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Hadlock posted:
Kind of a derail, but most Costcos seem to be being a real pain in the rear end about checking the cards now to be sure it's actually you. Stop freeloading and get your own membership!
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# ? Oct 13, 2023 21:37 |
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# ? Jun 6, 2024 15:35 |
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2.25% premium over fed funds (which, notably, is a non-callable, short-term rate being compared to a very long, callable rate) seems ridiculously low, but what do I know. There’s got to be sooo much more default and duration risk than 2.25 pays for, right? Why are mortgage rates so low?
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# ? Oct 16, 2023 18:04 |
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It's got to mean default risk isn't that low. https://www.reuters.com/markets/us/us-mortgage-delinquency-rates-fall-all-time-low-2023-08-10/ Given the past few years of rising housing costs, and some of the safety nets during Covid, I'm guessing the actual "Walk away from my mortgage" rate has cratered or Banks may actually come out ahead when it happens (which they don't want to do, but probably helps). With new mortgages also drying up, there may be some additional shaving close to the margin as banks try to compete so those division don't become ghost towns. That one I don't have data to support but it would make some sense.
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# ? Oct 16, 2023 18:16 |
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DNK posted:
Fed funds really isn't the best comparison--traditionally you look at mortgages versus the 10-year. Spreads there are actually pretty high right now. The Richmond Fed has an article about it from a few months ago: https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-27
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# ? Oct 16, 2023 18:52 |
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DNK posted:
It's not so much about "are mortgages risky" but rather "how does mortgage risk compare to the risk premium of other investments" and then exactly what the risk premium is that the market is accepting has to do with a broader supply and demand of capital and returns. To dissect that a little more:
We tend to talk a lot more about risk and return than we do supply and demand but IMO supply and demand is the important part of the conversation once you understand the premise of the market, the efficient market hypothesis, etc. You can basically say two possibilities exist, one or both can be true:
So I'd get back to your point and ask: do you think 2.25% as a risk premium is too low because you're comparing it to the risk premium offered by stocks and/or bonds, or because you think the default risk is higher than the market is aware of (hidden information), or you think the market is systematically ignoring default risks again? Maybe several of these? To answer those questions for myself: I think the market is currently moderately overvaluing stocks. I think this based on relatively high (historically) P/Es, both trailing and forward, on those stocks: source I would be much more bullish on stocks with P/Es around 15 to 20. I think the market tends to correctly price premiums on bonds, especially treasuries, less so munis, and much less so corps. I think real estate is likely to be better priced by the market than stocks, but less correctly priced than treasuries or munis. This is a gut feeling based on a general impression of how much information is available to the market and how accurate it is, and also who is involved in the investing: far more individual (fickle, emotional, etc.) investors trade in stocks than in mortgage-backed securities, and the commercial market for mortgage-backed securities still remembers the pain of 2008 and is less likely to willfully ignore information like well-known and published default risk. But I'm very open to being convinced otherwise, especially by data! Regardless: I suspect that the risk premium being offered by 2.25% above the risk-free rate for mortgages - assuming that's the correct figure - is probably very close to the risk premium being offered by stocks and bonds, on a risk-adjusted basis, and that if it's "low" that is more because there's a huge amount of money seeking returns and not because the overall market is being duped again by the sellers of mortgage-backed securities, liar loans, etc. Leperflesh fucked around with this message at 19:05 on Oct 16, 2023 |
# ? Oct 16, 2023 19:01 |
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According to Mortgage News Daily--no article as of yet, just the numbers--average 30-year mortgage rates hit 8.0% today. https://www.mortgagenewsdaily.com/mortgage-rates I cannot imagine current housing prices staying at these levels with these rates. Something's gotta give... (edited because this post was previously just a tweet) Agronox fucked around with this message at 18:42 on Oct 18, 2023 |
# ? Oct 18, 2023 18:23 |
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edit: please no tweets, link to sources
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# ? Oct 18, 2023 18:30 |
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Agronox posted:I cannot imagine current housing prices staying at these levels with these rates. Something's gotta give... I can easily imagine it, and in fact I can imagine prices continuing to rise, because that's what usually happens: https://advisor.visualcapitalist.com/historical-mortgage-rates-vs-housing-prices/ You are reasonably thinking "rates rising makes mortgages more expensive, so fewer people should be able to afford them" but that's ignoring cause and effect. Why are rates rising? Because the economy is hot, usually. When the economy is hot, more people have money and want to buy houses with it. There does seem to be at least some effect, in that the rate at which house prices are rising tends to decline: The recent plot points on the first chart suggest to me that this is very likely to happen in the next two years: the rate at which prices have been rising should reduce, but prices are unlikely to completely stop going up or even go down. I think that's because of the amount of pent-up demand, restrictions on supply, and the attractive rate of return on housing to the investor class compared to other investment options. Leperflesh fucked around with this message at 19:46 on Oct 18, 2023 |
