Buying with monopoly money

[lifeizfunhuh]

Ok all, here is my first post. I’ve been firmly in the camp of “don’t buy, more to come” for the past several years as others around me take the plunge. However, I just went into escrow last week on an incredible property that my wife and I came upon by accident.

Now to establish my bona-fides, just let me say I’m a finance geek.I’m a class action attorney that sues banks and other financial firms for screwing over the little guys.

Here’s my reasoning: I’m not the only one who thinks that serious inflation is coming, and in situations of high inflation, real assets appreciate. My hope is that I can leverage my 30 yr. 4.5% fixed to pay back my loan with monopoly money and wind up with a virtually free house.

What do we all think the end game is with QE? My thought is that the “official” plan is to inflate away all this debt that is being created. That is the only way out. Its either inflation or default. Inflation is of course an implicit default, but that’s the problem of the Chinese and everybody else who is buying our debt.

We’ve all heard the story that the banks are hoarding money the get from the government and not lending. But why? My birdies tell me they are buying up REAL assets with the virtually free money they get at the Fed discount window. In my opinion, low fixed interest rates on free money is the best investment game in town, unless you have access to the discount window. I don’t.

So leverage up people… this still is a no-recourse state and if you can happen to find a decent house that you can get for 10% or 3.5%, get yourself some of that cheap money and buy something that will get more valuable with inflation. I can virtually guarantee that we will see numbers higher than the 5% rate you’ll get on your loan.

There are alternative hard (i.e., REAL) assets you can buy, like commodities, classic cars, art, etc. but you can’t buy those with “other people’s money”.

As I heard someone say, “I don’t care IF the market is rigged, just so long as I know HOW the market is rigged so I can play along at home.”

What say you PIGGS?

[Diego Mamani]

I agree with your assessment. I almost bought a house last October… I wanted to offer 6.4% below asking price, but the listing agent essentially yelled at me and said that was too low, so I never wrote an offer. I should have written one, haggled and maybe split the difference, but I didn’t, so I’m still renting as I’ve had since I sold my house in the summer of 2005.

Anyways, I think that mortgage rates hit bottom in October:
http://www.freddiemac.com/pmms/pmms30.htm

People are slowly catching up with what you wrote, which explains the fact that nominal mortgage interest rates will continue to go up, regardless of how much money the Fed prints. 30-yr fixed rates today have an APR of slightly over 5.0%. Not as low as two months ago, but may still be a steal.

[Diego Mamani]

I agree with your assessment. I almost bought a house last October… I wanted to offer 6.4% below asking price, but the listing agent essentially yelled at me and said that was too low, so I never wrote an offer. I should have written one, haggled and maybe split the difference, but I didn’t, so I’m still renting as I’ve had since I sold my house in the summer of 2005.

Anyways, I think that mortgage rates hit bottom in October:
http://www.freddiemac.com/pmms/pmms30.htm

People are slowly catching up with what you wrote, which explains the fact that nominal mortgage interest rates will continue to go up, regardless of how much money the Fed prints. 30-yr fixed rates today have an APR of slightly over 5.0%. Not as low as two months ago, but may still be a steal.

[Diego Mamani]

I agree with your assessment. I almost bought a house last October… I wanted to offer 6.4% below asking price, but the listing agent essentially yelled at me and said that was too low, so I never wrote an offer. I should have written one, haggled and maybe split the difference, but I didn’t, so I’m still renting as I’ve had since I sold my house in the summer of 2005.

Anyways, I think that mortgage rates hit bottom in October:
http://www.freddiemac.com/pmms/pmms30.htm

People are slowly catching up with what you wrote, which explains the fact that nominal mortgage interest rates will continue to go up, regardless of how much money the Fed prints. 30-yr fixed rates today have an APR of slightly over 5.0%. Not as low as two months ago, but may still be a steal.

[Diego Mamani]

I agree with your assessment. I almost bought a house last October… I wanted to offer 6.4% below asking price, but the listing agent essentially yelled at me and said that was too low, so I never wrote an offer. I should have written one, haggled and maybe split the difference, but I didn’t, so I’m still renting as I’ve had since I sold my house in the summer of 2005.

Anyways, I think that mortgage rates hit bottom in October:
http://www.freddiemac.com/pmms/pmms30.htm

People are slowly catching up with what you wrote, which explains the fact that nominal mortgage interest rates will continue to go up, regardless of how much money the Fed prints. 30-yr fixed rates today have an APR of slightly over 5.0%. Not as low as two months ago, but may still be a steal.

[Diego Mamani]

I agree with your assessment. I almost bought a house last October… I wanted to offer 6.4% below asking price, but the listing agent essentially yelled at me and said that was too low, so I never wrote an offer. I should have written one, haggled and maybe split the difference, but I didn’t, so I’m still renting as I’ve had since I sold my house in the summer of 2005.

Anyways, I think that mortgage rates hit bottom in October:
http://www.freddiemac.com/pmms/pmms30.htm

People are slowly catching up with what you wrote, which explains the fact that nominal mortgage interest rates will continue to go up, regardless of how much money the Fed prints. 30-yr fixed rates today have an APR of slightly over 5.0%. Not as low as two months ago, but may still be a steal.

[zzz]

Hmmm, a little fuzzy on who it was, but I think it was Roubini that wrote about this predicament, and there was a policy piece where the IMF put together a piece that a global power was going to need to leverage up on debt to fuel global growth as well as its own, and the way to get out of the debt was to take down their currency, all the while inflating their way out of it. I wish I could remember where I read this piece, but your thoughts have been debated by world class economists and I dont’ disagree.

Someone help me out here on the IMF piece….

[SD Realtor]

I also think that your ideas have merit. I don’t think anyone disagrees about upcoming inflation and much higher interest rates. I think the biggest question is how long they can keep the charade going. I believe the can keep it going for quite awhile and an external catalyst will be the event that cracks it open.

The question is will it be a year, 2 years, 5 years? Hard to say.

Given the rates of return on any investment and the potential for rampant rates, it is very hard to argue with logic that says you can have a tangible asset using borrowed money at a rate that will be phenomally low compared to rates in the future.

The depreciation question should not be ignored though. How much will property depreciate AT current interest rate levels. Then how much further will it depreciate when the rates skyrocket? Tough call isnt it? If rates go as high as I think they will, then I think your logic is correct.

Prediction, look for more federal intervention into the housing market this year in the form of stimulus.

[scaredyclassic]

Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.

[jpinpb]

[quote=walterwhite]Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.[/quote]

Funny how as soon as someone buys, they start singing a different tune.

In line w/EconProf, I wonder what will happen when rates rise and the monthly payments will be more on a house. Will it really drive prices of homes higher? That doesn’t make sense to me, particularly in these precarious economic times w/unemployment at an uncomfortable rate.

[scaredyclassic]

Hey the prison incarceration rate increases and they don’t buy houses. Not sure what I mean by that but maybe a oermanfnt class of unemployed people like a permanent class of prisoners doesn’t really matter as to housing prices.

I was singing the tune differently in a self mocking way

[scaredyclassic]

Hey the prison incarceration rate increases and they don’t buy houses. Not sure what I mean by that but maybe a oermanfnt class of unemployed people like a permanent class of prisoners doesn’t really matter as to housing prices.

I was singing the tune differently in a self mocking way

[scaredyclassic]

Hey the prison incarceration rate increases and they don’t buy houses. Not sure what I mean by that but maybe a oermanfnt class of unemployed people like a permanent class of prisoners doesn’t really matter as to housing prices.

I was singing the tune differently in a self mocking way

[scaredyclassic]

Hey the prison incarceration rate increases and they don’t buy houses. Not sure what I mean by that but maybe a oermanfnt class of unemployed people like a permanent class of prisoners doesn’t really matter as to housing prices.

I was singing the tune differently in a self mocking way

[scaredyclassic]

Hey the prison incarceration rate increases and they don’t buy houses. Not sure what I mean by that but maybe a oermanfnt class of unemployed people like a permanent class of prisoners doesn’t really matter as to housing prices.

I was singing the tune differently in a self mocking way

[jpinpb]

[quote=walterwhite]Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.[/quote]

Funny how as soon as someone buys, they start singing a different tune.

In line w/EconProf, I wonder what will happen when rates rise and the monthly payments will be more on a house. Will it really drive prices of homes higher? That doesn’t make sense to me, particularly in these precarious economic times w/unemployment at an uncomfortable rate.

[jpinpb]

[quote=walterwhite]Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.[/quote]

Funny how as soon as someone buys, they start singing a different tune.

In line w/EconProf, I wonder what will happen when rates rise and the monthly payments will be more on a house. Will it really drive prices of homes higher? That doesn’t make sense to me, particularly in these precarious economic times w/unemployment at an uncomfortable rate.

[jpinpb]

[quote=walterwhite]Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.[/quote]

Funny how as soon as someone buys, they start singing a different tune.

In line w/EconProf, I wonder what will happen when rates rise and the monthly payments will be more on a house. Will it really drive prices of homes higher? That doesn’t make sense to me, particularly in these precarious economic times w/unemployment at an uncomfortable rate.

[jpinpb]

[quote=walterwhite]Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.[/quote]

Funny how as soon as someone buys, they start singing a different tune.

In line w/EconProf, I wonder what will happen when rates rise and the monthly payments will be more on a house. Will it really drive prices of homes higher? That doesn’t make sense to me, particularly in these precarious economic times w/unemployment at an uncomfortable rate.

[scaredyclassic]

Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.

[scaredyclassic]

Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.

[scaredyclassic]

Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.

[scaredyclassic]

Grow or die , or if you can’t grow inflate or die. Perhaps what’s amazing is that there actually was a crash at all. What if we were wrong what if the govt had got out so far and so fast in front of price declines that they just never allowed prices to fall. Could that have happened? I am now 100 perecent in favor of any stimulus no matter how arbitrary or imbalances to keep up housing prices.

[SD Realtor]

I also think that your ideas have merit. I don’t think anyone disagrees about upcoming inflation and much higher interest rates. I think the biggest question is how long they can keep the charade going. I believe the can keep it going for quite awhile and an external catalyst will be the event that cracks it open.

The question is will it be a year, 2 years, 5 years? Hard to say.

Given the rates of return on any investment and the potential for rampant rates, it is very hard to argue with logic that says you can have a tangible asset using borrowed money at a rate that will be phenomally low compared to rates in the future.

The depreciation question should not be ignored though. How much will property depreciate AT current interest rate levels. Then how much further will it depreciate when the rates skyrocket? Tough call isnt it? If rates go as high as I think they will, then I think your logic is correct.

Prediction, look for more federal intervention into the housing market this year in the form of stimulus.

[SD Realtor]

I also think that your ideas have merit. I don’t think anyone disagrees about upcoming inflation and much higher interest rates. I think the biggest question is how long they can keep the charade going. I believe the can keep it going for quite awhile and an external catalyst will be the event that cracks it open.

The question is will it be a year, 2 years, 5 years? Hard to say.

Given the rates of return on any investment and the potential for rampant rates, it is very hard to argue with logic that says you can have a tangible asset using borrowed money at a rate that will be phenomally low compared to rates in the future.

The depreciation question should not be ignored though. How much will property depreciate AT current interest rate levels. Then how much further will it depreciate when the rates skyrocket? Tough call isnt it? If rates go as high as I think they will, then I think your logic is correct.

Prediction, look for more federal intervention into the housing market this year in the form of stimulus.

[SD Realtor]

I also think that your ideas have merit. I don’t think anyone disagrees about upcoming inflation and much higher interest rates. I think the biggest question is how long they can keep the charade going. I believe the can keep it going for quite awhile and an external catalyst will be the event that cracks it open.

