Low interest rates/buying stuff: When will it end??

[Joe Schmo]

So I know that it’s a tale as old as time...people finance vehicle, make payments, trade in vehicle, make payments and so on.
I’ve got 3 neighbors (couples) who between em have had 12 brand new cars bought in the last 3 years. I’m not jealous, I’m utterly amazed.
I recently started kinda shopping for another boat to replace my boat at some point. Come to find out that 20 year old boats are worth 25% MORE than what was paid for em!! Again, seems crazy to me. I can only assume it’s because folks are so ready to finance a 80-90k new boat that it’s driven the price of used boats up as well.
Again, I know that this would be considered “normal” as Dave Ramsey would say. However it seems more and more extreme to me.
My question is...what/when is the endgame?? Market crash? Unemployment way up? Economy way down? None of those things made a difference.
Maybe the answer is easy and that is that people will just end up working until their 85 and telling folks that they bought a new ______ because they can afford the payment.
What are your thoughts?

[ender]

New inventory on many manufactured items (boats, cars, etc) is low.

Same with many used items of the same type. Drive around car dealerships - all the ones near us look eerily empty compared to pre-covid times.

[norajean]

This is a great time to sell or trade down on your boat, house, car, etc as inventory is low and demand high. We traded down on an SUV last year and pocketed about $8000.

[Mr. Green]

COVID has caused supply chain problems and upset the supply/demand balance in industries across the board.

Theoretically, there is no endgame as long as people continue believing that the system is sustainable. Interest rates can go negative, debt balances can continue piling up, etc. Economists can come up with creative ways to tweak the system to keep the train rolling without any major systemic changes.

[maizefolk]

Low interest rates.
For folks who haven't lost their jobs, lower expenses (less commuting and eating out).
Stimulus checks that are doing what stimulus checks are supposed to do (making people feel like they have more money so they'll spend more).
The "wealth effect" of a rising stock market. People who are invested in the market feel like they have more money just from looking at their brokerage statements, which tends to make them more open to spending more even without selling any stocks.
Reduced production of lots of goods due to modified working conditions to slow the spread of COVID and supply chain disruptions (a lot of car markers are waiting for electronic chips which are backordered).
Reduced retail availability of lots of goods due to supply chain/transportation bottlenecks.*

As to where does it end? My guess is significant inflation. Not necessarily hyperinflation mind you, just a lot more inflation than we've seen in the last forty years or so. A few years of 5-10% inflation and a lot of the existing fixed interest rate car payments and boat payments may end up a lot more manageable again for the people who manage to A) keep their jobs and B) do work essential enough they'll be able to get raises that at least match the increase in cost of living.

*Our freight trains are all running at maxed out capacity, there are big backlogs of ships waiting to offload cargo outside of US ports, which has the double whammy effect of slowing deliveries, and reducing total annual shipping capacity since every day a ship is waiting to unload is a day it is not sailing back and forth between Asia and North America.

[Michael in ABQ]

I'm sure hoping to take advantage of low interest rates to borrow money to buy a business. Zero debt right now and since we don't plan on buying depreciating assets or jumping into the overheated local real estate market, this is one of the few ways to take advantage of all this cheap money. The alternative is to see our investments and savings get inflated away.

[bmjohnson35]

I have a friend who is in his late 70's, who buys the same model car every 5 yrs.  As soon as he is about to pay one off, he buys the new version of the same model.  Considering the low mileage and excellent condition of the vehicle and the high cost of buying new every 5 yrs, I asked him why he does this.  He said that he simply likes having a new car every 5 yrs.  Keep in mind that he still has to work to finance his "lifestyle."  This seems crazy to me, but it's his life and who am I to judge his life choices?

