Hacker News Reader

Comment by AYBABTME | Hacker News Reader

I just don't buy it. Everything is in limbo, house inventory is very low because no one sells their low interest mortgage. Commercial real estate is going to blow up any day. The stock market is buoyed by a few companies in AI craze. Startups are getting a lot less funding than before. Barely any IPOs in sight. Large investments are made by governments on borrowed money.

It seems to me that the only way things aren't awful, is because people are holding on for dear life and minimizing their burn rate. But the wall is coming, just very slowly.

That's just my impression, I'm not an expert. I would prefer being wrong.

View on HN

Everything is ratcheting down a notch and the 'premium consumers' are driving all of the economy right now. We don't see contraction in overall spending because when someone suddenly is too poor to afford stuff the richer people above them are also getting poorer and changing their spending habits to pick up the slack. Walmart has noticed this and called it out in their earnings reports IIRC--they see richer people are frequenting their stores and spending more money which is making up for the poorer people that can't afford to shop at even Walmart anymore.

So you have the incredibly wealthy people that have actually gained massively as they've been able to gamble on the market in the short term--they aren't changing any habits. But the folks just below them who previously might have bought his and her matching Teslas without a second thought are now looking at their slightly diminished wealth and deciding maybe we settle for just one new Chevy Volt for now. They're pulling up the slack for the former Volt buyers who are now looking at their shrinking savings and deciding, no new Volt this year we're going to get a 3 year old used car. You can follow this ratcheting down all the way to the very bottom level where unfortunately the poorest/lowest levels are just being completely written out and dropped from the economy entirely. The big picture looks like nothing is wrong but the composition of who is spending is changing a lot.

> Walmart has noticed this and called it out in their earnings reports IIRC

Is there a link to this I can read somewhere? I’d be curious to see their analysis.

https://www.businessinsider.com/walmart-retains-wealthy-cust...

How do they know the income of their shoppers? I'm very curious of the technique they use to come to this conclusion. Although I can guess of some methods they might have available.

If you swipe a card in their store, they know everything about you...

Likely by purchasing information about credit card users. They likely include income and credit score in that info along with spending habits.

They have random sampling surveys for their customers that offer gift cards and cash. Every time I check out at brick and mortar stores I'm accosted by the cashier to go online and fill out a survey on the receipt. It's how they also track if cashiers and associates are having good customer interactions.

Walmart is a big dog in the retail sector and they have a powerful marketing & research apparatus.

They're almost certainly paying for credit card, social media, and other data, and are able to correlate it.

Speaking of the rich, I found this video interesting about luxury goods right now. Patrick Boyle has some other good videos on YouTube, as well. https://www.youtube.com/watch?v=wH6pF-gXbuw

>We don't see contraction in overall spending because when someone suddenly is too poor to afford stuff the richer people above them are also getting poorer and changing their spending habits to pick up the slack.

How does this make sense? Total spend = poor spend + rich spend. Poor spend decreases. Then rich spend has to increase.

If total spend is staying the same, then some group has to be spending more if people at the bottom are dropping out.

I think what you might be trying to say is the spend at the very top is increasing, offsetting the decrease in spend for everyone below.

They explain it in the second paragraph with examples. People are shifting which bucket they're in. So the spend in a given bucket mostly isn't changing, it's a different set of people in that bucket.

It's what people mean when they refer to the "vanishing middle class".

In that case, the spend in the top bucket must come down since no one is shifting into that bucket, therefore total spend still has to come down (if the premise was true).

> > > > So you have the incredibly wealthy people that have actually gained massively as they've been able to gamble on the market in the short term--they aren't changing any habits.

Some are going up and some are going down, it's the middle that's vanishing.

No the very top bucket has not lost any money in the economic downtown, and actually they've gained significant wealth (because they can take aggressive and short risks on falling stock prices). See this: https://www.oxfam.org/en/press-releases/ten-richest-men-doub...

The very top (folks like bezos, musk, etc.) never loses and never had to change their habits. If anything their spending has increased as their wealth increased and they made deals on property, toys, art etc. being sold at cheaper prices by less rich people dropping down a class.

This time could be different of course, but there is a definite boom/bust business cycle. At least that is my impression after 50 years on this earth, and general study of history.

Generally the bust lasts 2 years, so if you can stretch it until then there is a good chance you'll make it.

Of course, that's not a guarantee. Some parts of the economy simply never recover, because their fundamentals have changed.

I too would prefer being wrong, and I have a hard time reconciling the common position during the mass layoffs that they were aware of what's coming, yet simultaneously everything is perfectly fine.