The question is will it be a year, 2 years, 5 years? Hard to say.

Given the rates of return on any investment and the potential for rampant rates, it is very hard to argue with logic that says you can have a tangible asset using borrowed money at a rate that will be phenomally low compared to rates in the future.

The depreciation question should not be ignored though. How much will property depreciate AT current interest rate levels. Then how much further will it depreciate when the rates skyrocket? Tough call isnt it? If rates go as high as I think they will, then I think your logic is correct.

Prediction, look for more federal intervention into the housing market this year in the form of stimulus.

[SD Realtor]

I also think that your ideas have merit. I don’t think anyone disagrees about upcoming inflation and much higher interest rates. I think the biggest question is how long they can keep the charade going. I believe the can keep it going for quite awhile and an external catalyst will be the event that cracks it open.

The question is will it be a year, 2 years, 5 years? Hard to say.

Given the rates of return on any investment and the potential for rampant rates, it is very hard to argue with logic that says you can have a tangible asset using borrowed money at a rate that will be phenomally low compared to rates in the future.

The depreciation question should not be ignored though. How much will property depreciate AT current interest rate levels. Then how much further will it depreciate when the rates skyrocket? Tough call isnt it? If rates go as high as I think they will, then I think your logic is correct.

Prediction, look for more federal intervention into the housing market this year in the form of stimulus.

[zzz]

Hmmm, a little fuzzy on who it was, but I think it was Roubini that wrote about this predicament, and there was a policy piece where the IMF put together a piece that a global power was going to need to leverage up on debt to fuel global growth as well as its own, and the way to get out of the debt was to take down their currency, all the while inflating their way out of it. I wish I could remember where I read this piece, but your thoughts have been debated by world class economists and I dont’ disagree.

Someone help me out here on the IMF piece….

[zzz]

Hmmm, a little fuzzy on who it was, but I think it was Roubini that wrote about this predicament, and there was a policy piece where the IMF put together a piece that a global power was going to need to leverage up on debt to fuel global growth as well as its own, and the way to get out of the debt was to take down their currency, all the while inflating their way out of it. I wish I could remember where I read this piece, but your thoughts have been debated by world class economists and I dont’ disagree.

Someone help me out here on the IMF piece….

[zzz]

Hmmm, a little fuzzy on who it was, but I think it was Roubini that wrote about this predicament, and there was a policy piece where the IMF put together a piece that a global power was going to need to leverage up on debt to fuel global growth as well as its own, and the way to get out of the debt was to take down their currency, all the while inflating their way out of it. I wish I could remember where I read this piece, but your thoughts have been debated by world class economists and I dont’ disagree.

Someone help me out here on the IMF piece….

[zzz]

Hmmm, a little fuzzy on who it was, but I think it was Roubini that wrote about this predicament, and there was a policy piece where the IMF put together a piece that a global power was going to need to leverage up on debt to fuel global growth as well as its own, and the way to get out of the debt was to take down their currency, all the while inflating their way out of it. I wish I could remember where I read this piece, but your thoughts have been debated by world class economists and I dont’ disagree.

Someone help me out here on the IMF piece….

[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.

[moneymaker]

Isn’t it like trying to guess how big the next blob will be on a lava lamp, you know it’s going up but how big and how fast?

[moneymaker]

Isn’t it like trying to guess how big the next blob will be on a lava lamp, you know it’s going up but how big and how fast?

[moneymaker]

Isn’t it like trying to guess how big the next blob will be on a lava lamp, you know it’s going up but how big and how fast?

[moneymaker]

Isn’t it like trying to guess how big the next blob will be on a lava lamp, you know it’s going up but how big and how fast?

[moneymaker]

Isn’t it like trying to guess how big the next blob will be on a lava lamp, you know it’s going up but how big and how fast?

[lifeizfunhuh]

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[lifeizfunhuh]

[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.

Professor?

[lifeizfunhuh]

[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.

Professor?

[lifeizfunhuh]

[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.

Professor?

[lifeizfunhuh]

[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.

Professor?

[lifeizfunhuh]

[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.

Professor?

[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.

[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.

[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.

[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.

[ocrenter]

I firmly agree with OP in regard to the coming inflation and the feeling that essentially that is the ultimate game plan to get us out of the debt crisis.

This scenario will still work for homeowners even if home prices remain stagnate for the foreseeable future. Since homeowners will be using dollars that are significantly less to pay down debt that was worth significantly more.

If instead home prices increase at rate of inflation, that would be an added bonus.

While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.

[ocrenter]

aimloan’s jr jumbo is now at 4.875%. The refi just a few months ago is already looking better.

[SD Realtor]

Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it.

So that theary by the OP to buy now with someone elses money seems to make sense regardless of whether the home appreciates or depreciates. Buy the asset now with money that is borrowed and becoming worthless verses waiting until your own money is much more worthless but the asset has declined in value. I think the premise makes sense but everyone has a different situation depending on their holdings.

[bubble_contagion]

Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.

[GH]

Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion!

[Rich Toscano]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

Sorry GH, rates DID go to 15%, in the early 1980s, and housing prices did not “fall massively.” In fact, they didn’t fall at all in nominal terms, though they did in real terms.

That is simple data and not subject to opinion. 🙂

Of course, rising from 5% immediately to 15% would make for a “shock” that did not happen in the early 1980s. But that’s not the premise of your argument… you are stating that as rates (and thus monthly payments go up), prices go down, and the historical data simply does not support this.

Go look at a chart of nominal housing prices in the early 80s to see what I mean (I’m sure I’ve put one up somewhere). And check out the “shambling toward affordability” series to see that rate levels have generally had no impact on housing price expensiveness ratios (they seemed to starting in the 2000s, but that was more due to low lending standards than low rates).

[Effective Demand]

Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.

[Anonymous]

It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.

[SD Realtor]

Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.

So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…

Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.

I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.

It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.

Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.

There are some scary numbers to consider looking at the 10 year treasury.

April 1 1980 – 10.09 %
July 1 1981 – 15.84%

October 1 1976 – 6.81%
July 1 1981 – 15.84%

To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.

Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.

So yikes is all I can think of. The 64k question is when will this all start.

[SD Realtor]

Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.

So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…

Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.

I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.

It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.

Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.

There are some scary numbers to consider looking at the 10 year treasury.

April 1 1980 – 10.09 %
July 1 1981 – 15.84%

October 1 1976 – 6.81%
July 1 1981 – 15.84%

To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.

Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.

So yikes is all I can think of. The 64k question is when will this all start.

[SD Realtor]

Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.

So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…

Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.

I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.

It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.

Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.

There are some scary numbers to consider looking at the 10 year treasury.

April 1 1980 – 10.09 %
July 1 1981 – 15.84%

October 1 1976 – 6.81%
July 1 1981 – 15.84%

To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.

Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.

So yikes is all I can think of. The 64k question is when will this all start.

[SD Realtor]

Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.

So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…

Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.

I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.

It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.

Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.

There are some scary numbers to consider looking at the 10 year treasury.

April 1 1980 – 10.09 %
July 1 1981 – 15.84%

October 1 1976 – 6.81%
July 1 1981 – 15.84%

To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.

Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.

So yikes is all I can think of. The 64k question is when will this all start.

[SD Realtor]

Correct on both points deadzone, which is why we come circle to the original posters thoughts. Two points you made, we are times unlike we have ever seen, and high rates will kill housing.

So what is a govt to do? Well first off they will do everything they can to sustain that housing market. This will include sustaining the bond market at all costs. This will also include a resumption of stimulating that housing market when needed including manipulation of inventory, incentives, etc…

Now we all know this is the game they have been playing for a few years now but the corners have slowly been closing. Furthermore the actions by the fed and treasury have kept the bond yields at amazing levels however that game cannot be sustained indefinitely. At some point our credit will run out and our creditors will not tolerate our behavior.

I don’t see rates running up and out of the galaxy in the near term but I do believe it will happen over time. I vividly recall the high rates of the 80’s and in a matter of a few years it was incredible how high they went.

It will be quite interesting how things pan out. I think Rich capped it well in his three responses above and I agree with them all. I do know that many many successful people I have met and know were successful by working with other peoples money. I think that the opportunity to borrow money at a staggering low rate in the face of a future that IMO will be one frought with very high rates…. well it is hard to pass up.

Indeed I DO believe there will be depreciation in the high rate environment. However I think it will be tempered in some form to prevent a massive collapse that would surely happen today if rates skipped up into say double digits inside of 18 months.

There are some scary numbers to consider looking at the 10 year treasury.

April 1 1980 – 10.09 %
July 1 1981 – 15.84%

October 1 1976 – 6.81%
July 1 1981 – 15.84%

To me that second scenario is our secular trend of the future. As you can see the first scenario was embedded in that secular trend.

Oh yeah and this is just the 10 year yield so mortgage rates are higher then the treasury yield.

So yikes is all I can think of. The 64k question is when will this all start.

[sdrealtor]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.

[Anonymous]

sdr, why don’t you go back to selling real estate and let the grown-ups discuss economics.

[Anonymous]

sdr, why don’t you go back to selling real estate and let the grown-ups discuss economics.

[Anonymous]

sdr, why don’t you go back to selling real estate and let the grown-ups discuss economics.

[Anonymous]

sdr, why don’t you go back to selling real estate and let the grown-ups discuss economics.

[Anonymous]

sdr, why don’t you go back to selling real estate and let the grown-ups discuss economics.

[Fearful]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

ARMs are typically pegged to either prime rate or LIBOR. Both are short term lending rates.

Of the non mortgage interest rates, the one mortgages are most closely tied to is the ten year treasury rate. That correlation is not very strong, however. One reason they are as strongly correlated as they are is a substantial portion of the mortgages enjoy an implicit government guarantee.

Mortgage rates are only weakly correlated with housing prices. Part of this is because there is not one mortgage rate, but a range of rates corresponding to a range of creditworthiness among borrowers, among other factors. Distortions among different rates (such as subprime) were a driving force behind the housing bubble.

The distortions have been largely eliminated.

LIBOR and prime will stay low for a while, one to two years at least, as long as the recovery remains tepid.

With increased inflation expectations, or decline in Treasury creditworthiness, benchmark mortgage rates will rise rapidly. When these arrive, and how strong they will be, is anybody’s guess.

[Fearful]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

ARMs are typically pegged to either prime rate or LIBOR. Both are short term lending rates.

Of the non mortgage interest rates, the one mortgages are most closely tied to is the ten year treasury rate. That correlation is not very strong, however. One reason they are as strongly correlated as they are is a substantial portion of the mortgages enjoy an implicit government guarantee.

Mortgage rates are only weakly correlated with housing prices. Part of this is because there is not one mortgage rate, but a range of rates corresponding to a range of creditworthiness among borrowers, among other factors. Distortions among different rates (such as subprime) were a driving force behind the housing bubble.

The distortions have been largely eliminated.

LIBOR and prime will stay low for a while, one to two years at least, as long as the recovery remains tepid.

With increased inflation expectations, or decline in Treasury creditworthiness, benchmark mortgage rates will rise rapidly. When these arrive, and how strong they will be, is anybody’s guess.

[Fearful]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

ARMs are typically pegged to either prime rate or LIBOR. Both are short term lending rates.

Of the non mortgage interest rates, the one mortgages are most closely tied to is the ten year treasury rate. That correlation is not very strong, however. One reason they are as strongly correlated as they are is a substantial portion of the mortgages enjoy an implicit government guarantee.

