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European Interest Rates at 500 Year Lows
Old 07-29-2014, 09:15 AM   #1
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European Interest Rates at 500 Year Lows

Interesting piece of financial information, France, Netherlands, Italy and Spain at or very near 500 year lows. Germany at nearly 200 year lows. What does this mean? Any historical model studying impacts an on interest rates/ equity return really have no similar data in their model to compare with the current situation.

German borrowing costs reach record low - FT.com
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Old 07-29-2014, 10:40 AM   #2
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It means we live in interesting times. Uncharted waters. I wish I knew more so as to use the info for better forecasting.
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Old 07-29-2014, 12:27 PM   #3
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It means we live in interesting times. Uncharted waters. I wish I knew more so as to use the info for better forecasting.
Short answer is - there's never been a better time to buy quality (and appreciating) assets with other people's money - as long as you're buying it at the right price.
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Old 07-29-2014, 02:46 PM   #4
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It means the dollar will strengthen just in time for my Europe trip (knock on wood)! The euro/dollar exchange rate has already improved from almost 1.4 to 1.34 over the past few months.
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Old 07-29-2014, 03:31 PM   #5
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It simply means EU is scared of Russian Bear.
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Old 07-29-2014, 05:07 PM   #6
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Short answer is - there's never been a better time to buy quality (and appreciating) assets with other people's money - as long as you're buying it at the right price.
When mortgages return to their historic norm rate, 30-year ones from today at ~4% are going to look like bargains. This also suggests real estate is currently undervalued.
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Old 07-29-2014, 05:16 PM   #7
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When mortgages return to their historic norm rate, 30-year ones from today at ~4% are going to look like bargains. This also suggests real estate is currently undervalued.
If house sells for 100k today at 4% rates and tomorrow rates go to 8% very likely that house will sell for less then 100k. (holding all other economic variables in places)

If you want to FIRE you probably don't want to pay of 30 year mortgage in 30 years.
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Old 07-29-2014, 05:31 PM   #8
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If house sells for 100k today at 4% rates and tomorrow rates go to 8% very likely that house will sell for less then 100k. (holding all other economic variables in places)
Actually the reverse has been true in recent decades: when mortgage rates were higher real estate was appreciating faster. Mortgage rates go higher when there is greater demand for mortgages. When there is greater demand for mortgages, there is greater demand for real estate so real estate prices rise.
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Old 07-29-2014, 05:37 PM   #9
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Actually the reverse has been true in recent decades: when mortgage rates were higher real estate was appreciating faster. Mortgage rates go higher when there is greater demand for mortgages. When there is greater demand for mortgages, there is greater demand for real estate so real estate prices rise.
That is exactly why it crashed

Real Estate goes up at inflation rate. It is place to enjoy but NOT money maker. We can find deeds in Amsterdam dating 500 years and track individual properties and see that they appreciated at inflation rate.

Now I am not claiming that places like Manhattan did not appreciate faster. But if you plan to buy a house in Atlanta or Boston you will not experience growth that Dutch did after they bough Manhattan.
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Old 07-29-2014, 07:28 PM   #10
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That is exactly why it crashed

Real Estate goes up at inflation rate. It is place to enjoy but NOT money maker. We can find deeds in Amsterdam dating 500 years and track individual properties and see that they appreciated at inflation rate.

Now I am not claiming that places like Manhattan did not appreciate faster. But if you plan to buy a house in Atlanta or Boston you will not experience growth that Dutch did after they bough Manhattan.
Darn few assets that an ordinary person might have considered buying have appreciated like houses in San Francisco, Silicon Valley and many parts of LA. I would say not likely to equal this again, unless the $ goes down even faster than it has been doing since the Federal Reserve was founded, but it sure has beaten inflation many times over so far.

Ha
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Old 07-29-2014, 08:59 PM   #11
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Assuming that this state of affairs cannot last forever, it may mean that it is a good time to short bonds.
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Old 07-30-2014, 05:11 AM   #12
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Darn few assets that an ordinary person might have considered buying have appreciated like houses in San Francisco, Silicon Valley and many parts of LA. I would say not likely to equal this again, unless the $ goes down even faster than it has been doing since the Federal Reserve was founded, but it sure has beaten inflation many times over so far.

Ha
Yes you will have areas that grew much faster then inflation. BTW that will also happen in vanilla towns in Iowa if people tear down houses build in 1950's which were 1000 sq ft and build new houses which will be 2700 sqft. Then they say average house prices went up .......

A very long view on house prices | Hotel Ivory

This is interesting study Amsterdam housing market.
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Old 07-30-2014, 08:46 AM   #13
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Darn few assets that an ordinary person might have considered buying have appreciated like houses in San Francisco, Silicon Valley and many parts of LA. I would say not likely to equal this again, unless the $ goes down even faster than it has been doing since the Federal Reserve was founded, but it sure has beaten inflation many times over so far.

Ha
It's all about location, location and location. If you have the time and money for renovations, buying slightly run-down houses in desirable areas is still a money maker.
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Old 07-30-2014, 09:29 AM   #14
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If house sells for 100k today at 4% rates and tomorrow rates go to 8% very likely that house will sell for less then 100k. (holding all other economic variables in places).
I believe this to be true. I have many rentals, so I hope it is not.

Unless wages increase as fast as home prices, or financing options become more creative, there is no way people can pay more for a home than they do today. Otherwise they would be doing it today, already. When prices increase, demand decreases. Every time.

Housing prices are a function of a monthly payment. If interest rates rise, get ready to buy property cheaper, and with cash. As interest rates rise, competing investments also come into play. Who would buy RE at an 8% return, when you can get a US Treasury at a guaranteed 5%?

Saying home prices increase when interest rates do is like saying the stock market will increase when interest rates do. Temporarily maybe they will. But the long term money will flow to the highest return asset, adjusted for risk. RE is considered a risky investment.
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Old 07-30-2014, 10:51 AM   #15
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Actually the reverse has been true in recent decades: when mortgage rates were higher real estate was appreciating faster. Mortgage rates go higher when there is greater demand for mortgages. When there is greater demand for mortgages, there is greater demand for real estate so real estate prices rise.
I can't comment on the US, but that's not the case for Germany, at least not recently. Demand for real estate here is soaring since about 2008, and prices go up accordingly (+9% in one year in my area, according to one real estate site). At the same time, mortgage rates are at historical lows and still trending downwards.
There is just too much money around.
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