# ? Oct 18, 2023 19:44 |
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DNK posted:
Yield curve inversion plays a role. FFR is an overnight rate, and no one expects it to stay at 5% for the next 30 years. Also, a technical point: 30-year fixed mortgages are not callable
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# ? Oct 18, 2023 20:05 |
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hypnophant posted:Yield curve inversion plays a role. FFR is an overnight rate, and no one expects it to stay at 5% for the next 30 years. When a person borrows money and has no prepayment penalty, that is essentially the same thing as the borrower issuing a callable bond. If interest rates go down, the borrower can prepay or refinance with any mortgage lender to get a better rate. This is the same risk to the bank (the "bondholder") as a bond being called. edit: mortgage amortization is different than typical bond "balloon payment" but I assume that's not what you're talking about. esquilax fucked around with this message at 20:18 on Oct 18, 2023 |
# ? Oct 18, 2023 20:11 |
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Leperflesh posted:I can easily imagine it, and in fact I can imagine prices continuing to rise, because that's what usually happens. I can also see it for more cynical / oversimplified reasons. 1) "Nobody can afford a doctor" doesn't make doctors affordable. It just means you declare bankruptcy after your appendix bursts. Somehow, we've decided that this is perfectly acceptable as a society, because it was somehow a moral failing by the patient for not having insurance that covered the $15K scheduled / $40K emergency appendectomy. 2) Homelessness sucks, is growing, and in many places is illegalized. On top of that, some colder or hotter regions, it can be straight-up fatal. Somehow, we've decided that this is perfectly acceptable as a society, because it is a moral failing (?) by the homeless person to be homeless. 3) Much like needing an appendectomy, it ends up that the demand for not being homeless & dying from environmental conditions is pretty high. (Or rather, it's a fairly inelastic demand.) Instead of going bankrupt, though, you simply don't own the place and you just keep adding more roommates / less features / longer commutes until the numbers work and you have roof+walls. The owner of the house charges whatever it takes to make their money back plus profit, and you add however many roommates/concessions to your life are required to meet the price tag. And broadly, to conclude: 4) Very few people give an individual gently caress about any random stranger's well-being, which leads to us collectively giving no fucks either. So, between regulatory capture and actual civilian apathy, you end up with a government that makes little to no effort to actually address causes or protect the vulnerable. As a result of this broad, handwavey argument, I could totally see house prices continue to rise, even if it's to the complete detriment of society.
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# ? Oct 18, 2023 20:25 |
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Agronox posted:I cannot imagine current housing prices staying at these levels with these rates. Something's gotta give... Housing supply has always been on the short side https://fred.stlouisfed.org/series/HOUST New housing starts took an enormous nose dive in 2008 and just... never recovered.All the housing millenials were supposed to buy just didn't get built 2008-2020 - about 12 years. The graph is actually misleading because it looks like a small drop but it does from ~2100 down to ~450 and then recovers to 1500 https://www.freddiemac.com/research/insight/20210507-housing-supply Freddie Mac posted:Research Note | May 7, 2021 https://www.freddiemac.com/research/insight/20210507-housing-supply And then the article the above one references quote:April 15, 2021 https://www.freddiemac.com/perspectives/sam-khater/20210415-single-family-shortage I did the math about 1.5 years ago we would need to put ~74 very large ~100 unit aparement buildings in the top 100 largest cities to meet current housing needs. Even in rural areas 50 units is usually enough to trigger a traffic study before approval is granted
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# ? Oct 18, 2023 20:26 |
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esquilax posted:When a person borrows money and has no prepayment penalty, that is essentially the same thing as the borrower issuing a callable bond. e: got wrapped up in terminology between mortgage holders (lenders) and bond issuers (borrowers.) when a bond is called, the lender is demanding repayment from the borrower. that's a different position than the borrower voluntarily repaying a mortgage early because they found cheaper finance. there's no "risk" to the bondholder of the bond being called, since that's at the bondholder's discretion. your mortgage holder isn't allowed to demand you instantly repay the balance of the mortgage. hypnophant fucked around with this message at 20:36 on Oct 18, 2023 |
# ? Oct 18, 2023 20:26 |
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hypnophant posted:the borrower does not issue bonds. the issuer issues bonds. there is no risk to the issuing bank, who is not the bondholder, of a bond being called, since the bank is the one doing the calling and it is at their discretion. If interest rates go down, the borrower may repay early depriving the lender of the increase in value that a reduction in interest rates would usually create. Therefore the market interest rate is likely to reflect this possibility. This is analogous to the risk that a buyer of a traditional non-mortgage callable bond takes on. There is no actual bond here, it is an analogy.