Mortgage rates are only weakly correlated with housing prices. Part of this is because there is not one mortgage rate, but a range of rates corresponding to a range of creditworthiness among borrowers, among other factors. Distortions among different rates (such as subprime) were a driving force behind the housing bubble.

The distortions have been largely eliminated.

LIBOR and prime will stay low for a while, one to two years at least, as long as the recovery remains tepid.

With increased inflation expectations, or decline in Treasury creditworthiness, benchmark mortgage rates will rise rapidly. When these arrive, and how strong they will be, is anybody’s guess.

[Fearful]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

ARMs are typically pegged to either prime rate or LIBOR. Both are short term lending rates.

Of the non mortgage interest rates, the one mortgages are most closely tied to is the ten year treasury rate. That correlation is not very strong, however. One reason they are as strongly correlated as they are is a substantial portion of the mortgages enjoy an implicit government guarantee.

Mortgage rates are only weakly correlated with housing prices. Part of this is because there is not one mortgage rate, but a range of rates corresponding to a range of creditworthiness among borrowers, among other factors. Distortions among different rates (such as subprime) were a driving force behind the housing bubble.

The distortions have been largely eliminated.

LIBOR and prime will stay low for a while, one to two years at least, as long as the recovery remains tepid.

With increased inflation expectations, or decline in Treasury creditworthiness, benchmark mortgage rates will rise rapidly. When these arrive, and how strong they will be, is anybody’s guess.

[Fearful]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

ARMs are typically pegged to either prime rate or LIBOR. Both are short term lending rates.

Of the non mortgage interest rates, the one mortgages are most closely tied to is the ten year treasury rate. That correlation is not very strong, however. One reason they are as strongly correlated as they are is a substantial portion of the mortgages enjoy an implicit government guarantee.

Mortgage rates are only weakly correlated with housing prices. Part of this is because there is not one mortgage rate, but a range of rates corresponding to a range of creditworthiness among borrowers, among other factors. Distortions among different rates (such as subprime) were a driving force behind the housing bubble.

The distortions have been largely eliminated.

LIBOR and prime will stay low for a while, one to two years at least, as long as the recovery remains tepid.

With increased inflation expectations, or decline in Treasury creditworthiness, benchmark mortgage rates will rise rapidly. When these arrive, and how strong they will be, is anybody’s guess.

[(former)FormerSanDiegan]

[quote=sdrealtor][quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.[/quote]

I am waiting to hear the words “permanently lower plateau” for home prices.

[(former)FormerSanDiegan]

[quote=sdrealtor][quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.[/quote]

I am waiting to hear the words “permanently lower plateau” for home prices.

[(former)FormerSanDiegan]

[quote=sdrealtor][quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.[/quote]

I am waiting to hear the words “permanently lower plateau” for home prices.

[(former)FormerSanDiegan]

[quote=sdrealtor][quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.[/quote]

I am waiting to hear the words “permanently lower plateau” for home prices.

[(former)FormerSanDiegan]

[quote=sdrealtor][quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.[/quote]

I am waiting to hear the words “permanently lower plateau” for home prices.

[sdrealtor]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.

[sdrealtor]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.

[sdrealtor]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.

[sdrealtor]

[quote=deadzone]It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.[/quote]

I love it! So this times its different.

The bear is using the mantra the bears attacked the bulls with a few years ago as being ridiculous. It was ridiculous then and still is.

[Anonymous]

It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.

[Anonymous]

It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.

[Anonymous]

It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.

[Anonymous]

It may be true that high interest rates have not historically led to housing downturns. However, the current situation is unlike any in history. Due to the number of I/O ARM loans outstanding (reset chart), as we’ve discussed ad-nauseum, higher interest rates right now would abolutely DESTROY the housing market.

[Huckleberry]

[quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…

[Effective Demand]

[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…[/quote]

But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.

That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).

[Effective Demand]

[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…[/quote]

But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.

That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).

[Effective Demand]

[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…[/quote]

But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.

That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).

[Effective Demand]

[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…[/quote]

But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.

That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).

[Effective Demand]

[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…[/quote]

But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.

That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).

[Huckleberry]

[quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…

[Huckleberry]

[quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…

[Huckleberry]

[quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…

[Huckleberry]

[quote=Effective Demand]Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]

This is exactly spot on! That is why this time is different than in the past…

[Effective Demand]

Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.

[Effective Demand]

Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.

[Effective Demand]

Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.

[Effective Demand]

Regarding interest rates and housing prices.

The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.

[Rich Toscano]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

Sorry GH, rates DID go to 15%, in the early 1980s, and housing prices did not “fall massively.” In fact, they didn’t fall at all in nominal terms, though they did in real terms.

That is simple data and not subject to opinion. 🙂

Of course, rising from 5% immediately to 15% would make for a “shock” that did not happen in the early 1980s. But that’s not the premise of your argument… you are stating that as rates (and thus monthly payments go up), prices go down, and the historical data simply does not support this.

Go look at a chart of nominal housing prices in the early 80s to see what I mean (I’m sure I’ve put one up somewhere). And check out the “shambling toward affordability” series to see that rate levels have generally had no impact on housing price expensiveness ratios (they seemed to starting in the 2000s, but that was more due to low lending standards than low rates).

[Rich Toscano]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

Sorry GH, rates DID go to 15%, in the early 1980s, and housing prices did not “fall massively.” In fact, they didn’t fall at all in nominal terms, though they did in real terms.

That is simple data and not subject to opinion. 🙂

Of course, rising from 5% immediately to 15% would make for a “shock” that did not happen in the early 1980s. But that’s not the premise of your argument… you are stating that as rates (and thus monthly payments go up), prices go down, and the historical data simply does not support this.

Go look at a chart of nominal housing prices in the early 80s to see what I mean (I’m sure I’ve put one up somewhere). And check out the “shambling toward affordability” series to see that rate levels have generally had no impact on housing price expensiveness ratios (they seemed to starting in the 2000s, but that was more due to low lending standards than low rates).

[Rich Toscano]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

Sorry GH, rates DID go to 15%, in the early 1980s, and housing prices did not “fall massively.” In fact, they didn’t fall at all in nominal terms, though they did in real terms.

That is simple data and not subject to opinion. 🙂

Of course, rising from 5% immediately to 15% would make for a “shock” that did not happen in the early 1980s. But that’s not the premise of your argument… you are stating that as rates (and thus monthly payments go up), prices go down, and the historical data simply does not support this.

Go look at a chart of nominal housing prices in the early 80s to see what I mean (I’m sure I’ve put one up somewhere). And check out the “shambling toward affordability” series to see that rate levels have generally had no impact on housing price expensiveness ratios (they seemed to starting in the 2000s, but that was more due to low lending standards than low rates).

[Rich Toscano]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

Sorry GH, rates DID go to 15%, in the early 1980s, and housing prices did not “fall massively.” In fact, they didn’t fall at all in nominal terms, though they did in real terms.

That is simple data and not subject to opinion. 🙂

Of course, rising from 5% immediately to 15% would make for a “shock” that did not happen in the early 1980s. But that’s not the premise of your argument… you are stating that as rates (and thus monthly payments go up), prices go down, and the historical data simply does not support this.

Go look at a chart of nominal housing prices in the early 80s to see what I mean (I’m sure I’ve put one up somewhere). And check out the “shambling toward affordability” series to see that rate levels have generally had no impact on housing price expensiveness ratios (they seemed to starting in the 2000s, but that was more due to low lending standards than low rates).

[Huckleberry]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

I concur with this 100%! No need for anymore debate on this…

[Huckleberry]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

I concur with this 100%! No need for anymore debate on this…

[Huckleberry]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

I concur with this 100%! No need for anymore debate on this…

[Huckleberry]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

I concur with this 100%! No need for anymore debate on this…

[Huckleberry]

[quote=GH]Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion![/quote]

I concur with this 100%! No need for anymore debate on this…

[GH]

Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion!

[GH]

Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion!

[GH]

Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion!

[GH]

Just keep in mind that housing prices and interest rates have no relationship

Nonsense! Prices are falling today because at ANY interest rate very few can afford, and there are millions of foreclosures out there dropping prices. Credit scores are all but trashed these days, incomes are off and frankly no matter the spin prices ARE falling. If interest rates were raised to say 15% prices would fall massively as far fewer of the dwindling supply of credit qualified applicants could qualify for $500K at 15% than could qualify at 5%.

Assuming 10% down, your monthly payment incl tax will be ~3,000 /MO at 5% and ~6,200 /MO at 15%, so obviously many can afford the $3,000 payment but very few could afford the $6,200 payment.

This is simple math and not subject to opinion!

[CA renter]

[quote=bubble_contagion]Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.[/quote]

Interest rates are just one input WRT the housing market. The other inputs are jobs, demographic trends, currency issues (which may or may not be correlated with rates in the short-term), tax policies, changes in mortgage availability/downpayment requirements, etc.

IMHO, the earlier period of higher rates correlated with the peak buying years of Baby Boomers (the largest, and wealthiest cohort to buy RE in the U.S.), rising inflation which affected wages as well as asset prices, and immigration/population growth trends (see pg. 4 in the following link) with more of our growth now coming from poorer, lower-skilled immigrants and workers vs. past immigration/population growth trends.

http://www.williamperezphd.com/articles/fix-passel-2003.pdf

What we’ve witnessed in the 1982-2010 period is an environment of falling rates:

http://www.freddiemac.com/pmms/pmms30.htm

http://braydencapitalhomeloans.com/HistoryofMortgageRatesPR.pdf

Also, we’ve seen rising (total and mortgage) DTI ratios, and falling homeowner’s equity ratio in that period:

http://seekingalpha.com/article/176462-debt-to-income-ratios-and-the-u-s-savings-rate

http://www.getsmartaboutbanks.com/2010/08/dr-housing-bubble-gives-the-straight-scoop-on-why-the-falling-housing-prices-will-help-the-economy/

The unemployment rate was much lower then than it is now:

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/2-5-10-UnEmployment-peaks.gif

Down payment requirements were lowered over the 1982-present period:

http://www.gkbaum.com/housing/topicalReports/history_of_downpayment_assistance.pdf

Mortgage securitization took off, which lowered rates and standards — causing the “EZ credit” boom:

http://www.econbrowser.com/archives/2008/01/mortgage_securi.html

In other words, while I totally appreciate the threat of inflation/currrency debasement, and think this is their goal, I question their ability to succeed over the long run — espeically for as long as we engage in “free trade” with Third World nations — because our labor market has absolutely no pricing power, and debt levels are still extremely high.

We’ve pretty much maxed out our ability to leverage and borrow more, IMHO. I firmly believe that asset pricing is most greatly affected by the credit market. If the credit market/leverage is growing, asset prices will rise. If the credit market/leverage is shrinking, asset prices will fall. There are other inputs, but credit is the primary driver of asset prices, IMHO.

Yes, you might be paying your mortgage off with “cheaper” money, but it will likely benefit hard asset holders and foreign currency holders who can exchange their stronger currency for “cheap” housing in the U.S. more than it will benefit regular folk who have to work for a living.

[CA renter]

[quote=bubble_contagion]Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.[/quote]

Interest rates are just one input WRT the housing market. The other inputs are jobs, demographic trends, currency issues (which may or may not be correlated with rates in the short-term), tax policies, changes in mortgage availability/downpayment requirements, etc.