If companies were wrong, shouldn't that be a gigantic concern they got away with laying off hundreds of thousands for no reason? If they're right, then articles trying to convince us everything is fine is surely alarming!

American Big Tech companies laying off highly paid specialized tech workers doesn't say much about the rest of the economy. We already knew that most of the Big Tech companies are houses of cards built around one core profitable business like Google's Ad business.

The rest of society has no problem finding jobs. The problem is that almost no jobs pay enough to buy housing in places millennials and Gen Z consider desirable.

The top quintile makes up a disproportionate portion of total consumption, so 1 laid off high-earning worker can have more second-order effects than 1 laid off middle-quintile earner.

Maybe. Or more people in the bottom quintile earned more, and hence were able to consume more (in aggregate) to offset the few in the top quintile that are consuming less.

> The top quintile makes up a disproportionate portion of total consumption,

They also have mich bigger savings cushions on average and can go through disruptions with little change to consumption.

The problem is that finding those jobs is hard, unless you live somewhere very expensive.

I could afford a house, easily, in Rural Kentucky, but good luck getting a job around there. Remote might change that game a little, but not as much as you'd think, and there would always be a huge sword of damocles dangling over your head about job security.

This was discussed in many threads during these layoffs. Specifically, people were upset that several companies were overhiring during the pandemic being overoptimistic on shaky grounds. But in spite of layoffs most of these headcounts remained higher than before the pandemic.

My take: everybody wants to foretell the future, and people on the two extremes are the most visible. Whereas in fact the present is so-so, not terrible, not excellent.

> house inventory is very low because no one sells their low interest mortgage.

Short term yes. I would 100% delay moving to a 2 bedroom bigger house and just make do with a slightly smaller house to avoid a 25% more expensive house having a 100% higher mortgage payment.

But if interest rates stay up for 2, 3, 5 years - more and more of those want to moves will just suck it up and do it.

I would think the idea is that if the rates stay up, prices should eventually come down a bit to help bump people into moving? Is that not the idea?

The monthly payment is important one. Not the price... So either the wages have to go up or the property prices go down. Or mortages extend an other 10 or 20 years.

That is the idea yes. Over the long term everything converges to monthly payment. If someone has $1000 to spend on a house - they ultimately don't care if its a $300,000 house with a 2% APR loan, or a $200,000 house with a 10% APR loan (math made up and not exactly correct).

The problem is people are very very happy when they can make some cash off a move. People are very very sad when they are underwater. To all the people that paid $250-$275k for the house above? They are going to delay for a very long time before they sell for 200k. Likely long enough that inflation will slowly bring up the value.

People are very emotional about this and do not make wise economic decisions. For example - the finances of the time may mean that the house they are both selling and buying are 30% down. But it's a real feel bad, and losing money in a house is enough to stop many people from moving. a 30% gain where the seller both makes money on their sale AND ends up paying way more in total? It feels good and people jump on that instantly. (And the way down payments work, its generally easier for someone with limited liquid assets to to the sell + buy when the market is up 30%, vs when the market is down 30%).

How do HELOCs enter into this? I'm assuming many are now trapped into one of those that they were lured to during low rates? That is, it isn't just down payments and moves, but people that were close to owning getting trapped in monthly payments?

I think either HELOC or a very low down payment mortgage (0% down VA loan) run this risk. Say you buy a house for 300k with 0 down. After 3 years of living there, you still owe something like $280k. If the price fell to 200k.. you would need to come up with 80k to move (PLUS whatever the new down payment is). But odds are very good if you took a 0 down payment mortgage, you aren't able to easily scrap together 80k to cover it.

Makes sense. Also, I realize you can view a HELOC as basically a move into the same location. That is, whether a house has a HELOC or a new mortgage doesn't really matter, and both are likely driven by the same dynamics.

Another factor that is commonly overlooked which keeps prices from falling: the price only needs to be affordable to buyers.

When supply is very low, you only need a small group of buyers being able to afford sustained high prices. It doesn't matter if the general public can't afford a 400K home. Only buyers need to be able to afford it, and you'll always have a group that can.

in theory yes, but if you own a home with a lower mortgage rate, are you really gonna lower the price of your house, so that you can then buy another home with a higher rate? you may just stay with your lower rate

I would expect other factors to play in a little more, but I can't say they will. (Size, location, etc.)

That is, I don't think moving is usually driven just by prices. Is it? Investing largely is, but investment firms buying up neighborhoods is its own problem.

If price was never an issue, people would generally move a lot more. Move to be closer to school. Move to be closer to a new job. Obviously moving is a PITA and you have things like maybe moving further way from a family etc.. but we can see when the market is rising that quite a lot of people move.