As for the economy, I suspect we will experience another big market correction before mid 2021. The fed has been printing money, handing out baliouts, forcing interest rates down to historic lows and generally keeping the machine running along, but it seems unlikely they will be able to keep it going indefinitely. As the effects of Covid continue and covid related reliefs suspend, the inevitable consequences will play out.  Unemployment numbers will rise. We will see auto and home loan defaults start piling up. Zombie businesses will fail and many of the small businesses who have been struggling will have to give it up.  The real estate market will stall and start to correct.  Real estate doesn't drop like the stock market, so it will likely take years to bottom out.  Inflation will creep in and recovery will take much longer than recent corrections.  I don't think we will see a total collapse or rioting in the streets, but I do think we will have a longer term recession coming our way. 

Since I have been unable to predict the future in the past and I may or may not be correct this time around, I don't intend to change my investment allocations.  There has been no shortage of "experts" on Youtube predicting the next big recession/depression for the past 4-5 yrs. Regardless of what is in our near future, I doubt you will see much difference in the social norms of excessive borrowing and spending.

[use2betrix]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

[ender]

We bought a new car end of last year and financed it.

Because... 2.49% for 75 months? why not? It's cheaper than our mortgage!

We could write a check and pay it off now if we wanted.

[Bloop Bloop Reloaded]

I do hope interest rates go up soon, to better reward savers and those that are prudent with money. If it keeps inflation nice and low that'd be a bonus. If it means that a few businesses go under because they're not constantly being fed free consumer money then I can live with that. It would be nice also to see the overvalued share market and property market tank a little too - I feel both property and shares are overpriced, and while I'm a part-beneficiary of it, I'd really rather have cheaper assets, all things considered, as most of my purchasing power is still to come.

[American GenX]

We bought a new car end of last year and financed it.

Because... 2.49% for 75 months? why not? It's cheaper than our mortgage!

We could write a check and pay it off now if we wanted.

That's a poor rationale for buying a new car.  And just because you "can afford it" isn't, either.

[American GenX]

I do hope interest rates go up soon, to better reward savers and those that are prudent with money. If it keeps inflation nice and low that'd be a bonus.

I would like to see that, as my CD renewals are ridiculously low, and for low inflation, I mean truly low inflation for me, which is has been much higher in terms of real cost of things for me rather than the government inflation figures, which are much lower.

[Bloop Bloop Reloaded]

Would love to see deflation tbqh.

[Paper Chaser]

I'd bet that most of the "new car every 3 years" people are leasing. Not that that's a better financial choice, but it's hard to get off that treadmill.

[Sibley]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

Possible, but unlikely. And you listed 3 items - not 10+. Big difference.

[Cranky]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

[Joe Schmo]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

Look at you!! I’m dang proud of you, dang proud!!
Maybe I know because I talk to my neighbors and we help each other out with stuff. Maybe your neighbors are just too intimidated by your 2020 Corolla to talk to you...LOL!!
T’was more about the general buying and financing of big ticket items and the end of it all, or not as the case may be.

[Bloop Bloop Reloaded]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

When people are afraid there are good buying opportunities.

[Cranky]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

When people are afraid there are good buying opportunities.

Well. At least you’re honest.

[use2betrix]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

Look at you!! I’m dang proud of you, dang proud!!
Maybe I know because I talk to my neighbors and we help each other out with stuff. Maybe your neighbors are just too intimidated by your 2020 Corolla to talk to you...LOL!!
T’was more about the general buying and financing of big ticket items and the end of it all, or not as the case may be.

It’s pretty uncommon to know the exact income, net worth, and whether or not each neighbor financed their big ticket items.

If you have that kind of relationship with your neighbors, that’s awesome. I have verrrrry few close friends and family (about what I’d count on one hand) that know that information about me. My situation of “not sharing” seems pretty common around here.

Out of curiosity, what are a couple of their situations? What is their joint income, net worth, and monthly payments on their vehicles/homes? Interested to know how bad their situations actually are.

[use2betrix]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

Possible, but unlikely. And you listed 3 items - not 10+. Big difference.

The OP mentioned 12 cars between 3 couples in the last 3 years. That averages to 4 new vehicles per couple over a 3 year period.. We have 3..

Maybe I misinterpreted something, but 10 financed large ticket items (cars, boats, etc) seems very unusual even for those that are financed up to their ears..

[MayDay]

I work in manufacturing (not of cars) and supply chains are a hot mess. And that's as of last week.

