Comment by VogonPoetry | Hacker News Reader

Comment by VogonPoetry | Hacker News Reader

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I have now read the followup article.

There are, to me some language red flags. The followup article now uses "we' -- suggesting this is not the work of an individual. This was not present in the initial post.

An attempt is made to build a model. Curiously a visual programming model is now used. No explicit differential equations are given. If the equations are not given there is no way to check the model. So "pole" and "zero" analysis is mute.

There are no tests to validate this model against past situations - an easy and free test, the past history is known. If the model that has been created and can predict the future, why would was it not run it against the past and show the predictive success?

The built model is only presented against the current situation -- is it circumstantial / opinion based.

My understanding of science is -- build a model that can predict the future / what happens accurately, i.e. matches the measurements. The consensus agrees that this is the (current) best model.

Prices are ultimately influenced by a sentiment factor, a value derived from a I have no idea what human feeling / property. Some power "enabled" humans have been endowed with a much higher influence on this parameter. Where is this value expressed in the predictive equations?

I agree. The first article was interesting when it was talking about control theory, but the hard pivot to economics and politics at the end turned the article from potentially informative to a disingenuous appeal to authority.

The author clearly knows a lot about control theory, but this seems to have led to an idea that he knows a lot about everything. This is a theme I see all too frequently in people who list “systems thinking” as one of their areas of expertise (like this author).

I have the benefit of the doubt and read the second article looking for perhaps some actual modeling and references to econ literature, but he merely refers to a couple papers and then admits that his model was home-grown and will be simpler. Some parts of it might be right, but this has too many elements of “I’m an expert in one thing therefore I’m qualified to talk about everything” for me.

> There are, to me some language red flags. The followup article now uses "we' -- suggesting this is not the work of an individual. This was not present in the initial post.

First person plural ("we") is normal in technical and scientific writing.

Yes, agreed. It is a term of inclusivity that is applied to observations and models, the testable items. I don't think "we" it is acceptably used for individual opinions unless it reflects the opinions of multiple authors.

The followup definitely uses the "I" (for opinion) initially, but then switches to "we".

As a reader I am not a participant in "we" unless I agree with the statements being made. I think it is this is what made me frosty and say who is this other person, because it isn't me.

Canada does not have 30 year mortgages. Most home owners have mortgages with 3-5 year terms. Since 3-5 years ago rates were low, and home prices were low, people's mortgage expenses are still low. However that's about to end. As people either bought at much higher prices in the last 2 years, and/or the older mortgages are getting renewed at higher interest rates. This will result in drastic increase in what people need to pay to stay in their home.... possibly causing a market crush.

You are correct that in Canada we don't do 30-year fixed mortgages. We only lock in interest rates for a 5 year term.

However, we have what's called a stress-test. In order to get a mortgage at the previously low 5-year fixed rates of 2%, you still had to qualify as though the rates were >5%. This means that if rates go up to 5% everyone should still be able to afford their payments.

This is all correct. It is worth nothing that other expenses are increasing quickly and consistently, so the stress test could be undermined slightly.

I don’t mean to be alarmist or anything here. It has just been on my mind as a recent home buyer. The stress test was performed on my finances under conditions which have already changed (for the worse).

I doubt the bottom will fall out of things, but I expect this to bite some people and to hear about it in the medias.

>This will result in drastic increase in what people need to pay to stay in their home

This will result in a drastic increase in what a relatively small number of homeowners need to pay to stay in their home. Specifically, those who bought a house to live in in the last 3-4 years.

>possibly causing a market crush.

Before losing their home, this relatively small number of people (plus a larger number of those who will experience much more moderate mortgage payment increases) will cut back on spending for literally everything else. This will have a very significant impact on the rest of our economy. Which, in fact, is the whole point of inflation targeting - cool down the economy when inflation is out of control.

> Specifically, those who bought a house to live in in the last 3-4 years.

No, everyone in Canada has to renew their mortgage at least every 5 years, into whatever the prevailing interest rate market is at that time.

The vast majority of 28% of Canadian households who are currently carrying a mortgage did not buy their house at peak bubble prices, i.e. within the last 3-4 years. They carry a much more modest debt load, have paid off more of their mortgage, and this will significantly dampen the effect of rising rates on their finance.

Yes, my understanding is this tends to hit recent buyers and those who have had to remortgage. I don’t have numbers, but it seems reasonable to believe this makes up a small portion of homeowners.

Specifically, those who bought a house to live in in the last 3-4 years.

Also those who renewed in the last 3-4 years. Which realistically means most of those who bought in the last 20-25 years.

That's likely over half of all homeowners - not so small a fraction after all!

>Also those who renewed in the last 3-4 years.

No. Those who paid the exorbitant prices of the last 3-4 years. I've renewed recently, and borrowed the ~$100k remaining on my mortgage at a historically low rate. If I had to renew at twice that rate it would not make a huge impact on my finances, because I'm currently paying interest on a five-figure principal.

But it still would impact you.

Across all Canadians, we're talking about $1.5 trillion (CAN) in mortgage debt. That's on par with the GDP. If you hike the interest rates to match your inflation, that's like sucking 5% of your GDP into interest payments. This will be a pretty dramatic event, no matter how it is distributed.

It will certainly be a dramatic event, but it still matters how it is distributed. To make up some numbers by way of example, if 4 million people have to pay $50/month more, I believe it has a significantly smaller effect on the economy than 1 million people having to pay $200/month more.

Yes, but interest is front-loaded on mortgages, so the impact is much lower for those 20-25 years in.

Governments are in a privileged position to get this data and they likely have it and have reasonable models.

The classic knob to influence inflation is interest rates. This can be also be modeled. Non-politicised civil servants have a good record of being able to do a reasonable job at this - only if the politics are removed. In my opinion, removing all political allegiance for civil servant agencies is probably the best way to get better long term stability and prosperity.

> Most home owners have mortgages with 3-5 year terms.

As an American, this is easily misinterpreted to mean the mortgages are expected to be paid off in 3-5 years, which would be mind-blowing if true, because it would mean that either houses are super cheap, or only the rich are buying.

IMO, adjustable-rate mortgages are almost a scam. Are there any legal protections in place to disallow a bank from deciding "In the next period, we're going to raise your rate to 20% because fuck you the CEO wants another yacht"?

Yes. Competitoon with other banks and other lenders. The market is your protection.

Just like one oil company could triple the gas price if they want. Doesn’t mean people will keep getting their gaz there however.

So you're able to change banks if the interest rate is not competitive?

Wait, so all mortgages in Canada are ARMs by another name?

3-5 year mortgage? Aren’t the monthly payments totally destructive to one’s financial health?

The renewal periods are typically 3-5 years. The standard mortgage amortization period in Canada is 25 years.

I'll be that guy. Please don't hate me.

>So "pole" and "zero" analysis is mute.

Moot.

I suppose if pole and zero analysis disagree with you, they probably aren't going to say anything.

Yup, it should have been moot.

I spotted that but thought your original worked nicely anwyay (it is silent on these things)

Thank you for taking the time to write these follow-ups. I was left with the same uneasy feeling at the end of the article, and you’ve articulated perfectly why.

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