IMHO, the earlier period of higher rates correlated with the peak buying years of Baby Boomers (the largest, and wealthiest cohort to buy RE in the U.S.), rising inflation which affected wages as well as asset prices, and immigration/population growth trends (see pg. 4 in the following link) with more of our growth now coming from poorer, lower-skilled immigrants and workers vs. past immigration/population growth trends.

http://www.williamperezphd.com/articles/fix-passel-2003.pdf

What we’ve witnessed in the 1982-2010 period is an environment of falling rates:

http://www.freddiemac.com/pmms/pmms30.htm

http://braydencapitalhomeloans.com/HistoryofMortgageRatesPR.pdf

Also, we’ve seen rising (total and mortgage) DTI ratios, and falling homeowner’s equity ratio in that period:

http://seekingalpha.com/article/176462-debt-to-income-ratios-and-the-u-s-savings-rate

http://www.getsmartaboutbanks.com/2010/08/dr-housing-bubble-gives-the-straight-scoop-on-why-the-falling-housing-prices-will-help-the-economy/

The unemployment rate was much lower then than it is now:

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/2-5-10-UnEmployment-peaks.gif

Down payment requirements were lowered over the 1982-present period:

http://www.gkbaum.com/housing/topicalReports/history_of_downpayment_assistance.pdf

Mortgage securitization took off, which lowered rates and standards — causing the “EZ credit” boom:

http://www.econbrowser.com/archives/2008/01/mortgage_securi.html

In other words, while I totally appreciate the threat of inflation/currrency debasement, and think this is their goal, I question their ability to succeed over the long run — espeically for as long as we engage in “free trade” with Third World nations — because our labor market has absolutely no pricing power, and debt levels are still extremely high.

We’ve pretty much maxed out our ability to leverage and borrow more, IMHO. I firmly believe that asset pricing is most greatly affected by the credit market. If the credit market/leverage is growing, asset prices will rise. If the credit market/leverage is shrinking, asset prices will fall. There are other inputs, but credit is the primary driver of asset prices, IMHO.

Yes, you might be paying your mortgage off with “cheaper” money, but it will likely benefit hard asset holders and foreign currency holders who can exchange their stronger currency for “cheap” housing in the U.S. more than it will benefit regular folk who have to work for a living.

[CA renter]

[quote=bubble_contagion]Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.[/quote]

Interest rates are just one input WRT the housing market. The other inputs are jobs, demographic trends, currency issues (which may or may not be correlated with rates in the short-term), tax policies, changes in mortgage availability/downpayment requirements, etc.

IMHO, the earlier period of higher rates correlated with the peak buying years of Baby Boomers (the largest, and wealthiest cohort to buy RE in the U.S.), rising inflation which affected wages as well as asset prices, and immigration/population growth trends (see pg. 4 in the following link) with more of our growth now coming from poorer, lower-skilled immigrants and workers vs. past immigration/population growth trends.

http://www.williamperezphd.com/articles/fix-passel-2003.pdf

What we’ve witnessed in the 1982-2010 period is an environment of falling rates:

http://www.freddiemac.com/pmms/pmms30.htm

http://braydencapitalhomeloans.com/HistoryofMortgageRatesPR.pdf

Also, we’ve seen rising (total and mortgage) DTI ratios, and falling homeowner’s equity ratio in that period:

http://seekingalpha.com/article/176462-debt-to-income-ratios-and-the-u-s-savings-rate

http://www.getsmartaboutbanks.com/2010/08/dr-housing-bubble-gives-the-straight-scoop-on-why-the-falling-housing-prices-will-help-the-economy/

The unemployment rate was much lower then than it is now:

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/2-5-10-UnEmployment-peaks.gif

Down payment requirements were lowered over the 1982-present period:

http://www.gkbaum.com/housing/topicalReports/history_of_downpayment_assistance.pdf

Mortgage securitization took off, which lowered rates and standards — causing the “EZ credit” boom:

http://www.econbrowser.com/archives/2008/01/mortgage_securi.html

In other words, while I totally appreciate the threat of inflation/currrency debasement, and think this is their goal, I question their ability to succeed over the long run — espeically for as long as we engage in “free trade” with Third World nations — because our labor market has absolutely no pricing power, and debt levels are still extremely high.

We’ve pretty much maxed out our ability to leverage and borrow more, IMHO. I firmly believe that asset pricing is most greatly affected by the credit market. If the credit market/leverage is growing, asset prices will rise. If the credit market/leverage is shrinking, asset prices will fall. There are other inputs, but credit is the primary driver of asset prices, IMHO.

Yes, you might be paying your mortgage off with “cheaper” money, but it will likely benefit hard asset holders and foreign currency holders who can exchange their stronger currency for “cheap” housing in the U.S. more than it will benefit regular folk who have to work for a living.

[CA renter]

[quote=bubble_contagion]Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.[/quote]

Interest rates are just one input WRT the housing market. The other inputs are jobs, demographic trends, currency issues (which may or may not be correlated with rates in the short-term), tax policies, changes in mortgage availability/downpayment requirements, etc.

IMHO, the earlier period of higher rates correlated with the peak buying years of Baby Boomers (the largest, and wealthiest cohort to buy RE in the U.S.), rising inflation which affected wages as well as asset prices, and immigration/population growth trends (see pg. 4 in the following link) with more of our growth now coming from poorer, lower-skilled immigrants and workers vs. past immigration/population growth trends.

http://www.williamperezphd.com/articles/fix-passel-2003.pdf

What we’ve witnessed in the 1982-2010 period is an environment of falling rates:

http://www.freddiemac.com/pmms/pmms30.htm

http://braydencapitalhomeloans.com/HistoryofMortgageRatesPR.pdf

Also, we’ve seen rising (total and mortgage) DTI ratios, and falling homeowner’s equity ratio in that period:

http://seekingalpha.com/article/176462-debt-to-income-ratios-and-the-u-s-savings-rate

http://www.getsmartaboutbanks.com/2010/08/dr-housing-bubble-gives-the-straight-scoop-on-why-the-falling-housing-prices-will-help-the-economy/

The unemployment rate was much lower then than it is now:

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/2-5-10-UnEmployment-peaks.gif

Down payment requirements were lowered over the 1982-present period:

http://www.gkbaum.com/housing/topicalReports/history_of_downpayment_assistance.pdf

Mortgage securitization took off, which lowered rates and standards — causing the “EZ credit” boom:

http://www.econbrowser.com/archives/2008/01/mortgage_securi.html

In other words, while I totally appreciate the threat of inflation/currrency debasement, and think this is their goal, I question their ability to succeed over the long run — espeically for as long as we engage in “free trade” with Third World nations — because our labor market has absolutely no pricing power, and debt levels are still extremely high.

We’ve pretty much maxed out our ability to leverage and borrow more, IMHO. I firmly believe that asset pricing is most greatly affected by the credit market. If the credit market/leverage is growing, asset prices will rise. If the credit market/leverage is shrinking, asset prices will fall. There are other inputs, but credit is the primary driver of asset prices, IMHO.

Yes, you might be paying your mortgage off with “cheaper” money, but it will likely benefit hard asset holders and foreign currency holders who can exchange their stronger currency for “cheap” housing in the U.S. more than it will benefit regular folk who have to work for a living.

[CA renter]

[quote=bubble_contagion]Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.[/quote]

Interest rates are just one input WRT the housing market. The other inputs are jobs, demographic trends, currency issues (which may or may not be correlated with rates in the short-term), tax policies, changes in mortgage availability/downpayment requirements, etc.

IMHO, the earlier period of higher rates correlated with the peak buying years of Baby Boomers (the largest, and wealthiest cohort to buy RE in the U.S.), rising inflation which affected wages as well as asset prices, and immigration/population growth trends (see pg. 4 in the following link) with more of our growth now coming from poorer, lower-skilled immigrants and workers vs. past immigration/population growth trends.

http://www.williamperezphd.com/articles/fix-passel-2003.pdf

What we’ve witnessed in the 1982-2010 period is an environment of falling rates:

http://www.freddiemac.com/pmms/pmms30.htm

http://braydencapitalhomeloans.com/HistoryofMortgageRatesPR.pdf

Also, we’ve seen rising (total and mortgage) DTI ratios, and falling homeowner’s equity ratio in that period:

http://seekingalpha.com/article/176462-debt-to-income-ratios-and-the-u-s-savings-rate

http://www.getsmartaboutbanks.com/2010/08/dr-housing-bubble-gives-the-straight-scoop-on-why-the-falling-housing-prices-will-help-the-economy/

The unemployment rate was much lower then than it is now:

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/2-5-10-UnEmployment-peaks.gif

Down payment requirements were lowered over the 1982-present period:

http://www.gkbaum.com/housing/topicalReports/history_of_downpayment_assistance.pdf

Mortgage securitization took off, which lowered rates and standards — causing the “EZ credit” boom:

http://www.econbrowser.com/archives/2008/01/mortgage_securi.html

In other words, while I totally appreciate the threat of inflation/currrency debasement, and think this is their goal, I question their ability to succeed over the long run — espeically for as long as we engage in “free trade” with Third World nations — because our labor market has absolutely no pricing power, and debt levels are still extremely high.

We’ve pretty much maxed out our ability to leverage and borrow more, IMHO. I firmly believe that asset pricing is most greatly affected by the credit market. If the credit market/leverage is growing, asset prices will rise. If the credit market/leverage is shrinking, asset prices will fall. There are other inputs, but credit is the primary driver of asset prices, IMHO.

Yes, you might be paying your mortgage off with “cheaper” money, but it will likely benefit hard asset holders and foreign currency holders who can exchange their stronger currency for “cheap” housing in the U.S. more than it will benefit regular folk who have to work for a living.

[bubble_contagion]

Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.

[bubble_contagion]

Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.

[bubble_contagion]

Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.

[bubble_contagion]

Just keep in mind that housing prices and interest rates have no relationship. I have read this from several sources including Calculated Risk and Rich. The following quote is from the latest Nov 10 data rodeo:

“I firmly disagree with the idea that there is a one-to-one relationship between rates and prices, such that if rates increase a certain percent, prices should be expected to decline by that percent or anywhere near it. The historical data clearly demonstrates that there is no such correlation. However, there is no question that sustained higher rates will reduce demand, all other thing being equal, just as super-low rates have in recent times boosted housing activity above what it otherwise would have been.”

From CR:

“I’ve tried to explain this several times in several different ways. Price is what you pay for something. Interest rates are related to how the item is financed. Some people pay cash for a house. Would they pay more because interest rates are low? Nope.

Imagine just one buyer gets a special interest rate. Would that lucky buyer be willing to pay more than all other buyers for the same property? Nope.

It is true that low rates make buying more attractive as compared to renting. And that can increase the demand for buying – and more demand might mean slightly higher prices. But if rates are low, a rational buyer will expect mortgages rates to rise when they sell the property, and under the theory that mortgage rates impact price, the price will then fall in the future. That makes the property less attractive, and the buyer in the low interest rate environment will not want to overpay for the house.

So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.”

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

I am suspect that there is truly no relationship but the data seems to be clear on this.

[Anonymous]

[quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).

But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:

1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect

2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

Notice that none of the above require either US employment or labor costs to be high or rising.

You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.

An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.

Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).

[Anonymous]

[quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]

Go to the BLS website and chart food inflation… grocery store was the example you used.

You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.

I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).

[Anonymous]

Food inflation:

http://data.bls.gov/cgi-bin/surveymost?cu

Some volatility in the past few years, which is not surprising, but no clear upward trend.

Am I missing something?

[Rich Toscano]

That is a graph of the rate of inflation. Except for a brief dip into negative territory in 09 (and a couple even briefer dips earlier), the rate of inflation has been positive the whole time… that means prices at Ralphs are going up.

[Anonymous]

I understand that there is some inflation, but it is no higher than historical norms.