Now add to it that all of the gulf coast is frozen and we are so fucked. Anything with plastic in it (aka everything) is going to be affected by this weather.

You think it's bad now? It's gonna get worse.

[norajean]

Gulf Coast will bounce back in a few days.

[Dicey]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

When people are afraid there are good buying opportunities.

Well. At least you’re honest.

Wait - What? This is Warren Buffet 101. What's honesty got to do with it? How is buying anything on a sale you did not force dishonest?

To the OP's question: Who gives a shit what these people are doing? Except for the fact that Serial Upgraders present occasional great buying opportunities for mustachians, why give this topic any thought at all? Ignoring that noise is the most frugal thing ever and it's so, so easy, especially with practice. I recommend starting now.

[Cranky]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

When people are afraid there are good buying opportunities.

Well. At least you’re honest.

Wait - What? This is Warren Buffet 101. What's honesty got to do with it? How is buying anything on a sale you did not force dishonest?

To the OP's question: Who gives a shit what these people are doing? Except for the fact that Serial Upgraders present occasional great buying opportunities for mustachians, why give this topic any thought at all? Ignoring that noise is the most frugal thing ever and it's so, so easy, especially with practice. I recommend starting now.

I think that hoping for an economic meltdown so that you can pick up bargains is a bit morally/ethically problematic but I suppose people often do just that. People do make profits on all kinds of terrible situations after all.

I actually had a very pleasant 2020, but I try to keep in mind that a lot of people really suffered, for instance.

Deflation is usually a very bad economic sign.

[maizefolk]

I think there is a big difference between buying stocks when they are "on sale" during an economic crisis, and hoping for a an economic crisis (people losing their jobs, children losing their homes, crime and suicide increasing) in order to be able to buy stocks on sale.

For context, the last time we experienced any significant deflation in the USA was during the great depression. Was certainly a good time to be an investor if you retained a stable income through the depression. But is not something I personally would be comfortable hoping for our country or our world to experience again.


And that doesn't even begin to go into the increased risk of violent revolution deflation brings about. Photo of the "bonus army" protesting outside the nation's capital in 1932 in the depth of the depression. Protests were finally put down when the president sent in the army, supported by WWI era tanks, to burn the protestors out.

[Dicey]

Would love to see deflation tbqh.

Why? That’s usually a scary sign.

When people are afraid there are good buying opportunities.

Well. At least you’re honest.

Wait - What? This is Warren Buffet 101. What's honesty got to do with it? How is buying anything on a sale you did not force dishonest?

To the OP's question: Who gives a shit what these people are doing? Except for the fact that Serial Upgraders present occasional great buying opportunities for mustachians, why give this topic any thought at all? Ignoring that noise is the most frugal thing ever and it's so, so easy, especially with practice. I recommend starting now.

I think that hoping for an economic meltdown so that you can pick up bargains is a bit morally/ethically problematic but I suppose people often do just that. People do make profits on all kinds of terrible situations after all.

I actually had a very pleasant 2020, but I try to keep in mind that a lot of people really suffered, for instance.

Deflation is usually a very bad economic sign.

I was responding to the exact phrasing, "When people are afraid". Many times "people" are "afraid" for nonexistent or even nonsensical reasons. See also: "scary sign" phrase comment. I don't see this as an "honesty" issue either.

And there have been countless "dip" opportunities since the Great Depression. No one is asking for a repeat of that extreme or to wish bad luck on anyone. Being alert, aware, and prepared for the opportunities life presents is NOT dishonest.

FFS, what does "Buy low, sell high" even mean? <---Rhetorical question.

[maizefolk]

And there have been countless "dip" opportunities since the Great Depression. No one is asking for a repeat of that extreme or to wish bad luck on anyone. Being alert, aware, and prepared for the opportunities life presents is NOT dishonest.

There have been plenty of dips, but no other more recent cases of deflation.

"Would love to see deflation" <-- it's hard to read this as anything else.

