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My financial news feeds this week have been blowing up about the 10 year Treasury yield and the effect that it's having on mortgage rates
As somebody who's considering relocating, watching these movements has been a rollercoaster. Looking at housing prices vs rates, we're not seeing the usual negative correlation between the two. Single family detached dwelling prices seem to be unusually sticky in the face of rate increases this year. It's reaching the point where I might legitimately be better off saving for a cash payment than trying to take on a mortgage.
The rates I understand, but I'm not 100% sure what's going on with prices. Is it simply that people who are sitting on 2% mortgages from several years ago aren't motivated sellers? It feels like there has to be more going on than that.
It's also been interesting watching my holdings in a state municipal bond fund get kicked in the balls. The average weighted duration for a bond in the fund is 8 years. I'd expect a 25bps increase in rates to drive a 2% drop in share value. I could understand a 4% drop, if the market was pricing in another 25bps home this year. However, it's down 9% on share value. The fund hasn't had any notable failures in their holdings, so I'm guessing the market at large is expecting 3 more 25bps hikes instead of one.
We have 3% inflation, full employment, and strong economic growth (5% according to GDPNow).
This is goldilocks. So why doesn't it feel like? Why is there a vibecession?
Interest rates going up 4% in a short period of time has got to be a big part of the reason. Sucks that you have to compete with a datacenter for your mortgage. We should probably be cutting rates instead of raising them.
Isn't that what Burns tried back in the 1970s? What do you think is different about the current era such that it would lead to a different outcome?
No one knows anything. It's worth a shot.
It goes without saying that the economy today is vastly different than the 1970s.
My point is that inflation is actually low enough (less than 3% core). In fact, many things are collapsing in price including rents. But inflation FEELS high to some people because of the cost of borrowing.
We could lower rates and make inflation feel lower, even if the headline number is higher.
As an aside: People have become absolutely untethered from reality on inflation. They'll say stupid shit "like, actually inflation is 10%" and point to eggs, gas, or whatever. Then when the price collapses they just ignore that. I think exposure to high income people via social media is driving status anxiety. Of course, if you want to win the retard vote, you can't actually say that so politicians talk about an "affordability crisis" or "K-shaped economy". When clued-in people point out that the numbers don't support these arguments, they'll just say the numbers are fake. Cursed discourse.
We've had double-digit inflation annualized over the last 5 years. The 2008 crash kept inflation low from 2010-2020, but 2000-2010 was
15% annual inflation and we've been12% since 2020.We should expect double digit inflation or very close to it over a 5 year period, as 2% per year works to 10.4% in total over 5 years. I'm not sure what you mean by "annualized", but typically that would mean "converted such that it communicates the rate of a given period's inflation occurring over a 12-month span". We have not even been close to double digit annual inflation pretty much ever - even 2022 was only 7%. But, yes, the Fed has overshot its target significantly post-pandemic and continues to miss in 2026.
The rate at which, when compounded annually, matches the inflation over time. So, doubling in 3 years means a 26% annualized rate, because 1.263 = 2. More generally, the rate r raised to the # of periods n equals the ratio of ending level to starting level.
In this way the annualized rate of a single year, n=1, is one less the year over year ratio.
And if you want to cherrypick starting years, say 1979, then you'd find the spot price of gold was $230 Jan/79 and was $4335 Jan/26, you have:
6.4% annual rate of growth.
Again, cherry picked, and already assuming that gold is the yardstick by which to measure the currency, and not just another commodity. But it's been maybe 7% inflation annually since 1971.
Gold is definitely not a good choice for measuring inflation.
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