I wasn’t suggesting that there is zero inflation in food prices.

So, to be more precise, perhaps my original question should have been: “What will prompt the manager at Ralphs to raise his prices more than he has been every year for decades?”

If the debt is going to inflate away, at some point wee need to see an *increasing* rate of inflation. So far, we haven’t.

[SD Realtor]

The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.

[Anonymous]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.

[quote]The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.[/quote]

Of course he has something to do with it. He is part of the chain – part of the economy. Continue with that logic and one could claim that nobody has anything to do with it.

The root cause of inflation is individuals choosing to raise prices. That’s what my original question was all about: Why will any individual, selling anything, choose to raise prices? (and why would other individuals be willing to accept those prices?)

[quote]The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche.[/quote]

I’d have to say my own personal anecdotal evidence is pretty consistent with government stats. It’s hard to really tell because my life situation changes over the years (kids, living in new locations, etc.) So personal stories are of limited value.

But I do know individual perceptions of inflation can be dead wrong. A classic example is gas prices. Walk into any bar and start a conversation about gas prices. I guarantee you’ll hear plenty of “I remember when…” stories. The reality is, that over the long term, gas prices have not risen faster than anything else. But most people believe they’ve increased astronomically.

I’ve been hearing the “government is lying to us about inflation” claim for many years. It doesn’t jive. There’s no possible way that they could have kept it up for this long. The numbers aren’t perfect, but they do essentially capture what they are meant to measure.

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.
[/quote]

Actually I put up a pretty long explanation of possible reasons this could happen. Your response was that there were a lot of hypotheticals in it, but, it was a hypothetical question, no?

[SD Realtor]

I thought Rich explained it very well so I will try to augment his theory..

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.

**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.

[Anonymous]

[quote=SD Realtor] getting paid in dollars which are continuing to depreciate.[/quote]

If dollars were depreciating, wouldn’t we have … inflation?

BTW, I am over 40, and grew up in the rust belt. I recall once having bank CDs that paid 12%.

I’ve seen inflation, plenty of unemployment in my own family, and am well aware of the decline of American manufacturing.

I’ve also lived in Silicon Valley.

So I might actually have a little perspective on the ebbs and flows of the economy.

[SD Realtor]

PR then you do know what the situation was so I am curious as to why you are asking for specific examples?

Prices depreciating is deflation. My terminology of dollars depreciating is to be defined as dollars becoming less valuable. Hope that explanation is more thorough.

Anyways if you are convinced that we are moving in the direction where the dollar is worth less, and prices will be much higher for goods and eventually services so be it.

Going full circle I do agree with the original poster that borrowing lots of dollars now to pay for an asset that you can live in today is not a bad idea given that those dollars will be worth much less in the future. I will freely agree that the asset itself will potentially be worth less as well however I don’t believe that the asset will depreciate as much as the currency will, AND there are not many other opportunities where you can borrow money to do this, AND that the govt encourages you to do so. I think the idea has some merit and is not ideal for everyone but is a good idea for some.

[SD Realtor]

PR then you do know what the situation was so I am curious as to why you are asking for specific examples?

Prices depreciating is deflation. My terminology of dollars depreciating is to be defined as dollars becoming less valuable. Hope that explanation is more thorough.

Anyways if you are convinced that we are moving in the direction where the dollar is worth less, and prices will be much higher for goods and eventually services so be it.

Going full circle I do agree with the original poster that borrowing lots of dollars now to pay for an asset that you can live in today is not a bad idea given that those dollars will be worth much less in the future. I will freely agree that the asset itself will potentially be worth less as well however I don’t believe that the asset will depreciate as much as the currency will, AND there are not many other opportunities where you can borrow money to do this, AND that the govt encourages you to do so. I think the idea has some merit and is not ideal for everyone but is a good idea for some.

[SD Realtor]

PR then you do know what the situation was so I am curious as to why you are asking for specific examples?

Prices depreciating is deflation. My terminology of dollars depreciating is to be defined as dollars becoming less valuable. Hope that explanation is more thorough.

Anyways if you are convinced that we are moving in the direction where the dollar is worth less, and prices will be much higher for goods and eventually services so be it.

Going full circle I do agree with the original poster that borrowing lots of dollars now to pay for an asset that you can live in today is not a bad idea given that those dollars will be worth much less in the future. I will freely agree that the asset itself will potentially be worth less as well however I don’t believe that the asset will depreciate as much as the currency will, AND there are not many other opportunities where you can borrow money to do this, AND that the govt encourages you to do so. I think the idea has some merit and is not ideal for everyone but is a good idea for some.

[SD Realtor]

PR then you do know what the situation was so I am curious as to why you are asking for specific examples?

Prices depreciating is deflation. My terminology of dollars depreciating is to be defined as dollars becoming less valuable. Hope that explanation is more thorough.

Anyways if you are convinced that we are moving in the direction where the dollar is worth less, and prices will be much higher for goods and eventually services so be it.

Going full circle I do agree with the original poster that borrowing lots of dollars now to pay for an asset that you can live in today is not a bad idea given that those dollars will be worth much less in the future. I will freely agree that the asset itself will potentially be worth less as well however I don’t believe that the asset will depreciate as much as the currency will, AND there are not many other opportunities where you can borrow money to do this, AND that the govt encourages you to do so. I think the idea has some merit and is not ideal for everyone but is a good idea for some.

[SD Realtor]

PR then you do know what the situation was so I am curious as to why you are asking for specific examples?

Prices depreciating is deflation. My terminology of dollars depreciating is to be defined as dollars becoming less valuable. Hope that explanation is more thorough.

Anyways if you are convinced that we are moving in the direction where the dollar is worth less, and prices will be much higher for goods and eventually services so be it.

Going full circle I do agree with the original poster that borrowing lots of dollars now to pay for an asset that you can live in today is not a bad idea given that those dollars will be worth much less in the future. I will freely agree that the asset itself will potentially be worth less as well however I don’t believe that the asset will depreciate as much as the currency will, AND there are not many other opportunities where you can borrow money to do this, AND that the govt encourages you to do so. I think the idea has some merit and is not ideal for everyone but is a good idea for some.

[Anonymous]

[quote=SD Realtor] getting paid in dollars which are continuing to depreciate.[/quote]

If dollars were depreciating, wouldn’t we have … inflation?

BTW, I am over 40, and grew up in the rust belt. I recall once having bank CDs that paid 12%.

I’ve seen inflation, plenty of unemployment in my own family, and am well aware of the decline of American manufacturing.

I’ve also lived in Silicon Valley.

So I might actually have a little perspective on the ebbs and flows of the economy.

[Anonymous]

[quote=SD Realtor] getting paid in dollars which are continuing to depreciate.[/quote]

If dollars were depreciating, wouldn’t we have … inflation?

BTW, I am over 40, and grew up in the rust belt. I recall once having bank CDs that paid 12%.

I’ve seen inflation, plenty of unemployment in my own family, and am well aware of the decline of American manufacturing.

I’ve also lived in Silicon Valley.

So I might actually have a little perspective on the ebbs and flows of the economy.

[Anonymous]

[quote=SD Realtor] getting paid in dollars which are continuing to depreciate.[/quote]

If dollars were depreciating, wouldn’t we have … inflation?

BTW, I am over 40, and grew up in the rust belt. I recall once having bank CDs that paid 12%.

I’ve seen inflation, plenty of unemployment in my own family, and am well aware of the decline of American manufacturing.

I’ve also lived in Silicon Valley.

So I might actually have a little perspective on the ebbs and flows of the economy.

[Anonymous]

[quote=SD Realtor] getting paid in dollars which are continuing to depreciate.[/quote]

If dollars were depreciating, wouldn’t we have … inflation?

BTW, I am over 40, and grew up in the rust belt. I recall once having bank CDs that paid 12%.

I’ve seen inflation, plenty of unemployment in my own family, and am well aware of the decline of American manufacturing.

I’ve also lived in Silicon Valley.

So I might actually have a little perspective on the ebbs and flows of the economy.

[SD Realtor]

I thought Rich explained it very well so I will try to augment his theory..

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.

**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.

[SD Realtor]

I thought Rich explained it very well so I will try to augment his theory..

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.

**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.

[SD Realtor]

I thought Rich explained it very well so I will try to augment his theory..

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.

**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.

[SD Realtor]

I thought Rich explained it very well so I will try to augment his theory..

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.

**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.

[Anonymous]

Rich,

If I used the word hypothetical when describing your response, it wasn’t the best word choice.

Probably better to say that there were a lot of assumptions in your response. Of course you are trying to predict the future, so the use of some assumptions are reasonable.

I’m really just looking for a common-sense version of the pro-inflation argument. One that’s not too thick with economic theory and jargon. That’s why I choose to pose the question in familiar, everyday terms.

I’m not posing a fictitious situation.

I’m aware of the watered-down Econ 101 explanation: Printing money leads to inflation.

But basic facts suggest that our current situation not that simple.

We’ve had increasing debt for decades.

We’ve had “loose” monetary policy for a long time.

There haven’t been any signs of high inflation.

Lots of folks are sure it’s coming, and yet no one is raising prices.

The OP suggested that “serious inflation is coming.” I take that to mean annual inflation way well of 5% starting in the next 10 years. Otherwise leveraging in illiquid asset, even at 4.5%, is really not the slam-dunk he describes.

Inflation is nowhere near these numbers.

Why will anyone start raising prices any time in the near future?

My question is not hypothetical at all.

[Rich Toscano]

OK, there are assumptions in there, as in any prediction of potential outcomes. But I still feel like I provided a laundry list of things that could potentially cause inflation to rise — none of them are sure things, but they don’t have to be, because (to me anyway) we are talking about risks and probabilities. I think some of them are pretty decent probabilities, but of course, that all comes down to speculation on the future.

You are correct that we’ve increased government debt for a long time, but surely you agree that just because it hasn’t caused a problem yet, doesn’t mean it never will. (Look for instance at the increase in mortgage debt in this country — it went up and up and up, with that consistency lulling people into a false sense of security, until people realized that security was misplaced).

You are also correct that we’ve had loose monetary policy for a long time. I believe that has largely fed into inflation in asset prices rather than in consumer prices. That could continue for a while. But it surely won’t be indefinite, and it requires certain conditions — foreign CB’s buying up lots of our debt is a notable one — that cannot be depended upon to last. (For background on loose monetary policy vis. asset prices I very, very highly recommend Grantham’s “Night of the Living Fed” essay).

I think there may be some timeline confusion here. You are asking, what WILL cause inflation in the near future. Well, nothing WILL (not dependably, if you see what I mean). But some stuff might, if they happen in the near future. Those are the “hypotheticals” I outlined in the earlier comment. So just to be clear, I don’t think inflation is guaranteed in the near future. (Nor is a lack of inflation, for that matter).

I think the OP is looking farther out. For his scheme to work, inflation doesn’t have to be higher next year — it has to be higher on average over the next 30 years. So it’s really more of a long-term consideration. My opinion on the long term is that considering the relative lack of productivity in our economy, increasing competition for resources, the chance of a loss of confidence in dollars and/or ust’s, and most of all how difficult it would be to reduce our debt burden in real terms, I think inflation will be higher than most people expect. But that is, of course, speculation and my own opinion.

[Rich Toscano]

OK, there are assumptions in there, as in any prediction of potential outcomes. But I still feel like I provided a laundry list of things that could potentially cause inflation to rise — none of them are sure things, but they don’t have to be, because (to me anyway) we are talking about risks and probabilities. I think some of them are pretty decent probabilities, but of course, that all comes down to speculation on the future.

