Plunging mortgage rates held off a Seattle home price crash

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It’s been quite a while since we’ve had a look at our affordability index charts for the counties around Puget Sound, so let’s have a look at those charts. As of August, the affordability index currently sits at 95.1, which is somewhat lower than the 1993-2002 average of 107.6, but not ridiculously lower. For context, 69 percent of the 331 months on record back through 1993 have had a higher affordability index than what we had in August 2020.

An index level above 100 indicates that the monthly payment on a median-priced home costs less than 30% of the median household income. An index below 100 means that the monthly payment is over 30% of the median income.

King County Affordability Index

I’ve marked where affordability would be if interest rates were at a more historically sane level of 6 percent—66.4, which is worse than every other month on record except July 2007, the absolute peak of the previus housing bubble. At that time interest rates were 6.7%, and if rates were that high today, the affordability index for King County single-family homes would be 61.7.

If rates went up to a more historically “normal” level of 8 percent (the average rate through the ’90s), the affordability index would be at 54.2—nine points below the record low level that was set in July 2007.

What’s interesting to me is how sharply the affordability index shifted from a rapid decline through most of 2017 and early 2018 to a sharp increase between early 2018 and today. To try to unpack this, let’s look at the individual components that make up the affordability index: home prices, incomes, and interest rates.

King County Affordability Index Components

In 2017 and early 2018, home prices shot up rapidly, cratering the affordability index. After peaking in May (earlier than usual), home prices fell pretty dramatically over the following eight months, shaving off 16 percent by January of 2019. In fact, it looked a lot like another home price bubble may have been bursting in Seattle.

However, just as these price declines were beginning to gain steam, mortgage rates began dropping like a rock, falling from 4.87% in November 2018 to an inconceivable 2.94% as of August. It sure looks to me like this sudden shift in mortgage rates put the brakes on declining home prices in the Seattle area, and are probably solely responsible for the price increases we have seen over the past year and a half.

Obviously nothing happens in a vacuum, and there are myriad other factors at play here too, but the near-perfect synchronization of the sudden shift in the home price chart and the mortgage rates chart is difficult to ignore.

Anyway, here’s a look at the affordability index for Snohomish County and Pierce County since 2000, which have seen similar improvements in affordability driven almost entirely by declining mortage rates:

Snohomish / Pierce County Affordability Index

The affordability index in Snohomish currently sits at 120.8, while Pierce County is at 125.0. Both up considerably from their 2018 low points, and at levels comparable to 2008 or 2009.

You can calculate whether a home purchase scenario is “affordable” using the Affordability Index measure with my simple affordability calculator.

Next week I’ll post updated versions of my charts of the “affordable” home price and income required to afford the median-priced home. Hit the jump for the affordability index methodology, as well as a bonus chart of the affordability index in the outlying Puget Sound counties.

Outer Puget Sound Counties Affordability Index

As a reminder, the affordability index is based on three factors: median single-family home price as reported by the NWMLS, 30-year monthly mortgage rates as reported by the Freddie Mac, and estimated median household income as reported by the Washington State Office of Financial Management.

The historic standard for “affordable” housing is that monthly costs do not exceed 30% of one’s income. Therefore, the formula for the affordability index is as follows:

Affordability Formula

For a more detailed examination of what the affordability index is and what it isn’t, I invite you to read this 2009 post. Or, to calculate your the affordability of your own specific income and home price scenario, check out my Affordability Calculator.

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    biliruben says:

    North-end blinders, Tim.

    Pierce is not “up considerably” from 2018. Looks like maybe 5%.

  2. 2
    N says:

    Considering interest rates are down 60% since Nov 2018 (let that sink in), prices sure haven’t increased much — holding off a crash doesn’t seem like hyperbole at all.

    On the flip side, could the low rates fuel another multi year run of double digit increase?

  3. 3
    Erik says:

    RE: N @ 2
    That’s what the data would suggest.