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# ? Oct 18, 2023 20:35 |
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esquilax posted:If interest rates go down, the borrower may repay early depriving the lender of the increase in value that a reduction in interest rates would usually create. Therefore the market interest rate is likely to reflect this possibility. you caught me before my edit, but it's not analogous, it's reversed. in a callable bond, the borrower is at risk. in a mortgage with no early repayment penalty, the lender is at risk.
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# ? Oct 18, 2023 20:37 |
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Leperflesh posted:I can easily imagine it, and in fact I can imagine prices continuing to rise, because that's what usually happens: I see two things weighing against this: 1. Housing affordability is the worst it's been right now since the last bubble. Take a look at this, from the Atlanta Fed, which takes into consideration incomes, mortgage rates, and housing prices: 2. We're already seeing volumes dropping off, and with rates up another quarter point since the below I'd expect it to get worse: Mortgage Bankers Association posted:Mortgage applications decreased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 13, 2023. Anyway, just something to think about. If either of us remember, let's come back to this in two years or so to see who was right.
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# ? Oct 18, 2023 20:41 |
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hypnophant posted:you caught me before my edit, but it's not analogous, it's reversed. in a callable bond, the borrower is at risk. in a mortgage with no early repayment penalty, the lender is at risk. this is a really niche and super BFC argument, but, since people are confused here's a FINRA link about callable bonds: https://www.finra.org/investors/insights/callable-bonds-dont-be-surprised-when-your-issuer-comes-calling quote:Many bonds issued today are “callable,” which means they can be redeemed by the issuer at set points before its listed maturity date. That means the issuer pays investors the call price and any accrued interest, and doesn’t make any future interest payments. Like with call options, a callable bond gives companies the right—but not the obligation—to buy back its bonds at a set price. that second quoted sentence seems pertinent
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# ? Oct 18, 2023 20:44 |
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hypnophant posted:you caught me before my edit, but it's not analogous, it's reversed. in a callable bond, the borrower is at risk. in a mortgage with no early repayment penalty, the lender is at risk. It's the opposite. A callable bond is favorable to the issuer/borrower. A (rare) puttable bond would be favorable to the lender/bondholder. e.g. https://www.investopedia.com/terms/...llable%20bonds. quote:What Is a Callable Bond? pmchem posted:this is a really niche and super BFC argument, but, since people are confused here's a FINRA link about callable bonds: esquilax fucked around with this message at 20:50 on Oct 18, 2023 |
# ? Oct 18, 2023 20:44 |
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shows what i get for not googling. thanks for the correction.
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# ? Oct 18, 2023 20:57 |
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Given that market conditions have suddenly made bonds and CDs very attractive, its not that niche-y anymore! Gotta screen out callable debt if you are buying. Don't want the banks to scurry out from under you as soon as rates drop again.
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# ? Oct 18, 2023 21:14 |
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Municipal bonds are almost always callable but I don't think anyone recommends avoiding them in general. The way to think about it is that you're buying a bond but selling an option, and the price is adjusted for the value of that option. If you think you're getting a good deal, buy it and deal with the prepayment risk. (How to price that option was an open question as of a few years ago, so don't worry too much about figuring out exactly what it's worth.)
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# ? Oct 18, 2023 21:20 |
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ultrafilter posted:Municipal bonds are almost always callable but I don't think anyone recommends avoiding them in general. Ehh, I still think it is way more likely than not that rates are going to be lower (perhaps much lower) in a year or 2. So I'm interested in locking in getting paid at these rates for a decently long term. Do not want to get paid ~ a quarter more for a year and then those payments to go away as soon as rates drop.
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# ? Oct 18, 2023 21:25 |
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Agronox posted:Anyway, just something to think about. If either of us remember, let's come back to this in two years or so to see who was right. Absolutely, although I'm only arguing it seems likely based on historical data that prices will still rise, not that it is definitely going to happen. If a recession occurs I expect prices to fall, for example.
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# ? Oct 18, 2023 22:29 |
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https://www.bloomberg.com/news/arti...rce=reddit_wall A year ago Bloomberg predicted that there would be a 100% chance of a recession within the year.