But a lot of these moves are just improvement moves. Move to a bigger place to have more room for kids. Move to a smaller place to save on mortgage for empty nesters. Move to make your 1 hour work commute 15 minutes. People would love to make these moves, but if the money doesn't line up - it isn't going to happen. Very few of these are REQURIED moves.

For sure required moves exist. Live in a studio and have a kid or two. Get a very good job 1000 miles away. Graduate college. But these are not "most" moves.

Makes a ton of sense. My mental model is that I only consider moving for utility reasons, but I think it is undeniable that that is not the main driver there. Would be neat to see full breakdowns on these numbers, but I fully expect what you are describing.

https://www.jchs.harvard.edu/blog/who-is-moving-and-why-seve...

Has some actual numbers that are interesting. Moves slowing down as you age lined up fairly similar to my path, I think my entire life moves were at like:

21, 22, 23, 28, 30, 33, 37...

and I may not move again, or if I do I would see it as 10+ years out.

Not really.

The challenge is that higher interest rates increase the total cost of buying. Standard demand curves tell us that the quantity demanded at a higher cost is lower.

In a typical market, an increased cost is balanced by sellers increasing the quantity they sell. However since housing is almost exclusively bought with loans, and the current increase in cost is driven by interest rates payed to mortgage brokers rather than the cost of the home passed onto the seller, we don't see the same increase in supply relative to the cost of buying that we would expect in a market not driven by loan dynamics.

Tl;Dr: Higher interest rates increase costs to buyers without increasing profits for sellers, reducing the total number of units selling at a given price.

Makes sense. I was assuming the idea was that you could nudge long term prices a little bit. But I do have to consider that houses are largely bought on loans now.

I'd guess that the automobile market is similarly impacted, just has a larger buffer in the used marketplace to eat in some of the negatives?

Is there a viable path to lower costs on housing? :(

Building more houses (or condos or townhomes or apartments).

This doesn't help people that are largely trapped on low interest rates, though?

I do not understand what trapped means. More housing will reduce prices for housing, for everyone.

The hypothesis in much of the rest of this thread is that rates going up make it harder to change loans for people. Having pricing go down would similarly make it harder, as they would be taking a haircut on equity. Right?

What does “changing loans” mean? Some people might lose equity if they bought when prices were highest. But they would also be able to buy at a cheaper price. Either way, maintaining a few people's equity is not society's goal.

The only reason a loan is harder to get when interest rates increase is because the monthly payment at a given principal goes up, and so the lender needs to see more income to trust the borrower will be able to pay. If the price goes down, and hence the principal goes down, then the monthly payment goes down, so the lender needs to see less income to trust the borrower will be able to pay.

Read the rest of the branch from my opening post. I'm not necessarily claiming that as my hypothesis, but the one that seems common among the replies.

Basically, bottom line is people care about monthly payments. Interest rates going up means that the same houses have higher payments. You /could/ expect that prices going down would be enough to keep people happy to move. That is indeed what I was asking at the open.

However, stock going down means existing values goes down, which is just another form of trap for people. Specific trap being that many moves are leveraged on older equity, but to get out of the old loans will now require more cash.

This is largely because older equity was also under a leveraged loan. In markets that are not so heavily loan driven, the existing assets are straight forward to manage and convert into down payments on new properties. Housing is specifically not that.

If I'm misrepresenting that, please correct me.

Only a very small portion of people who bought at the peak would be “trapped” - i.e. underwater on their loans such that they would have to pay to sell the house.

The vast, vast majority would be more mobile since homes are cheaper, and the cheaper something is, the less money you need to buy it.

The government gave a gift to many people in the last 20 years of keeping interest rates near zero and pulling forward all that price appreciation. Unfortunately, the future generation might not want to expect the same treatment.

This feels like a corollary hypothesis? I'd love to see details, but from all the numbers I've seen, a majority of people have their equity largely converted into leveraged debt. It is more than a little terrifying, honestly.

This is anecdotal, but a lot of my peers who graduated around 2009 are living way below their means because they know it's realistic to be hit by a major stock market drop along with losing their job, which might not be recovered for months, if not years. So it truly could be a "delayed" effect where a lot of the upper middle class can ride it out 6 months - 2 years, but then it really hits.

Not to forget the rating downgrade for USA loans...

I don't think we have seen much yet, whatever the bulls say. It might take time to come, but I think we will see something pretty big eventually.

This is the worst of it. My partner and I want to buy our first house but the market feels perpetually in limbo and it feels like there's no clarification or end of the tunnel in sight.

It feels like horrible timing, but then again they also say you can't time the market so maybe we just buy now.

Millennials are getting nonstop shit on, ugh

Reply on news.ycombinator.com