  4. 4
    Blurtman says:

    RE: Erik @ 3 – The fellow that runs the wolfstreet blog believes that as wealthy people benefit more from the Fed’s supportive polcies, that this is evil and needs to stop. And sadly, he runs a moderated echo chamber blog, in which you will be banished to permanent moderation purgatory once you contradict him, and rarely see these posts appear. The commenters are primarily guy at the end of the bar grumps affirming the blog owner’s biased “analyses.”

    But the Fed is not supporting equities and homes owned by wealthy people only. Over 60% of Americans own equiies and over 60% own homes. And that sole home owned by Joe Sixpack is more dear to his family than the 20 palaces owned by Bezos.

    Viva capitalism!

  5. 5

    Good Blogs All….Ya See Why I Say, “Just Vote Your Pocketbook”…Like Low Interest and Mortgage Tax Deductions for Most All…Grumbling About Other Topics Won’t Put More in Your Pocketbook; Its Just Like Lower Taxes and Higher Incomes Effects, Without It We’re Screwed as Home buyers/sellers. Or cave into the Tooth Fairy allegations brainlessly and Very Soon Watch it All Get Destroyed?

    Speaking of “All get destroyed” check this fire spotter map out…the whole west half of America is a BLAZING Wild Fire Hades pit right now…it looks hazy with smoke in Kent skies this morning too..

    Time to carefully lift your burning HOT mug of java, drink it very slow not to burn your tongue, and read the brief:

    “… Wildfires tear through homes as Seattle area braces for ‘super-massive’ smoke plume
    Javier Pascacio Pacheco and his aunt Maria Carranza Perez, above, lost nearly everything when the Pearl Hill fire barreled through Bridgeport, Douglas County. They’re among fire victims taking stock, with homes in ashes and injured animals roaming. Air quality is expected to worsen significantly, with smoke blanketing essentially the entire western half of the state, after still-raging wildfires charred more than a million acres in Washington and Oregon. Here’s how to cope with the hazardous air. (Photo: Amanda Snyder / The Seattle Times)..”

    SWE’s take: From the picture, their homes “all got destroyed”. Make sure you have good fire insurance or you’ll be paying mortgage payments on a pile of smoldering charcoal, soon at vacant theater near you…the leaves are falling off trees around Kent in piles…its not Fall tree change either…its severe drought drying ’em on the branches, as the “strong wild fire” winds blows them off in piles…

    “…Beware of misinformation. Officials are debunking a barrage of competing claims that activists on the far left and far right are setting fires…”

    SWE’s take: Beware of misinformation that none of the wild fires was caused by domestic terrorism arson…that’s been debunked too. Blame it most all on the power lines, an unlikely alleged cause for sure…LOL

    “… Are masks for COVID-19 enough to block wildfire smoke? And what are coronavirus tests telling us about asymptomatic people? Find answers in our FAQ Friday and follow today’s live updates here…”

    SWE’s Take: Yeah….I had a cardboard flu muzzle on during my trip to WINCO yesterday when it was like 93 degrees…it makes breathing in the severe heat almost impossible too…I ripped it off as soon as I left the store in the this hot/smokey air, so did almost everyone around me…who wouldn’t?

    “…One in five Washington residents could go hungry this year as food insecurity hits historically high levels. Across the nation, the threat of worsening hunger and poverty remains high after a coronavirus relief bill failed in the Senate yesterday…”

    SWE’s Take: Check Out the Folks Serving Free Killer Flu Food in Burien: That one gal looks about 150 lbs over-weight…the rest generally look severely obese too..

    Maybe all those high carb rice dishes are bad for the waistline?

    “…On this 19th anniversary of the Sept. 11 attacks, today’s most sacred tributes have been altered by coronavirus precautions and woven into the presidential campaign. Meanwhile, for those who served in the White House in 2001, memories remain vivid of what it was like when Vice President Dick Cheney gave his harrowing orders to shoot down U.S. airliners…”

    SWE’s Take: You obviously didn’t watch the Trump Speech at the Flight 93 Memorial this morning, I saw it. When like 100 Americans ganged up against violent terrorism to stop the destruction of the Capital in Wash DC…they all died as real heros…God bless all of them for losing their lives to save thousands and save our historic American treasures. I cried a tear for them today too…stand up and fight for your country.