You are correct that we’ve increased government debt for a long time, but surely you agree that just because it hasn’t caused a problem yet, doesn’t mean it never will. (Look for instance at the increase in mortgage debt in this country — it went up and up and up, with that consistency lulling people into a false sense of security, until people realized that security was misplaced).

You are also correct that we’ve had loose monetary policy for a long time. I believe that has largely fed into inflation in asset prices rather than in consumer prices. That could continue for a while. But it surely won’t be indefinite, and it requires certain conditions — foreign CB’s buying up lots of our debt is a notable one — that cannot be depended upon to last. (For background on loose monetary policy vis. asset prices I very, very highly recommend Grantham’s “Night of the Living Fed” essay).

I think there may be some timeline confusion here. You are asking, what WILL cause inflation in the near future. Well, nothing WILL (not dependably, if you see what I mean). But some stuff might, if they happen in the near future. Those are the “hypotheticals” I outlined in the earlier comment. So just to be clear, I don’t think inflation is guaranteed in the near future. (Nor is a lack of inflation, for that matter).

I think the OP is looking farther out. For his scheme to work, inflation doesn’t have to be higher next year — it has to be higher on average over the next 30 years. So it’s really more of a long-term consideration. My opinion on the long term is that considering the relative lack of productivity in our economy, increasing competition for resources, the chance of a loss of confidence in dollars and/or ust’s, and most of all how difficult it would be to reduce our debt burden in real terms, I think inflation will be higher than most people expect. But that is, of course, speculation and my own opinion.

[Rich Toscano]

OK, there are assumptions in there, as in any prediction of potential outcomes. But I still feel like I provided a laundry list of things that could potentially cause inflation to rise — none of them are sure things, but they don’t have to be, because (to me anyway) we are talking about risks and probabilities. I think some of them are pretty decent probabilities, but of course, that all comes down to speculation on the future.

You are correct that we’ve increased government debt for a long time, but surely you agree that just because it hasn’t caused a problem yet, doesn’t mean it never will. (Look for instance at the increase in mortgage debt in this country — it went up and up and up, with that consistency lulling people into a false sense of security, until people realized that security was misplaced).

You are also correct that we’ve had loose monetary policy for a long time. I believe that has largely fed into inflation in asset prices rather than in consumer prices. That could continue for a while. But it surely won’t be indefinite, and it requires certain conditions — foreign CB’s buying up lots of our debt is a notable one — that cannot be depended upon to last. (For background on loose monetary policy vis. asset prices I very, very highly recommend Grantham’s “Night of the Living Fed” essay).

I think there may be some timeline confusion here. You are asking, what WILL cause inflation in the near future. Well, nothing WILL (not dependably, if you see what I mean). But some stuff might, if they happen in the near future. Those are the “hypotheticals” I outlined in the earlier comment. So just to be clear, I don’t think inflation is guaranteed in the near future. (Nor is a lack of inflation, for that matter).

I think the OP is looking farther out. For his scheme to work, inflation doesn’t have to be higher next year — it has to be higher on average over the next 30 years. So it’s really more of a long-term consideration. My opinion on the long term is that considering the relative lack of productivity in our economy, increasing competition for resources, the chance of a loss of confidence in dollars and/or ust’s, and most of all how difficult it would be to reduce our debt burden in real terms, I think inflation will be higher than most people expect. But that is, of course, speculation and my own opinion.

[Rich Toscano]

OK, there are assumptions in there, as in any prediction of potential outcomes. But I still feel like I provided a laundry list of things that could potentially cause inflation to rise — none of them are sure things, but they don’t have to be, because (to me anyway) we are talking about risks and probabilities. I think some of them are pretty decent probabilities, but of course, that all comes down to speculation on the future.

You are correct that we’ve increased government debt for a long time, but surely you agree that just because it hasn’t caused a problem yet, doesn’t mean it never will. (Look for instance at the increase in mortgage debt in this country — it went up and up and up, with that consistency lulling people into a false sense of security, until people realized that security was misplaced).

You are also correct that we’ve had loose monetary policy for a long time. I believe that has largely fed into inflation in asset prices rather than in consumer prices. That could continue for a while. But it surely won’t be indefinite, and it requires certain conditions — foreign CB’s buying up lots of our debt is a notable one — that cannot be depended upon to last. (For background on loose monetary policy vis. asset prices I very, very highly recommend Grantham’s “Night of the Living Fed” essay).

I think there may be some timeline confusion here. You are asking, what WILL cause inflation in the near future. Well, nothing WILL (not dependably, if you see what I mean). But some stuff might, if they happen in the near future. Those are the “hypotheticals” I outlined in the earlier comment. So just to be clear, I don’t think inflation is guaranteed in the near future. (Nor is a lack of inflation, for that matter).

I think the OP is looking farther out. For his scheme to work, inflation doesn’t have to be higher next year — it has to be higher on average over the next 30 years. So it’s really more of a long-term consideration. My opinion on the long term is that considering the relative lack of productivity in our economy, increasing competition for resources, the chance of a loss of confidence in dollars and/or ust’s, and most of all how difficult it would be to reduce our debt burden in real terms, I think inflation will be higher than most people expect. But that is, of course, speculation and my own opinion.

[Rich Toscano]

OK, there are assumptions in there, as in any prediction of potential outcomes. But I still feel like I provided a laundry list of things that could potentially cause inflation to rise — none of them are sure things, but they don’t have to be, because (to me anyway) we are talking about risks and probabilities. I think some of them are pretty decent probabilities, but of course, that all comes down to speculation on the future.

You are correct that we’ve increased government debt for a long time, but surely you agree that just because it hasn’t caused a problem yet, doesn’t mean it never will. (Look for instance at the increase in mortgage debt in this country — it went up and up and up, with that consistency lulling people into a false sense of security, until people realized that security was misplaced).

You are also correct that we’ve had loose monetary policy for a long time. I believe that has largely fed into inflation in asset prices rather than in consumer prices. That could continue for a while. But it surely won’t be indefinite, and it requires certain conditions — foreign CB’s buying up lots of our debt is a notable one — that cannot be depended upon to last. (For background on loose monetary policy vis. asset prices I very, very highly recommend Grantham’s “Night of the Living Fed” essay).

I think there may be some timeline confusion here. You are asking, what WILL cause inflation in the near future. Well, nothing WILL (not dependably, if you see what I mean). But some stuff might, if they happen in the near future. Those are the “hypotheticals” I outlined in the earlier comment. So just to be clear, I don’t think inflation is guaranteed in the near future. (Nor is a lack of inflation, for that matter).

I think the OP is looking farther out. For his scheme to work, inflation doesn’t have to be higher next year — it has to be higher on average over the next 30 years. So it’s really more of a long-term consideration. My opinion on the long term is that considering the relative lack of productivity in our economy, increasing competition for resources, the chance of a loss of confidence in dollars and/or ust’s, and most of all how difficult it would be to reduce our debt burden in real terms, I think inflation will be higher than most people expect. But that is, of course, speculation and my own opinion.

[Anonymous]

Rich,

If I used the word hypothetical when describing your response, it wasn’t the best word choice.

Probably better to say that there were a lot of assumptions in your response. Of course you are trying to predict the future, so the use of some assumptions are reasonable.

I’m really just looking for a common-sense version of the pro-inflation argument. One that’s not too thick with economic theory and jargon. That’s why I choose to pose the question in familiar, everyday terms.

I’m not posing a fictitious situation.

I’m aware of the watered-down Econ 101 explanation: Printing money leads to inflation.

But basic facts suggest that our current situation not that simple.

We’ve had increasing debt for decades.

We’ve had “loose” monetary policy for a long time.

There haven’t been any signs of high inflation.

Lots of folks are sure it’s coming, and yet no one is raising prices.

The OP suggested that “serious inflation is coming.” I take that to mean annual inflation way well of 5% starting in the next 10 years. Otherwise leveraging in illiquid asset, even at 4.5%, is really not the slam-dunk he describes.

Inflation is nowhere near these numbers.

Why will anyone start raising prices any time in the near future?

My question is not hypothetical at all.

[Anonymous]

Rich,

If I used the word hypothetical when describing your response, it wasn’t the best word choice.

Probably better to say that there were a lot of assumptions in your response. Of course you are trying to predict the future, so the use of some assumptions are reasonable.

I’m really just looking for a common-sense version of the pro-inflation argument. One that’s not too thick with economic theory and jargon. That’s why I choose to pose the question in familiar, everyday terms.

I’m not posing a fictitious situation.

I’m aware of the watered-down Econ 101 explanation: Printing money leads to inflation.

But basic facts suggest that our current situation not that simple.

We’ve had increasing debt for decades.

We’ve had “loose” monetary policy for a long time.

There haven’t been any signs of high inflation.

Lots of folks are sure it’s coming, and yet no one is raising prices.

The OP suggested that “serious inflation is coming.” I take that to mean annual inflation way well of 5% starting in the next 10 years. Otherwise leveraging in illiquid asset, even at 4.5%, is really not the slam-dunk he describes.

Inflation is nowhere near these numbers.

Why will anyone start raising prices any time in the near future?

My question is not hypothetical at all.

[Anonymous]

Rich,

If I used the word hypothetical when describing your response, it wasn’t the best word choice.

Probably better to say that there were a lot of assumptions in your response. Of course you are trying to predict the future, so the use of some assumptions are reasonable.

I’m really just looking for a common-sense version of the pro-inflation argument. One that’s not too thick with economic theory and jargon. That’s why I choose to pose the question in familiar, everyday terms.

I’m not posing a fictitious situation.

I’m aware of the watered-down Econ 101 explanation: Printing money leads to inflation.

But basic facts suggest that our current situation not that simple.

We’ve had increasing debt for decades.

We’ve had “loose” monetary policy for a long time.

There haven’t been any signs of high inflation.

Lots of folks are sure it’s coming, and yet no one is raising prices.

The OP suggested that “serious inflation is coming.” I take that to mean annual inflation way well of 5% starting in the next 10 years. Otherwise leveraging in illiquid asset, even at 4.5%, is really not the slam-dunk he describes.

Inflation is nowhere near these numbers.

Why will anyone start raising prices any time in the near future?

My question is not hypothetical at all.

[Anonymous]

Rich,

If I used the word hypothetical when describing your response, it wasn’t the best word choice.

Probably better to say that there were a lot of assumptions in your response. Of course you are trying to predict the future, so the use of some assumptions are reasonable.

I’m really just looking for a common-sense version of the pro-inflation argument. One that’s not too thick with economic theory and jargon. That’s why I choose to pose the question in familiar, everyday terms.

I’m not posing a fictitious situation.

I’m aware of the watered-down Econ 101 explanation: Printing money leads to inflation.

But basic facts suggest that our current situation not that simple.

We’ve had increasing debt for decades.

We’ve had “loose” monetary policy for a long time.

There haven’t been any signs of high inflation.

Lots of folks are sure it’s coming, and yet no one is raising prices.

The OP suggested that “serious inflation is coming.” I take that to mean annual inflation way well of 5% starting in the next 10 years. Otherwise leveraging in illiquid asset, even at 4.5%, is really not the slam-dunk he describes.

Inflation is nowhere near these numbers.

Why will anyone start raising prices any time in the near future?

My question is not hypothetical at all.

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.
[/quote]

Actually I put up a pretty long explanation of possible reasons this could happen. Your response was that there were a lot of hypotheticals in it, but, it was a hypothetical question, no?

