[quote=EconProf]Your basic thesis is that all the money creation and monetary stimulus of QE2 will lead to inflation in most everything, so that by borrowing now at artificially low (temporarily) interest rates you will reap long term profits by paying back with cheaper dollars and have a highly appreciated real estate asset.
I’ve been saying the same thing for years. And I’ve been wrong. But like you, I have hope that some day I’ll be proven right. After all, a broken clock is right twice a day. I also own a lot of real estate assets that would benefit from such a scenario.
Why might you and I be wrong in the future? The inflation we have had in commodities and other assets has not spread to real estate (except Midwest farmland). Past inflationary periods have been fueled by jumps in aggregate demand. The fiscal and monetary stimulus has not fueled a broader economic recovery because the first two components of aggregate demand, consumption and investment (remember GNP = C + I + G) remain weak, and look to continue weak. If 9.6% unemployment is the New Normal, and the housing inventory remains bloated, and housing speculation remains dead, then how will your investment go up in value? In fact the fiscal and monetary stimulus has scared the crap out of consumers and investors, which normally make up about three-fourths of aggregate demand. Both sectors leveraged to the hilt during the bubble, and likely have much more deleveraging to do. A final straw may be rising interest rates that typically accompany rising inflation, thus clobbering real estate demand.
In short, I hope you are right, but selfishly fear you are wrong.[/quote]
Agree. Which is why the property purchased must be one. for which there is adequate demand. One thing we know for sure is this crisis has been highly redistributive of wealth to the top. In other words the q of money possessed by the wealthy will inflate the value of top shelf properties. I do not agree that my thesis holds true for eg. Small condos in less desireable areas. For those, I think the value will not keep up with inflation bc the wealth / Inc. Of those who purchase this property type will not keep up with inflation.
In addition, I think you missed my premise that I am not so concerned with the value of the property and whether it appreciates or not. I am more concerned with the value of the money with which I pay it back. I am equally concerned with ensuring that my cost of housing decreases over time.
And I think this thread has gone back to what many other posts on here discuss: the relationship b/w house prices and real estate. I’m talking about something different, that is the relationship between a real asset like a home and the rapidly-losing-credibility paper money that we exchange for it.