    Good News: The high heat should cause us most all of us to open windows without central air in Seattle, hypothetically letting in smoke pollutions…it doesn’t matter to this news expert:

  6. 6
  7. 7
    Erik says:

    RE: Blurtman @ 4
    It’s the same song and dance every recession. Last recession, smart investors like Ray Pepper got rich. I think he started out like you or me, but owned a bunch of houses with very little equity, which isn’t that difficult to do. He saw the rules that the fed put out change. Ray changed his investing strategy as the fed changed their rules and made loads of money. He used those rules to make smart decisions and he doesn’t have to work for cash anymore. That’s what I’m trying to do.

    People on this site criticized him. I think they criticized him because they were jealous of his success. I short sold my house during that time. Ray told me to foreclose so I could keep the house longer without paying my mortgage while collecting sweaty renter cash. Today I regret not following his advice. If I could go back to the last recession and do it all over again, I may not have to work for cash today.

    The point of all this is that it doesn’t matter if you are rich or if you are poor. You need to have rental property so when these recessions come, you can be the one making money. Last time Obama was president, it was the same story. Those with rental property, like Ray, that made smart moves, got rich while savers got angry and jealous.

    Viva capitalism!

  8. 8
    N says:

    Except in true capitalism the Fed wouldn’t prop the market up and you’d have the Seattle bust tim just posted about. Instead owners (property, stock etc) take outsized risk because they know there is less downside because the Fed will prop up as long as they can. And lots of people with rentals last time lost everything, something about debt loads, liquidity and risk.

  9. 9
    Erik says:

    RE: N @ 8
    Well, if you know the fed is going to prop up the market, wouldn’t it make sense to factor that in?

    The equation is y = mx + b. We know the equation. You are saying the world is bad because we add “b.” Well N, you know the equation. I wouldn’t say it’s good or bad, I would calculate when the bust is coming by using the entire equation and adding the “b.” I’m not mad that the “b” exists.

    Yes, people that had a low financial intelligence lost everything last recession. That’s why investors need to know the rules and use them to their advantage.

  10. 10
    Erik says:

    RE: N @ 8
    I just heard the fed started a program called FAIT. FAIT stands for Flexible Average Inflation Target. This means that the fed is going to let inflation go above 2% for an undisclosed amount of time while keeping interest rates low. Goods, services, rent and housing prices will keep going higher and higher putting the squeeze on people that work for money.

    Poor people working for money are going to get poorer while investors get richer. Time to think about selling something and paying off debt because when interest rates eventually tick up, the recession will hit.

  11. 11
    Noah Jacolev says:

    + retired folks on fixed income will really feel the pinch. The fed abandoning controlling inflation as their #1 goal also tells you how concerned they are about jobs. Higher rates usually mean higher inflation so if inflation arrives…..

  12. 12

    Fresh Perceptions Today…Thanks All for Your Opinions, no Matter What Happens in the Next Few Years

    Many factors contribute to savvy real estate investments of brainless flops, as indicated below:

    The best advice I’d use is Return on Investment (ROI):

    Return on Investment = Annual Returns / Cost of Investment….track it YOY or annually, before ya lose track of it….Costs include property tax increases BTW, its the main chunk….your ROI is negative YOY when Costs get too high. Maintenance at building contractor Costs come to mind too. Maybe its as simple as buy your Central Air when Winter arrives, sales on swim suits follow that pattern too, buy them after Summer is over…vote in less property tax too. Think long-term…avoid scams and fake news, I’d add.

    This morning it looks hazy/smokey light orange over-cast today and much cooler. The winds are gone too, folks are staying inside today too. Time to guzzle your favorite mug of coffee until its gone too…read the brief:

    “…Shrouded by the darkest clouds in its history from the unprecedented pandemic-driven collapse of the airliner business, Boeing has one glimmer of a silver lining left for 2020: After 18 months of grounding, the 737 MAX may finally fly passengers again. The Federal Aviation Administration (FAA) in August laid out the proposed fixes for the […] Read more…”

    SWE’s take: I’ve heard this FAA on the verge of certifying the MAX story the last year now from MSM….see to believe.