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# ? Oct 20, 2023 15:00 |
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Pretty good guideline: If you're tasked with assigning a probability to something, don't pick zero or one.
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# ? Oct 20, 2023 15:16 |
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ultrafilter posted:Pretty good guideline: If you're tasked with assigning a probability to something, don't pick zero or one. I'm sorry, are you trying to be smart or are you trying to drive engagement on your content? Answer carefully -- algorithmic feeds bless only one of those options, and not a lot of media has survived the last couple decades.
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# ? Oct 20, 2023 17:09 |
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Ditocoaf posted:I'm sorry, are you trying to be smart or are you trying to drive engagement on your content? Answer carefully -- algorithmic feeds bless only one of those options, and not a lot of media has survived the last couple decades. "ECONOMIST REACTS: BIG BRAIN BLOOMBERG PREDICTS ODDS OF RECESSION. YOU WON'T BELIEVE WHAT THEY SAID!" :big font and person making shocked face:
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# ? Oct 20, 2023 20:07 |
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You need to have the person's face photoshopped in front of a graph with a red line zigzagging down, don't forget that
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# ? Oct 20, 2023 23:01 |
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Lockback posted:https://www.bloomberg.com/news/arti...rce=reddit_wall Missed it by a year
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# ? Oct 20, 2023 23:22 |
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the article is paywalled, but I like that the first subtitle below the 100% title immediately undermines it by calling it a "near" certainty
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# ? Oct 20, 2023 23:37 |
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its a weird modelbb posted:While the chance of a recession within 12 months has reached 100% under the model, the odds of a recession hitting sooner are also up. The model forecasts the likelihood of a recession within 11 months at 73%, up from 30%, and the 10-month probability rose to 25% from 0%. like, it seemed to be predicting an extremely high chance of a recession in a fairly narrow 2 month window?
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# ? Oct 21, 2023 01:43 |
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Leperflesh posted:the article is paywalled, but https://archive.ph/2023.07.28-06342...n-blow-to-biden
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# ? Oct 21, 2023 03:02 |
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The US economy grew at a torrid pace last quarter:Washington Post posted:The U.S. economy grew by an annual rate of 4.9 percent in the third quarter, the strongest pace since 2021, as spending — by families, businesses and the government — accelerated, even in the face of fast-rising borrowing costs.
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# ? Oct 26, 2023 15:47 |
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So at this point a 2023 recession is mathematically eliminated from possibility. I guess folks can start placing their bets on one happening in 2024. (I'm strongly leaning towards "no".)
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# ? Oct 26, 2023 16:02 |
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LanceHunter posted:So at this point a 2023 recession is mathematically eliminated from possibility. I guess folks can start placing their bets on one happening in 2024. (I'm strongly leaning towards "no".) I just got a real bad feeling about another couple hikes incoming
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# ? Oct 26, 2023 16:02 |
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Unless PCE is down to 2 tomorrow, there will certainly be another hike next week, and good odds of another in December. The Fed signaled it in September and they have not yet failed to follow through.
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# ? Oct 26, 2023 16:33 |
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Baddog posted:I just got a real bad feeling about another couple hikes incoming We'll probably have to wait on the next CPI report (or maybe the next two reports) to get more insight into how many more are coming. If inflation isn't climbing, I think it will be hard to justify more hikes. And as the article mentions, the hikes don't seem to be slowing things down.
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# ? Oct 26, 2023 16:37 |
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hypnophant posted:Unless PCE is down to 2 tomorrow, there will certainly be another hike next week, and good odds of another in December. The Fed signaled it in September and they have not yet failed to follow through. For what it's worth, the futures have an implied 98% odds of no hike. That seems the right call to me, anyway--long rates going up as they have recently have done a whole hell of a lot of tightening work.
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# ? Oct 26, 2023 16:45 |
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If nothing else it's very funny how nowadays whenever good economic news comes out the equities markets drop like 2% because it means JPow is gonna get mad and hit them again.
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# ? Oct 26, 2023 17:12 |
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# ? Jun 6, 2024 15:35 |
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Is it possible everybody's modeling systems are so mature and look so far into the future that they're spending now so that they can maximum capitalize on the boom when (if) rates go back down, which is actually pushing growth up I talked to some guys last week they're ramping up their internal business investments now to handle "pent up demand" (their words) in the back half of 2024 as money stops getting more expensive then (their prediction) 5% growth this last quarter is wild though
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# ? Oct 26, 2023 17:33 |