Posted on 11/11/2013 8:16:42 AM PST by whitedog57
Recently, FF Wiley and Ginger Snap at Cynicomics posted an interesting article entitled “M.C. Escher and the Impossibility of the Establishment Economic View.“
In their article, they discuss the latest budget forecast from the Congressional Budget Office (CBO). They point out that the CBO is abnormally bullish on near-term growth, based on its long-standing assumption that the gap between actual and potential output will swiftly close. But the longer-term growth forecast is … bearish. 44521-LTBOSupplementalData2013
escherchart1_thumb1 (1)
The CBO also forecasts the REAL 10 year Treasury rate (nominal less inflation).
escherchart21
According to the CBO, the real 10 year rate will rise to 4% by 2018. But what does this imply about 30 year mortgage rates (fixed)?
If we added the expected growth in the consumer price index (see attached Excel file), we get the forecast for the NOMINAL 10 year Treasury rate. We then added the average difference between the 30 year mortgage rate (fixed) and the 10 year Treasury constant maturity rate, which averaged 1.65% since the end of the recession in June 2009,
mtg30l10cmt
and we get this chart of forecast 30 mortgage rates (fixed):
cbo30mtg
Notice that by 2016, the 30 year mortgage rate (fixed) hits 6% and rise to over 7% after that.
Of course, there are lots of moving parts in such a calculation. But suffice it to say that if the CBO is correct, we going to see a not-so-gentle rise in mortgage rates over the next several years.
As Samuel L. Jackson said in Jurassic Park, “Hold on to your butts.”
hqdefault (2)
We’ll be lucky if its not 15% by 2018.
So your stealing charts from a different source now?
I think the one I got back in 83 after relocating was in the 12s.
The CBO used accounting tricks with Obamacare. For example, they projected 10 years worth of tax revenue but only six years worth of expense, in their 10 year forecast. What happens after that doesn’t matter, because Obama and Nancy Pelosi will be long gone by then.
Even though it set me back a little in equity, we got a 2.75%, 15 year refi last year. We had 20 years to go on the existing loan and I managed to lower not only the rate, but also the monthly payment and payoff period. We closed November 5, exactly one day before the majority of Americans confirmed they were terminally stupid.
Yeah, I know. The biggest con put over on America.
My first home purchase was in 1975, Tacoma, Washington. Small tract home for $27,500 with a 9.25% interest rate.
You can't pump one trillion dollars of fake money into the stock market forever and not have something bad happen.
Add that mortgage payment to the new affordable healthcare premium and the economy should be smoking.
What happens when the rest of the World decides that the Dollar isn’t the Reserve Currency any more? What happens when China and Russia and the EU decide to take a bite out of the U.S. and drop dollar based trading for a different or entirely new currency? Once we can no longer demand that people take the dollar In lieu of hard currency, can no longer support the Federal Leviathan with $85 Billion in printed money every month, over One Trillion per year, what then?
What Chart?
Interest rate up, housing values down.
People forget, I sometimes think, that things have been periodically BAD in this country, NOT peaches and cream for all.
Housing values have always gone up and down, always affected by the area/state taxes, job market, government regulations and so on.
We bellyache a lot about that but we are darn lucky, I think, to be able to bellyache and to buy homes at whatever value is current.
All it takes is money and a very nice relative. (Humor, such as it is.)
1961: San Francisco, California, $25,000.00 for a two-bedroom tract home, with my dad's 3% CalVet (U.S. Army, WWII, North Africa) loan.
1975: San Francisco, California, $48,000.00 for a two-bedroom tract home, with a bank loan at 15%. It was a DEAL since the going rate was 18%.
Sounds about right! Washington's prices have skyrocketed, I hear.
If this happens, then the federal budget will be killed! Imagine what every percentage increase means for interest payments on a $17T+ debt!
It’s actually dead already. At least by my view.
The challenge is when do the markets realize that.
A very difficult question.
You are correct.....
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