    Good News: between smoke pollution and Killer Flu scare; its doing one good thing in Seattle….the freeways are clear of business traffic and I drive most any time I want. Jam-ups on our freeways a re much less now. I talked to a 30 year old Milenial still living with parents, she agreed with me that her generation cannot afford either the rent or mortgage payments on low $20/hr service sector pay. One 32 year old male still bunking at mom’s house where I live, is turning out bitter and angry; he scowls at me when I drive by. Hey, its not my fault dude.

  13. 13
    ruxpert says:

    Too Little Too Late Media Asking “Was the Lockdown a Mistake?”

  14. 14
    Blurtman says:

    RE: Erik @ 10 – The Flexible Average Recession Target program crapped out?

  15. 15
    ruxpert says:

    The Coming 2021 Housing Crash | Here’s How Bad
    Aug 15, 2020

  16. 16
    Erik says:

    RE: ruxpert @ 14
    “Meet Kevin” said yesterday that with FAIT, the markets could stay propped up until 2022, 23, or 24. The video you posted was from 4 weeks ago and he’s chathid perspective as new information came out. I’m going with 2024 because trump will keep us propped up on fake money when he most likely is re-elected. 2024 was also my prediction back in 2013 of when the market would turn into a crash based on the 18 year cycle which deerhawk repeatedly criticized me for. If we are still up in 2023, I’ll probably sell a little. And if we are still up in 2024, I’ll make sure I own everything ought right except my personal home.

  17. 17
    uwp says:

    I’ve marked where affordability would be if interest rates were at a more historically sane level of 6 percent…
    If rates went up to a more historically “normal” level of 8 percent (the average rate through the ’90s), the affordability index would be at 54.2—nine points below the record low level that was set in July 2007.

    Why is 6% “sane?”
    Because that’s when you graduated from college?

    Why is 8% (the average mortgage rate of the ’90s) “normal?”
    Because that’s when your parents bought a home?

    Mortgage rates haven’t been 8% in 20 years.
    While everyone likes to hearken back to double-digit rates of the 1980’s, those are the true outlier.

    “The Postwar Residential Mortgage Market”

  18. 18
    Erik says:

    RE: Blurtman @ 13
    Good one!

  19. 19
    Terry Bauer says:

    Interesting / disturbing perspective –
    If Seattle is dying, here’s the cause of death

  20. 20
    TJ_98370 says:

    Interesting / disturbing perspective –
    If Seattle is dying, here’s the cause of death

  21. 21
    SeaH says:

    Erik you don’t think it will come sooner ? RE: Erik @ 15

  22. 22
    Erik says:

    RE: SeaH @ 19
    Yes, I think it could come sooner. I think it’s more likely to come later because this is the “+b” in my y=mx+b example I commented earlier. The “+b” depends on how much the fed wants to continue artificially inflating asset prices. I think the Trump administration will continue inflating this bubble until leadership changes hands, hence the 2024 top of the market call.

  23. 23
    ohd1122 says:

    RE: Erik @ 20

    Other than keeping interest rates where they are, what else can the admin/fed do to keep this from crashing?

  24. 24
    Erik says:

    RE: ohd1122 @ 21
    Increase inflation. I read Trump tweets so I have an idea what the president is thinking. Before covid, trump was pressuring Jay Powell at the fed for a positive federal funds rate probably because he could see this coming. My guess is money will get even cheaper to borrow.

    I would imagine printing more money and giving it to people and businesses would also cause inflation as more money added to the system causes the dollar to be worth less than it was causing inflation. I’m hoping they extend mortgage forbearance for 4 more years, which qualifies as giving money to people and businesses.

  25. 25

    Flu Masks Help During Smoke Pollution?

    “…How to reduce your exposure to unhealthy air from Washington state’s wildfire smoke. That cloth mask won’t help..”

