Submitted by Taps Coogan on the 4th of October 2018 to The Sounding Line.
Wolf Richter, creator of the website Wolfstreet.com, recently gave a wide ranging interview in which he discusses the impact of rising tariffs and warns about the risks of rising mortgage rates on housing markets in the US and Canada.
Wolf Richter on rising tariffs:
“Tariffs are on… profit margin… They are not a tax on consumers because companies already charge the maximum prices in the United States that they can get away with. Prices are determined by market forces. They are not determined by cost and market forces are such that if GM wanted to slap a $5,000 price on a vehicle that is (tariffed) that it imports from Mexico, consumers would just laugh. GM already can’t sell its cars without big rebates. They are charging the maximum amount they can in order to produce the sales that they want. So those tariffs can’t be passed on the consumers, largely. They will be eaten by companies that got a huge tax cut already. So now they are getting a little bit of a tax increase and they should just stop squealing as far as I am concerned…”
On the housing markets in the US and Canada:
“In terms of housing in the United States and Canada, there are some big differences. In both countries we have cities with major housing bubbles… The housing bubbles in Canada are probably more significant than they are in some of the cities in the United States… In the United States the standard mortgage is a 30-year fixed rate. So when you buy a home today.., your interest rate does not change for the next (30) years, even though interest rates might be higher, right now the average is about 5% already, you will never have to worry about that interest rate rising (with a fixed rate mortgage). So you can budget for that… This protects consumers somewhat. In Canada, you have adjustable rate mortgages and variable rate mortgages that dominate. So many mortgages adjust almost instantly to rate increases and then there are other mortgages where you have a fixed rate for five years and then they adjust. So higher interest rates impact existing home owners in Canada. They don’t really impact existing home owners in the United States. So new home owners in the United States have to deal with higher rates… So they have to look for cheaper homes or they are locked out the market entirely… Now in Canada the problem is with existing home owners. You have to keep in mind that when we went through our mortgage crisis here (in the US), a big part of the problem were home owners with adjustable rate mortgages. When mortgages reset to higher rates they couldn’t afford those payments… These adjustable rates mortgages, in an environment of rising interest rates are deadly and they are deadly for existing home owners… This is something that Canadian home owners will have to struggle with.”
There is much much more so enjoy the interview above.
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