socratt, it’s a just a bet, you look at the odds and you place one. These boards are filled with excellent advice about placing your housing bet in such a way that can increase your odds of winning. But make no mistake, not this year, next year, or a hundred years from now will the risk be eliminated. My theory was just a way to compare towns to their own historical numbers and to give a framework of when you have minimized the risk enough to feel comfortable placing a bet. Buying a house for the value of the materials is one way of minimizing risk, buying one that does not need to appreciate because it is rent neutral is another. But if it gets rent neutral, don’t get worried than rents will go down by some huge percentage, that’s just not a historically significant scenario, thus a risky bet.
Let’s handicap scardeycat’s notion of hyper deflation, of rents at 1/10th of today and of the dollar buying you more as we move forward. All of it can happen but here’s why I say it’s a longshot akin to winning the lottery.
Our currency and the currency of many countries is not backed. No country has had prolonged hyperdeflation. When a society or a currency collapses, there is usually hyperinflation as more money is added to the supply by the printing press (like right now). When times are good, there is inflation, when times are bad there is inflation or stagflation. But when things go to hell, hyperinflation is far more likely than in any other time. Deflation is usually short lived and follows or is followed by inflation. But in the long run, over the decades, there is inflation. Now I’m basing this on a few hundred years of a few hundred cultures, there may be one or two instances of hyperdeflation but I’ve never read about them. I’m not talking a few percent deflation but deflation on the order of 2x to 10x. Deflation that would become an actual factor. Do not confuse this with a particular bubble deflating.
This is not to say it can’t happen, it’s just that there are many more countries than just our own, most with longer histories and if it has never happened before, it’s not a safe bet. I like dinosaurs, I wish they would make a comeback and roam the land again, it could happen but I’m not betting my money on it.