Edit: Dicey, it sounds to me like you're focusing on the second reply about there being plenty of buying opportunities when people are afraid and think people are saying there is something wrong with that. I certainly don't, and I don't think Cranky does either. So I think the three of us are in agreement there.

It's the first comment about wanting to see for deflation and all that would imply as a way to create those buying opportunities that I personally find ... morally uncomfortable.

[bmjohnson35]

I suspect a large correction is coming in the market within the next 4 months or so, but who really knows.  I think the market is due for a proper correction.  Although I don't want to see a large crash, I would like to see interest rates improve on cash reserves and I would also like to see the real estate market experience a proper correction.  Real estate has risen at record highs for years now and prices are out of control when compared against the local income averages. 

[Bloop Bloop Reloaded]

I think deflation would be the natural state of affairs if all this stimulus money weren't handed out, and I'm not a fan of stimulus money, particularly as a young person trying to get into the market which is being stubbornly floated by free money being paid to nearly everyone in society (but not me).

[calimom]

How do you know they are all financing them? How do you know that they aren’t secretly FI or very close to it? Even if they are financing, they may prefer to invest their money vs putting it down on a vehicle when they can get a low interest loan.

My wife and I have a 2020 Corolla (paid off), an offroad camping trailer worth around $40k (paid off), and a 2020 F250 w/ the 6.7 that was $75k, plus about $10k in after market parts (owe $35k).

We have no other debt. I’m 32, wife is 27, we have $900k in savings/investments and I’ll make around $350k this year.. Yet based on my career, most people would likely think I make around $150k. My wife has worked maybe 6 months out of our 9 years together.

Unless you honestly know the financial situation of each one of your neighbors, I wouldn’t look at their new vehicles and assume they must be hurting and they’re gonna be working til their 85...

Possible, but unlikely. And you listed 3 items - not 10+. Big difference.

The OP mentioned 12 cars between 3 couples in the last 3 years. That averages to 4 new vehicles per couple over a 3 year period.. We have 3..

Maybe I misinterpreted something, but 10 financed large ticket items (cars, boats, etc) seems very unusual even for those that are financed up to their ears..

My work neighbor overshares all kinds of crazy things with me. A few years ago she "bought" her husband a Jeep Rubicon for his birthday. With many, many monthly payments. He commutes almost 100 miles each way for work. Then, feeling left out, she had him "buy" a red Mercedes for her birthday. Whatever someone might  imagine the life of   a Mercedes owner to be - doctor, sociialite, successful entrepreneur  - that is not her. They also have a leased van for her business, a GMC of some sort.

Recently, the Rubicon was paid off. So the Jeep dealer has "invited" them to order a new one of their choosing and start a new payment cycle, turning the old one in. I'm sure the Mercedes will be next, and who knows what about the  van that doesn't seem to get much use.  I fully agree that this is their zoo and their monkeys and Mercedes but it all seems insane.

[chemistk]

I've more or less stopped holding my breath for anything significant happening. For how long have the drums of a recession/burst bubble/deflation been beat now? I lost count but it's going on years. Many love to be a prognosticator of the next economic collapse, and those who do are often the ones who stand to gain the most from it.

I as an individual have no control over the behavior of anyone more than my own household - we can (and plan to) weather the next event with little harm, something we are very fortunate and privileged to be able to do. No sense in worrying about what those around us are doing.

[Michael in ABQ]

I've more or less stopped holding my breath for anything significant happening. For how long have the drums of a recession/burst bubble/deflation been beat now? I lost count but it's going on years. Many love to be a prognosticator of the next economic collapse, and those who do are often the ones who stand to gain the most from it.

I as an individual have no control over the behavior of anyone more than my own household - we can (and plan to) weather the next event with little harm, something we are very fortunate and privileged to be able to do. No sense in worrying about what those around us are doing.

Yep. The market goes up, the market goes down. Just keep investing for the long run and ignore the daily noise. All that really matters in the long run is if you decide to take a big chunk of money out when the market is down. If that's the case, there's simple ways to mitigate that like deciding to work another year or two, or switching your asset allocation to something less aggressive than 100% stocks as you approach that time.