    SWE’s Take: Just stay inside, even driving a car with a good flu mask means a ventilator blowing smoke in your face…its hopeless, think about it, smoke goes right through the side mask gap holes the air is sucked in…my car has a ventilator air filter, most don’t…

    Good News: Seattle Home Buyers should be back in the game and outside by Tuesday, when the air pollution warning reportedly ends…

  26. 26
    TJ_98370 says:

    Seattle Condo Market Update – August 2020
    “…….The Seattle citywide median sales price for condos rose 12.22% year-over-year, and 1.5% over the prior month, to $505,000. That’s the highest it has been in two years.
    Capitol Hill / Central and Northwest Seattle lead the way with double-digit increases, while downtown and West Seattle declined year-over-year.
    Fortunately, or unfortunately, depending on if you’re a buyer or a seller, Seattle’s condo inventory continued to rise with 892 units for sale in August. That reflected a hefty 36.4% additional condos for sale compared to a year ago and 20.4% more than the prior month. In comparison, the single family house inventory was down 8.2% year-over-year.
    This number only reflected Seattle condos listed for sale in the NWMLS, which isn’t the true number the condo inventory. Seattle still has hundreds of under-construction or nearly completed condos that are available for pre-sale purchase but are not included in the NWMLS database…..”

  27. 27

    RE: Erik @ 22
    Yes Erik:

    If you’re saving for retirements too, bear in mind that your 401Ks in those safe long-term CDs, makes like the best 10 yr CD interest rate at the 1.0% joke level too. Close the “locked” account IMO and put it in a $CASH$ Money Market savings account instead.

    Conversely, $CASH$ Money Market Accounts in unlocked savings accounts and income taxes already paid are close to 1.0% anyway if you choose a good bank:

    “… Highest Rate: First Internet Bank: 0.81% APY
    High Rate: CIT Bank: 0.75% APY
    High Rate: TIAA Bank: 0.75% APY*
    High Rate: Sallie Mae: 0.70% APY
    High Rate: BMO Harris: 0.60% APY

    10 Yr CDs are a complete joke IOWs…there is always a Yin to a Yang…

  28. 28
    Erik says:

    RE: softwarengineer @ 27
    I do a money market with my 6 month emergency fund and invest the rest in real estate and stocks.

  29. 29
    David says:

    RE: Erik @ 28 – I’d be careful taking advice from Meet Kevin except on pricing renovations and motivation to buy new properties.

    10 years ago he was 17.

  30. 30
    Erik says:

    RE: David @ 29
    Yeah, he’s a young guy. I watch Jim Cramer too.

    I switched from cable to firestick. When I sit down to relax, I watch these guys on my tv.

  31. 31
    Blurtman says:

    RE: Erik @ 30 – I got a Roku a while back. Quite a few interesting alternative viewpoint political shows accessible like War Room Pandemic. Also been watching Youtube on the big screen through Roku, looking at places to move to. Never realized there were so many videos by folks who are vying for followers. Unbelievable! The realtor vids are usually OK, and a nice way to do “walk-throughs” from the comfort of the barcalounger. Youtube has been cranking up the frequency of ads, unfortunately.

  32. 32
    David says:

    By Erik @ 30:

    RE: David @ 29
    Yeah, he’s a young guy. I watch Jim Cramer too. switched from cable to firestick. When I sit down to relax, I watch these guys on my tv.

    Blurtman @ 31

    I subscribe to YouTube Premium for now. Cable was canceled over 6 years ago. CNN not watched in at least 10 years (it was a great station when Ted Turner owned it). Listen to Fox News on Sirius.

    I’m unsure that Meet Kevin’s insight works outside of an area where real estate is pressured up (ergo Santa Barbara). Creating instant equity of $100k seems it might be easier where prices start in the $400s-$500s.

