[antzcrashing]

Originally Posted by Chick Webb

Not directly, of course; the Fed's not out building houses or apartments. But driving up the cost of capital by raising rates has already begun to affect the market and prices. It's a blunt instrument, but it does work.

Mortgage interest rates have more than doubled in a year. That is a big shock and it's put a halt to the bidding wars and %5-over-asking offers we were seeing just last fall. Prices have started to drop a little, but it will be a while before that merd really hits the fan. That'll happen when people have to sell b/c they are moving to take a new job, or they can't afford the mortgage b/c they lost one, or some other circumstance that makes them desperate to sell. The pool of potential buyers at last year's price has shrunk dramatically, so prices will have to come down to the buyer's ability to pay.

Plus, the fed is taking $90 Billion a month out of the economy now (called Quantitative Tightening or QT). That is going to further tighten credit availabilty for everyone. Builders need loans to buy land, materials, pay laborers, etc., in order to build new homes. Even municipalities will be affected, as they typically issue bonds for improvements such as the new roads, sewers, schools, etc., that are needed for new housing development. All will be paying more to borrow, and will likely borrow less, which will slow the economy and reduce demand in a broad context.

Frankly it's the QT that worries me more than the interest rates. That has a tendency to cause these "Lehman moments", when hidden credit risks and complex cross-party leveraged positions suddenly become untenable and major portions of the economy threaten to cease functioning, literally overnight, without intervention from a Central Bank. That's what happened in the UK, and something like it could certainly happen here. It's why I'm not 100% in cash. If the Fed really breaks something and has to turn around and start pumping liquidity into the economy again, the markets are going to rally big in moments, and I don't want to miss it. Well, not all of it, anyway.

Surprised that you say you are holding some equities in case fed has to pivot. I've hear this thinking recently, but if we are in a recession and that causes the pivot, shouldn't you have real pause? Couldn't worse times be ahead from that point, despite rates having to retreat?