Years of ZIRP have conditioned people into believing that rates at 5% are "high", when the historical reality is that 5% is approximately the mean rate over the past 70 years. Volcker famously broke the back of inflation in the 80s by pushing the interest rate up past 20%. https://fred.stlouisfed.org/series/FEDFUNDS
I think the reason people are so shocked is because the principal is already so high and unaffordable that any rate increase feels like a death of a thousand cuts. A rate increase from 2% to 5% when the principal is already $400k+ feels devastating in comparison to a rate of 20% but the principal being $60k
Higher rates will bring prices down. Prices can only support what incomes can support at current cost of money, wages + mortgage [based on qualified mortgage underwriting guidelines] = prices. Asset prices are inversely correlated with interest rates. ~4M real estate transactions occur per year, sales will happen because of moves, death, divorce, etc. This sets the price direction momentum and comparables at these money costs.
("Note the trend. Just as the Fed drains M2 with quantitative tightening, time is needed to drain inflated residential real estate equity, grounded in mortgage rates (priced off of treasuries) and what wages can support.") (me, 7 months ago)
Tangentially related to how private equity is in a very unfavorable position at current valuations and continues to extend and pretend as long as possible before having to mark to current valuations and attempt to refinance debt loads at current money costs.
- “PE has a glut of 32,000 companies ($4T in equity) they can't sell and the average hold time is extended past 8 years.”
In hindsight, root cause analysis, it was not a good idea for the Fed to provide unlimited support to mortgage backed securities bonds during the pandemic. All of that money flowed from the bond market into unsustainable real estate equity valuations that are now readjusting to reality through time and transactions. Alas, we win or we learn.
It really depends, and its hard to saw what "low" vs "high" rates means. Within different economies, low could be 0, 5, or 10. Depending on where you are in the business cycle, high rates could actually signal a hot economy and low rates could mean a cold one(or trying to jump start borrowing). Low rates all the time and high rates all the time probably isn't good, its a dance.
You've got it backwards. Over a standard business cycle, a healthy, growing economy is generally correlated with higher (or rising) interest rates, while a weak or contracting economy is correlated with lower (or falling) interest rates. Bond investors demand higher interest rates when they have more confidence in the economy as they would otherwise prefer to invest in equities, and investors settle for lower rates when they have less confidence in the economy as they seek to exit equities in favor of low-risk alternatives.
https://archive.is/FKTT5
Rates are still too low. They need to be increased again.
Years of ZIRP have conditioned people into believing that rates at 5% are "high", when the historical reality is that 5% is approximately the mean rate over the past 70 years. Volcker famously broke the back of inflation in the 80s by pushing the interest rate up past 20%. https://fred.stlouisfed.org/series/FEDFUNDS
I think the reason people are so shocked is because the principal is already so high and unaffordable that any rate increase feels like a death of a thousand cuts. A rate increase from 2% to 5% when the principal is already $400k+ feels devastating in comparison to a rate of 20% but the principal being $60k
Higher rates will bring prices down. Prices can only support what incomes can support at current cost of money, wages + mortgage [based on qualified mortgage underwriting guidelines] = prices. Asset prices are inversely correlated with interest rates. ~4M real estate transactions occur per year, sales will happen because of moves, death, divorce, etc. This sets the price direction momentum and comparables at these money costs.
Home Prices Are Starting to Fall in Some Pockets of the U.S. - https://news.ycombinator.com/item?id=50203248 - October 2026
Stubborn Sellers Are the Last Thing Propping Up Home Prices - https://news.ycombinator.com/item?id=50096330 - October 2026
https://news.ycombinator.com/item?id=50203261
("Note the trend. Just as the Fed drains M2 with quantitative tightening, time is needed to drain inflated residential real estate equity, grounded in mortgage rates (priced off of treasuries) and what wages can support.") (me, 7 months ago)
https://news.ycombinator.com/item?id=47596362
Tangentially related to how private equity is in a very unfavorable position at current valuations and continues to extend and pretend as long as possible before having to mark to current valuations and attempt to refinance debt loads at current money costs.
A $300B 'Debt Wall' Is Looming over Private-Equity Backed Companies - https://news.ycombinator.com/item?id=50260526 - October 2026
https://news.ycombinator.com/item?id=50262716
- “PE has a glut of 32,000 companies ($4T in equity) they can't sell and the average hold time is extended past 8 years.”
In hindsight, root cause analysis, it was not a good idea for the Fed to provide unlimited support to mortgage backed securities bonds during the pandemic. All of that money flowed from the bond market into unsustainable real estate equity valuations that are now readjusting to reality through time and transactions. Alas, we win or we learn.
Exactly, with houses or bonds, prices and rates are inversely correlated.
low rates are the default of a healthy confident economy. high rates are the default for a struggling economy.
It really depends, and its hard to saw what "low" vs "high" rates means. Within different economies, low could be 0, 5, or 10. Depending on where you are in the business cycle, high rates could actually signal a hot economy and low rates could mean a cold one(or trying to jump start borrowing). Low rates all the time and high rates all the time probably isn't good, its a dance.
You've got it backwards. Over a standard business cycle, a healthy, growing economy is generally correlated with higher (or rising) interest rates, while a weak or contracting economy is correlated with lower (or falling) interest rates. Bond investors demand higher interest rates when they have more confidence in the economy as they would otherwise prefer to invest in equities, and investors settle for lower rates when they have less confidence in the economy as they seek to exit equities in favor of low-risk alternatives.
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