  33. 33
    ruxpert says:

    RE: Erik @ 16

    Hi Erik,
    Yes, it appears RE will benefit from incoming inflation.
    (I haven’t had time to find counter-info to that recently … but will continue to keep a look-out. )

    “In an interview posted at the TheMarketNZZ website, financial historian Edward Chancellor says we could be nearing a period of “quite substantial inflation” the result of central bank policies and warns that there is almost nowhere to hide. “Financial assets,” he goes on “do not respond so much to the level of inflation but to the change in inflation rates. When inflation is taking off, gold tends to do quite well. I try to keep at least 80% of my wealth in real assets rather than in paper assets. I don’t own any long-dated government bonds. I can’t think of constructing a portfolio that would protect you under all circumstances. I actually don’t think prudent investing is possible these days.”

  34. 34
    ruxpert says:

    RE: ruxpert @ 33

    There’s this fellow, but dated even before the previously posted Housing Crash info/video:

    The 2021 Housing Crash
    Jul 31, 2020

  35. 35

    RE: Terry Bauer @ 19
    Hi Terry

    I couldn’t have said it better ;-)

    This morning a couple LA cops were sitting in their patrol car probably gobbling down Dunkin’ Doughnuts [cops love doughnuts], minding their own business, and a wild eyed shooter stealthily approached the police car [its on video movie BTW] and shot both of them in their car. Political fallout too today….Trump asked Biden why he didn’t comment on the senseless “cop shooting” violence….I guess Biden just retreated back in his basement with his mouth zipped.

    Time to guzzle down a cup of Dunkin’ Doughnuts coffee and read the brief:

    “… Part of Seattle’s Pier 58 collapses, injuring 2
    Alarms rang out and workers scrambled to evacuate yesterday as a 15,000-square-foot chunk of the pier plunged into Elliott Bay. Two men were rescued from the water and taken to Harborview Medical Center. Demolition crews had been working on the deteriorating pier, known as Waterfront Park, which is adjacent to the Seattle Aquarium. (Photo: Ken Lambert / The Seattle Times)..”

    SWE’s take: I read somewhere that the pier posts holding up that heavy steel Ferris wheel were put in a 100 years ago…no wonder its likely warping and crumbling apart like the bridge near by…the whole ancient Seattle waterfront pier assemblies need replacement to open again? How many billions will that cost? Raise all the property taxes, that should fix it…LOL

    Good News: Its SWE’s birthday today….you gotta be nice to SWE on his birthday….LOL…I’m going to Black Angus for my free $23 birthday dinner and meeting with my Lt Col brother in law and my sister…indoor dining too…LOL

  36. 36

    RE: David @ 32
    I Have the Comcast Bundle; includes 5 rooms of Xfinity with premium cable stations, great internet firewall protection and telephone…the DVRs I save on xFininty are full pixel HD like 1100 pixel Bluetooth….Its like my own Red Box movies without rental or driving…its expensive, but so is Red Box with driving costs…internet streams are commonly not HD quality, they’re all Standard Definition (SD) 700 pixel and more blurry.

    When the electricity or cable goes off I’m screwed…I keep an $8/mo Go Phone handy when that happens…

    The bundles are much cheaper than buying each service separately…check it out…

  37. 37
    don says:

    SWE @ 35,

    Once again you open your chicken little beak and squak with no -fact hyperbolic claims about local infrastructure:

    “SWE’s take: I read somewhere that the pier posts holding up that heavy steel Ferris wheel were put in a 100 years ago…no wonder its likely warping and crumbling apart like the bridge near by”

  38. 38
    ruxpert says:

    V-Revealed 2020 Update: Ep 3 – Del Bigtree

  39. 39
    David says:

    RE: Erik @ 30 – Do you have any idea how Meet Kevin is saving so much at Lowes?

  40. 40
    No Name Guy says:

    The Tim:

    Glad you’re back. I’ve been looking in every month or two since you stopped posting to see if you’d resume and glad to see that you have.


  41. 41
    Eastsider says:

    Inflation – It’s unclear if printing will cause inflation. Japan has the highest debt to GDP ratio at 237% (US 107%.) Yet Japan has not experienced measurable inflation.

    Asset prices – Japan’s asset prices are still below their peaks reached in 1990. So home prices may stay stagnant or even decline.

    If you sell your home at a lower price in a few years for some reason, you won’t be able to deduct the (tax) loss.