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.
[/quote]

Actually I put up a pretty long explanation of possible reasons this could happen. Your response was that there were a lot of hypotheticals in it, but, it was a hypothetical question, no?

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.
[/quote]

Actually I put up a pretty long explanation of possible reasons this could happen. Your response was that there were a lot of hypotheticals in it, but, it was a hypothetical question, no?

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.
[/quote]

Actually I put up a pretty long explanation of possible reasons this could happen. Your response was that there were a lot of hypotheticals in it, but, it was a hypothetical question, no?

[Anonymous]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.

[quote]The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.[/quote]

Of course he has something to do with it. He is part of the chain – part of the economy. Continue with that logic and one could claim that nobody has anything to do with it.

The root cause of inflation is individuals choosing to raise prices. That’s what my original question was all about: Why will any individual, selling anything, choose to raise prices? (and why would other individuals be willing to accept those prices?)

[quote]The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche.[/quote]

I’d have to say my own personal anecdotal evidence is pretty consistent with government stats. It’s hard to really tell because my life situation changes over the years (kids, living in new locations, etc.) So personal stories are of limited value.

But I do know individual perceptions of inflation can be dead wrong. A classic example is gas prices. Walk into any bar and start a conversation about gas prices. I guarantee you’ll hear plenty of “I remember when…” stories. The reality is, that over the long term, gas prices have not risen faster than anything else. But most people believe they’ve increased astronomically.

I’ve been hearing the “government is lying to us about inflation” claim for many years. It doesn’t jive. There’s no possible way that they could have kept it up for this long. The numbers aren’t perfect, but they do essentially capture what they are meant to measure.

[Anonymous]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.

[quote]The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.[/quote]

Of course he has something to do with it. He is part of the chain – part of the economy. Continue with that logic and one could claim that nobody has anything to do with it.

The root cause of inflation is individuals choosing to raise prices. That’s what my original question was all about: Why will any individual, selling anything, choose to raise prices? (and why would other individuals be willing to accept those prices?)

[quote]The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche.[/quote]

I’d have to say my own personal anecdotal evidence is pretty consistent with government stats. It’s hard to really tell because my life situation changes over the years (kids, living in new locations, etc.) So personal stories are of limited value.

But I do know individual perceptions of inflation can be dead wrong. A classic example is gas prices. Walk into any bar and start a conversation about gas prices. I guarantee you’ll hear plenty of “I remember when…” stories. The reality is, that over the long term, gas prices have not risen faster than anything else. But most people believe they’ve increased astronomically.

I’ve been hearing the “government is lying to us about inflation” claim for many years. It doesn’t jive. There’s no possible way that they could have kept it up for this long. The numbers aren’t perfect, but they do essentially capture what they are meant to measure.

[Anonymous]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.

[quote]The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.[/quote]

Of course he has something to do with it. He is part of the chain – part of the economy. Continue with that logic and one could claim that nobody has anything to do with it.

The root cause of inflation is individuals choosing to raise prices. That’s what my original question was all about: Why will any individual, selling anything, choose to raise prices? (and why would other individuals be willing to accept those prices?)

[quote]The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche.[/quote]

I’d have to say my own personal anecdotal evidence is pretty consistent with government stats. It’s hard to really tell because my life situation changes over the years (kids, living in new locations, etc.) So personal stories are of limited value.

But I do know individual perceptions of inflation can be dead wrong. A classic example is gas prices. Walk into any bar and start a conversation about gas prices. I guarantee you’ll hear plenty of “I remember when…” stories. The reality is, that over the long term, gas prices have not risen faster than anything else. But most people believe they’ve increased astronomically.

I’ve been hearing the “government is lying to us about inflation” claim for many years. It doesn’t jive. There’s no possible way that they could have kept it up for this long. The numbers aren’t perfect, but they do essentially capture what they are meant to measure.

[Anonymous]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses.[/quote]

Ok, but why will will his expenses go up? Still no explanation.

[quote]The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.[/quote]

Of course he has something to do with it. He is part of the chain – part of the economy. Continue with that logic and one could claim that nobody has anything to do with it.

The root cause of inflation is individuals choosing to raise prices. That’s what my original question was all about: Why will any individual, selling anything, choose to raise prices? (and why would other individuals be willing to accept those prices?)

[quote]The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche.[/quote]

I’d have to say my own personal anecdotal evidence is pretty consistent with government stats. It’s hard to really tell because my life situation changes over the years (kids, living in new locations, etc.) So personal stories are of limited value.

But I do know individual perceptions of inflation can be dead wrong. A classic example is gas prices. Walk into any bar and start a conversation about gas prices. I guarantee you’ll hear plenty of “I remember when…” stories. The reality is, that over the long term, gas prices have not risen faster than anything else. But most people believe they’ve increased astronomically.

I’ve been hearing the “government is lying to us about inflation” claim for many years. It doesn’t jive. There’s no possible way that they could have kept it up for this long. The numbers aren’t perfect, but they do essentially capture what they are meant to measure.

[bearishgurl]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.[/quote]

Totally agree, SDR. When I am in the Ralphs or Vons in the early morning a couple of times a week, I always see sr citizens make a beeline for the clearance table/racks to the bent cans and smashed boxes and hover over the marked-down meat section and marked-down bakery cart to see what is available. Some just sigh and leave with nothing and hit the next Vons/Ralphs to do the same thing.

I am just incredulous how a =<.50 can of green beans has turned into $1.50 overnight! Groceries have gone up a LOT in the last 18 months, even at the military commissaries. SDGE has also gone up some, although I severely limit my own usage to keep my bill manageable.

[bearishgurl]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.[/quote]

Totally agree, SDR. When I am in the Ralphs or Vons in the early morning a couple of times a week, I always see sr citizens make a beeline for the clearance table/racks to the bent cans and smashed boxes and hover over the marked-down meat section and marked-down bakery cart to see what is available. Some just sigh and leave with nothing and hit the next Vons/Ralphs to do the same thing.

I am just incredulous how a =<.50 can of green beans has turned into $1.50 overnight! Groceries have gone up a LOT in the last 18 months, even at the military commissaries. SDGE has also gone up some, although I severely limit my own usage to keep my bill manageable.

[bearishgurl]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.[/quote]

Totally agree, SDR. When I am in the Ralphs or Vons in the early morning a couple of times a week, I always see sr citizens make a beeline for the clearance table/racks to the bent cans and smashed boxes and hover over the marked-down meat section and marked-down bakery cart to see what is available. Some just sigh and leave with nothing and hit the next Vons/Ralphs to do the same thing.

I am just incredulous how a =<.50 can of green beans has turned into $1.50 overnight! Groceries have gone up a LOT in the last 18 months, even at the military commissaries. SDGE has also gone up some, although I severely limit my own usage to keep my bill manageable.

[bearishgurl]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.[/quote]

Totally agree, SDR. When I am in the Ralphs or Vons in the early morning a couple of times a week, I always see sr citizens make a beeline for the clearance table/racks to the bent cans and smashed boxes and hover over the marked-down meat section and marked-down bakery cart to see what is available. Some just sigh and leave with nothing and hit the next Vons/Ralphs to do the same thing.

I am just incredulous how a =<.50 can of green beans has turned into $1.50 overnight! Groceries have gone up a LOT in the last 18 months, even at the military commissaries. SDGE has also gone up some, although I severely limit my own usage to keep my bill manageable.

[bearishgurl]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.[/quote]

Totally agree, SDR. When I am in the Ralphs or Vons in the early morning a couple of times a week, I always see sr citizens make a beeline for the clearance table/racks to the bent cans and smashed boxes and hover over the marked-down meat section and marked-down bakery cart to see what is available. Some just sigh and leave with nothing and hit the next Vons/Ralphs to do the same thing.

I am just incredulous how a =<.50 can of green beans has turned into $1.50 overnight! Groceries have gone up a LOT in the last 18 months, even at the military commissaries. SDGE has also gone up some, although I severely limit my own usage to keep my bill manageable.

[Effective Demand]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

[/quote]

Commodity prices are just one point in the chain. Labor costs are many times the largest expense and they are relatively flat. Commercial real estate prices and rents are flat to down. There can be many scenarios in which a commodity prices have risen but prices are flat to down. It all depends on how big of a percentage commodity prices are of the end product pricing and what the other inputs are doing.

I personally think CPI has generally got things correct, disinflationary conditions. But recently (since late summer) I have noticed pricing power by lower end retailers (in fact most of the softness I have personally witnessed is in the higher end brands).

[Effective Demand]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

[/quote]

Commodity prices are just one point in the chain. Labor costs are many times the largest expense and they are relatively flat. Commercial real estate prices and rents are flat to down. There can be many scenarios in which a commodity prices have risen but prices are flat to down. It all depends on how big of a percentage commodity prices are of the end product pricing and what the other inputs are doing.

I personally think CPI has generally got things correct, disinflationary conditions. But recently (since late summer) I have noticed pricing power by lower end retailers (in fact most of the softness I have personally witnessed is in the higher end brands).

[Effective Demand]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

[/quote]

Commodity prices are just one point in the chain. Labor costs are many times the largest expense and they are relatively flat. Commercial real estate prices and rents are flat to down. There can be many scenarios in which a commodity prices have risen but prices are flat to down. It all depends on how big of a percentage commodity prices are of the end product pricing and what the other inputs are doing.

I personally think CPI has generally got things correct, disinflationary conditions. But recently (since late summer) I have noticed pricing power by lower end retailers (in fact most of the softness I have personally witnessed is in the higher end brands).

[Effective Demand]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

[/quote]

Commodity prices are just one point in the chain. Labor costs are many times the largest expense and they are relatively flat. Commercial real estate prices and rents are flat to down. There can be many scenarios in which a commodity prices have risen but prices are flat to down. It all depends on how big of a percentage commodity prices are of the end product pricing and what the other inputs are doing.

I personally think CPI has generally got things correct, disinflationary conditions. But recently (since late summer) I have noticed pricing power by lower end retailers (in fact most of the softness I have personally witnessed is in the higher end brands).

[Effective Demand]

[quote=SD Realtor]The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

[/quote]

Commodity prices are just one point in the chain. Labor costs are many times the largest expense and they are relatively flat. Commercial real estate prices and rents are flat to down. There can be many scenarios in which a commodity prices have risen but prices are flat to down. It all depends on how big of a percentage commodity prices are of the end product pricing and what the other inputs are doing.

I personally think CPI has generally got things correct, disinflationary conditions. But recently (since late summer) I have noticed pricing power by lower end retailers (in fact most of the softness I have personally witnessed is in the higher end brands).

[SD Realtor]

The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.

[SD Realtor]

The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.

[SD Realtor]

The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.

[SD Realtor]

The manager at ralphs will simply pass on his expenses. It is pretty easy to follow the commodity trail. Start at the cost of water and fuel. People who grow everything from fruits/vegetables to feed for cattle/pigs etc incur higher prices. Increasing fuel prices also impact them and the transporters who are needed for the supply chain. Cotton and other things that are grown for textiles and clothing are affected. Pretty much everything at the base is affected and as you move up the manufacturing chain additional costs are added.

The manager at Ralphs has nothing to do with it. he is simply the endpoint in the supply chain.

The other thing is that you are making an implicit assumption about inflation and that is you are accepting the statistics carte blanche. I guess personally I am more skeptical. I don’t believe the unemployment stats and I don’t believe the inflation stats. I simply look back on my on ledger for what I spend on food and clothing over the past few years and the increase is noticeable. Same with my electric and gas bills for the same home. Much more then the 1 or 2% I am being told by the govt.

[Anonymous]

I understand that there is some inflation, but it is no higher than historical norms.

