even lower. Last year’s house purchase wasn’t the investment of a lifetime after all. People would have been much better off following Ben Bernanke into stocks.

    How about that aapl? Thank you Uncle Ben. Please print more money and lend it to the scum of the earth for free. It’s working out well.

    Actually, many more suckers would be jumping in the debt pool, but because people are broke, the banks are afraid to lend to them at the best rates. So the game just lingers on.

    At 8.5% unemployment, what do you think happens to the economy when interest rates go up? Well, less people buy homes at artificially inflated prices using credit, and the government’s cost of servicing its debt goes up. So the game for as far as the eye can see is to keep rates low. But it doesn’t mean it will occur. Although extended low rates are more likely than not, the game can get out of hand and goose things in the other direction. What really matters is if the printed money actually reaches Main Street and competes for asset prices. If that happens, we inflate in a hurry. And that’s why many people remain wildly on opposite sides of the deflation/inflation debate.

    It comes down to whether banks lend their excess reserves. For now, it ain’t going to happen. But nobody knows what the future holds. In short, you can throw away the text books, because we are experiencing an unprecedented economy, and although you might get what’s happening in your part of the world, just about the time you think you have it figured out, something will happen elsewhere in the world, and the opposite of what you thought was going to happen will happen. For now, it makes sense to suck as much milk from Uncle Ben’s teet as possible. But if you get complacent with this strategy, sooner or later, you will get burned.

    For now, we are caught amidst a Japan-style liquidity trap, which proved very difficult for Japan to escape. And after a half decade of struggling, it doesn’t appear the U.S. has an easy exit strategy figured out either. I’ve minded my p’s and q’s through this period and continued to save/invest toward a down payment on a house. It’s been a good strategy. Sometimes, old fashioned is good.

  26. 26
    Macro Investor says:

    RE: Jonness @ 25

    Agree with everything you wrote. Also saving aggressively. However, I doubt I’ll ever buy in the Seattle area. Over the past 25 years I’ve seen it become over crowded, crime infested and insanely expensive… emerald city is now little LA. I’ll be buying in a smaller town where you get a lot more value.

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