  42. 42
    FooBar says:

    If anyone is interested in eliminating SWEs long, rambling blog posts from the comments section while you read through comments you can right click (on chrome or new edge) select “inspect”, click the “console” tab and paste this in:

    for (var anchor of document.getElementsByTagName("a")) {
    if (anchor.innerText === "softwarengineer") {
    anchor.parentElement.parentElement.parentElement.setAttribute("style", "display: none");

    And then hit enter.

    You’ll have to do this every time you reload the page, but I figured it would be better than nothing.

  43. 43
    Erik says:

    RE: David @ 39
    I haven’t looked, but I’ll check it out. I save a ton at Lowe’s by being nice to the ladies at the contractors desk and getting scratch and dent deals for 90% off. I bring all of Lowe’s workers cookies and Starbucks coffees. The manager told me if I ever have any issue to contact him and he will resolve it. When I get a deal, I get the phone number of the person that helped me and send that person helping me an amazon gift card. Saved thousands that way. You gotta be flexible though and take what you can get. I’m not sure Kevin’s strategy, but mine is very effective.

  44. 44
    Erik says:

    RE: Eastsider @ 41
    Pretend a country’s goods and services are worth 100 units. If that same country has 100 notes to represent each unit, you are saying increasing the number of notes to 1000 won’t change the value of each note?

    I would argue that if you had 100 notes and the value was 1 unit/1 note and you printed 900 more notes, your value would be .1 units/1 note. Read “Basic Economics” by Thomas Sowell. Start at the beginning and understand the fundamentals of economics.

    I’ll do it below to be clear because this is important:

    Scenario #1 before printing 900 more notes
    Country value = 100 units
    # notes = 100
    Value = 100 units/100 notes = 1 unit/1 note

    Scenario #2 after printing 900 more notes
    Country value = 100 units
    # notes = 1000
    Value = 100 units/1000 notes = .1 unit/1 note

  45. 45
    Eastsider says:

    RE: Erik @ 43 – You are not wrong, in theory. In practice, it is far more complex. How would you explain the 5x increase in S&P500 index from its low at 666 eleven years ago? Even after adding trillions of dollars in debt, we have seen little evidence of inflation or surging interest rate. According to your scenarios, we should be in the middle of (hyper) inflation or stagflation.

    As Tim (correctly) pointed out, home prices are being propped up by ultra-low interest rate.

  46. 46

    RE: don @ 37

    Calm Down Don, I’m skilled at engineering stress analysis; are you? Thanks for the link, so steel plates [like a modular built home] hold up the Ferris Wheel? That link also showed [old and ancient pier] the area around it [Ferris Wheel walk way] was not built up with newer steel plates. I’m not sure you can test the deflections from the Ferris Wheel to the old pier posts, but either can you. What’s the safety factor of construction? Unknown, like the failure predicting on a cracked bridge…remember the collapse of the Tacoma Narrows Bridge, it wasn’t load protection that prevented it, it was simple oscillations that resonated that destroyed it…simple oscillating waves can destroy structures too.

    What’s your degree in? History or just a high school diploma?

    At some point ya gotta use experienced scientists, instead of unknown “Safety Engineering” precautions the uninformed allege. Ask any professionally certified Civil Engineer.

  47. 47
    Blurtman says:

    RE: Eastsider @ 44 – You have just given an example of asset price inflation whilst claiming there is no inflation. Illogical, does not compute. Of course there is inflation: home prices, equities, education, automobiles, etc…

  48. 48

    The Smoke Pollution Warning Got Extended Until Thursday, So Grab Your Mug of caffeine and read the brief indoors and make sure the windows are sealed shut:

    “… A bit of rain can’t erase this haze as fires continue
    Our first rain of September did little to wash away the smoky air, which could stick around until the weekend as fires rage across Washington. Why didn’t forecasts give us a clear view of how long we’d be gasping this noxious air? Here’s how the models got it wrong and why the smoke is so obstinate. The blazes have burned more than 790,000 acres in Washington — the size of nearly 15 Seattles. We’ve pulled together more comparisons to help you picture how big the fires are. Plus, you can check their status on this map, and find today’s live updates here. (Photo: Erika Schultz / The Seattle Times)..”

    SWE’s take: Avoid going outdoors for long walks folks, the smoke is so thick it can easily make ya dizzy after a couple mile walk…keep your car in good maintenance, its all ya got to ride out the smokes [I do hope it has an outdoor air ventilator filter too….bikes and motor-cycles are also dangerous rides now.

    “… UW is planning extensive COVID-19 testing this fall and expects to find hundreds of positive cases in the first round. A cautionary tale awaits at another university that had a tiptop coronavirus plan … except that its students partied on. Find today’s live updates here.
    The virus’ second wave is hitting sooner than expected in the U.K., where some people must travel hundreds of miles to find a test.
    What are the different types of coronavirus tests? Here’s how the three main varieties work, and our updating list of where to get tested. ..”

    SWE’s take: No symptom flu still tests positive and is the lion’s share of new cases now.

    “…Seattle is shortchanging bridges’ maintenance and allowing them to deteriorate, according to a new audit that considered 77 bridges and concluded that less than one-third are in good condition. The West Seattle Bridge, above, wasn’t even classified as the worst one until cracking prompted its emergency closure. (Photo: Mike Siegel / The Seattle Times)..”

    SWE’s take: Civil Engineering Safety Engineering in Seattle is just a waste of money..LOL

    Good News: The air may be clearer now in Seattle:

    The Puget Sound Air Agency begs to differ and continues warnings through this Thursday for Seattle. Who’s right? Time will tell.

  49. 49
    don says:

    RE: softwarengineer @ 45
    So you think the wheel is going to fall over, do you. Stay clear of it then.

    Stick with your namesake software, and before you post here, if you assert questions of verifiable fact, please try to get things straight up and correct before you waste everyone’s time with your fear based bs.

  50. 50
    Eastsider says:

    RE: Blurtman @ 46 – The annual inflation rate for the United States is 1.3% for the 12 months ended August 2020, according to U.S. Labor Department. Of course you can find specific areas where prices have increased far more (or less) than the annual inflation rate. U.S. home prices are very rate sensitive. If interest rate moves up, home prices will likely decline. I don’t want to spend time arguing about (asset price) inflation. You can read up elsewhere on the Internet.

  51. 51
    Erik says:

    RE: Eastsider @ 45
    S&P is not how I would measure inflation. Stock market could be in a big bubble.

  52. 52
    Eastsider says:

    RE: Erik @ 51 – Ditto for home prices.

  53. 53
    David says:

    By Eastsider @ 41:

    Inflation – It’s unclear if printing will cause inflation. Japan has the highest debt to GDP ratio at 237% (US 107%.) Yet Japan has not experienced measurable inflation.

    Asset prices – Japan’s asset prices are still below their peaks reached in 1990. So home prices may stay stagnant or even decline.

    If you sell your home at a lower price in a few years for some reason, you won’t be able to deduct the (tax) loss.

    Japan’s real estate market is TOTALLY different than the US. Fundamentally different. Most buildings depreciate in Japan rapidly BECAUSE the value is in the land – not the structure.

    I’ve owned and sold a property in Japan.

  54. 54
    Eastsider says:

    RE: David @ 53 – Real estate is location specific. Even in the US, Detroit and Seattle home prices are outliners. My point about Japan is that runaway US debt does not necessarily mean higher real estate prices. Interest rate has far more impact on RE prices.

  55. 55
    David White says:

    By Eastsider @ 54:

    RE: David @ 53 – Real estate is location specific. Even in the US, Detroit and Seattle home prices are outliners. My point about Japan is that runaway US debt does not necessarily mean higher real estate prices. Interest rate has far more impact on RE prices.

    “Interest rates are gravity” – Warren Buffett !!

  56. 56
    Lexi says:

    Our escrow agent mentioned that they are now looking into offering a 40 year loan in targeted areas of the US where there is an affordability issue. While I agree with your article, it sounds like they might be trying to “fix” the situation. A loan broken into 40 years instead of 30 sure will give one a payment they can now afford.

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