I wasn’t suggesting that there is zero inflation in food prices.

So, to be more precise, perhaps my original question should have been: “What will prompt the manager at Ralphs to raise his prices more than he has been every year for decades?”

If the debt is going to inflate away, at some point wee need to see an *increasing* rate of inflation. So far, we haven’t.

[Anonymous]

I understand that there is some inflation, but it is no higher than historical norms.

I wasn’t suggesting that there is zero inflation in food prices.

So, to be more precise, perhaps my original question should have been: “What will prompt the manager at Ralphs to raise his prices more than he has been every year for decades?”

If the debt is going to inflate away, at some point wee need to see an *increasing* rate of inflation. So far, we haven’t.

[Anonymous]

I understand that there is some inflation, but it is no higher than historical norms.

I wasn’t suggesting that there is zero inflation in food prices.

So, to be more precise, perhaps my original question should have been: “What will prompt the manager at Ralphs to raise his prices more than he has been every year for decades?”

If the debt is going to inflate away, at some point wee need to see an *increasing* rate of inflation. So far, we haven’t.

[Anonymous]

I understand that there is some inflation, but it is no higher than historical norms.

I wasn’t suggesting that there is zero inflation in food prices.

So, to be more precise, perhaps my original question should have been: “What will prompt the manager at Ralphs to raise his prices more than he has been every year for decades?”

If the debt is going to inflate away, at some point wee need to see an *increasing* rate of inflation. So far, we haven’t.

[Rich Toscano]

That is a graph of the rate of inflation. Except for a brief dip into negative territory in 09 (and a couple even briefer dips earlier), the rate of inflation has been positive the whole time… that means prices at Ralphs are going up.

[Rich Toscano]

That is a graph of the rate of inflation. Except for a brief dip into negative territory in 09 (and a couple even briefer dips earlier), the rate of inflation has been positive the whole time… that means prices at Ralphs are going up.

[Rich Toscano]

That is a graph of the rate of inflation. Except for a brief dip into negative territory in 09 (and a couple even briefer dips earlier), the rate of inflation has been positive the whole time… that means prices at Ralphs are going up.

[Rich Toscano]

That is a graph of the rate of inflation. Except for a brief dip into negative territory in 09 (and a couple even briefer dips earlier), the rate of inflation has been positive the whole time… that means prices at Ralphs are going up.

[Anonymous]

Food inflation:

http://data.bls.gov/cgi-bin/surveymost?cu

Some volatility in the past few years, which is not surprising, but no clear upward trend.

Am I missing something?

[Anonymous]

Food inflation:

http://data.bls.gov/cgi-bin/surveymost?cu

Some volatility in the past few years, which is not surprising, but no clear upward trend.

Am I missing something?

[Anonymous]

Food inflation:

http://data.bls.gov/cgi-bin/surveymost?cu

Some volatility in the past few years, which is not surprising, but no clear upward trend.

Am I missing something?

[Anonymous]

Food inflation:

http://data.bls.gov/cgi-bin/surveymost?cu

Some volatility in the past few years, which is not surprising, but no clear upward trend.

Am I missing something?

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]

Go to the BLS website and chart food inflation… grocery store was the example you used.

You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.

I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]

Go to the BLS website and chart food inflation… grocery store was the example you used.

You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.

I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]

Go to the BLS website and chart food inflation… grocery store was the example you used.

You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.

I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.[/quote]

Go to the BLS website and chart food inflation… grocery store was the example you used.

You might have been right in the 80s, eventually, but the Asian mercantilists came in and propped up our currency while bringing down goods prices, which extended the fun for quite a while (and may yet do so). But someday that will stop if not go in reverse.

I agree that there is no master plan. Didn’t mean to imply that, as I agree that politicians are motivated by the short term. I meant that the aggregate decisions will move toward an inflationary outcome because there is really no other politically expedient outcome (and as a bonus, inflationary policy is appealing to short-sighted politicians on its own “merit”).

[Anonymous]

[quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.

[Anonymous]

[quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.

[Anonymous]

[quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.

[Anonymous]

[quote=Rich Toscano]Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).[/quote]

Rich, can you provide some stats on that?

http://blogs.wsj.com/marketbeat/2010/12/15/nov-cpi-offers-little-to-inflationmongers/?KEYWORDS=inflation

http://blogs.wsj.com/economics/2010/12/15/economists-disagree-on-future-path-of-inflation/?KEYWORDS=inflation

http://online.wsj.com/article/SB10001424052748704828104576021262542609064.html?KEYWORDS=inflation

I appreciate the rest of your response, but there are a lot of hypotheticals in your argument.

As far as inflation being the only “politically expedient” way to manage the debt, it does makes sense. But I recall hearing that same claim during the Reagan administration (I was one of the folks making the claim). More than twenty years later, it still hasn’t happened.

A fundamental problem with the “inflate the debt away” argument is that it assumes that there are people in power with a “master plan” and a long-term vision on the economy (10+ years). There really is nobody in government making these sorts of decisions (if there is, they are cycled out every few years anyway.) Now it may be the case that the culmination of short-term decisions will ultimately lead to unstoppable inflation in the long-term. But even if this does happen, the long-term may me much further out than many are predicting.

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).

But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:

1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect

2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

Notice that none of the above require either US employment or labor costs to be high or rising.

You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.

An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.

Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).

But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:

1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect

2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

Notice that none of the above require either US employment or labor costs to be high or rising.

You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.

An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.

Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).

But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:

1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect

2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

Notice that none of the above require either US employment or labor costs to be high or rising.

You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.

An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.

Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).

[Rich Toscano]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

Prices at your local Ralphs have in fact been rising. They have at Albertson’s too (at least according to the CPI).

But to answer the question: Off the top of my head, QE can lead to somewhat higher inflation in the following ways:

1. Increasing asset prices, which is a stated goal of QE and seems to have worked for now, increases people’s propensity to spend via the wealth effect

2. To the extent that broad money supply does increase, that leads to an increase in aggregate demand in excess of what it otherwise would have been. (if times are tough, the demand will be more apparent in the “necessities” such as food, since we are using that as an example).

3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.

4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.

5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.

Notice that none of the above require either US employment or labor costs to be high or rising.

You asked how QE could cause “massive” inflation. I’m not really sure what that means. But inflation can be self-feeding in that if it gets past a certain point, inflation fears cause people to spend money faster, or to redeploy their paper cash into hard assets, which makes inflation even worse.

An abrupt rise in inflation is also possible, and could be caused for instance by a sudden drop in confidence in US debt or dollars. This would lead to all of the above list happening to a larger degree, and would also result in the supply of dollars growing as dollars come out from under mattresses throughout the world to seek safer stores of value and drive dollar-denominated prices up. We’ve seen that sudden losses of confidence in financial assets are possible, and we’ve even seen this happen with sovereign debt and currencies recently. Given the precarious debt situation faced by the US it’s entirely possible that could happen here. This is not necessarily an inflation being “caused by” QE, but it’s possible that continued debt monetization could be one of the items that causes global markets to lose confidence in US currency and bonds.

Speaking outside the QE2-as-direct-causation question, I think the premise who suspect high future inflation is that it is really the only politically expedient way to get our debt back to manageable levels. (The sub-premise being that it is only manageable now because it’s so unbelievably easy to roll over in this environment, and that ease is a result of markets mispricing the US ability/intent to pay back debt in real terms).

[CA renter]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

They will have to raise prices because the cost of their goods is going up. As SDR has pointed out before (and I agree), prices of most basic necessities have gone up in the past year.

With IPods and such, people don’t need to buy if prices rise too dramatically, but people will always need food, energy, water, housing, medical care, etc.; and the prices of ALL of those things have been going up, even during “The Greatest Recesssion Since the Great Depression.”

It’s not whether or not the local consumers can afford it, in many cases, it’s a problem of too much money in investors’ hands that cause prices to rise. Currency issues play a huge part in this. Most investors are trying to hedge against inflation, so they are buying up all kinds of hard assets. End consumers just have to pay the price set by these speculators, whether we like it or not.

edit: Just saw Rich’s above post adressing this point. Agree with what he said.

[SD Realtor]

Pretty funny CAR. Yes in a post several weeks ago I was whining about how much more my grocery bills were this year compared to last year.

[SD Realtor]

Pretty funny CAR. Yes in a post several weeks ago I was whining about how much more my grocery bills were this year compared to last year.

[SD Realtor]

Pretty funny CAR. Yes in a post several weeks ago I was whining about how much more my grocery bills were this year compared to last year.

[SD Realtor]

Pretty funny CAR. Yes in a post several weeks ago I was whining about how much more my grocery bills were this year compared to last year.

[SD Realtor]

Pretty funny CAR. Yes in a post several weeks ago I was whining about how much more my grocery bills were this year compared to last year.

[CA renter]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

They will have to raise prices because the cost of their goods is going up. As SDR has pointed out before (and I agree), prices of most basic necessities have gone up in the past year.

With IPods and such, people don’t need to buy if prices rise too dramatically, but people will always need food, energy, water, housing, medical care, etc.; and the prices of ALL of those things have been going up, even during “The Greatest Recesssion Since the Great Depression.”

It’s not whether or not the local consumers can afford it, in many cases, it’s a problem of too much money in investors’ hands that cause prices to rise. Currency issues play a huge part in this. Most investors are trying to hedge against inflation, so they are buying up all kinds of hard assets. End consumers just have to pay the price set by these speculators, whether we like it or not.

edit: Just saw Rich’s above post adressing this point. Agree with what he said.

[CA renter]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

They will have to raise prices because the cost of their goods is going up. As SDR has pointed out before (and I agree), prices of most basic necessities have gone up in the past year.

With IPods and such, people don’t need to buy if prices rise too dramatically, but people will always need food, energy, water, housing, medical care, etc.; and the prices of ALL of those things have been going up, even during “The Greatest Recesssion Since the Great Depression.”

It’s not whether or not the local consumers can afford it, in many cases, it’s a problem of too much money in investors’ hands that cause prices to rise. Currency issues play a huge part in this. Most investors are trying to hedge against inflation, so they are buying up all kinds of hard assets. End consumers just have to pay the price set by these speculators, whether we like it or not.

edit: Just saw Rich’s above post adressing this point. Agree with what he said.

[CA renter]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

They will have to raise prices because the cost of their goods is going up. As SDR has pointed out before (and I agree), prices of most basic necessities have gone up in the past year.

With IPods and such, people don’t need to buy if prices rise too dramatically, but people will always need food, energy, water, housing, medical care, etc.; and the prices of ALL of those things have been going up, even during “The Greatest Recesssion Since the Great Depression.”

It’s not whether or not the local consumers can afford it, in many cases, it’s a problem of too much money in investors’ hands that cause prices to rise. Currency issues play a huge part in this. Most investors are trying to hedge against inflation, so they are buying up all kinds of hard assets. End consumers just have to pay the price set by these speculators, whether we like it or not.

edit: Just saw Rich’s above post adressing this point. Agree with what he said.

[CA renter]

[quote=pri_dk][quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”[/quote]

They will have to raise prices because the cost of their goods is going up. As SDR has pointed out before (and I agree), prices of most basic necessities have gone up in the past year.

With IPods and such, people don’t need to buy if prices rise too dramatically, but people will always need food, energy, water, housing, medical care, etc.; and the prices of ALL of those things have been going up, even during “The Greatest Recesssion Since the Great Depression.”

It’s not whether or not the local consumers can afford it, in many cases, it’s a problem of too much money in investors’ hands that cause prices to rise. Currency issues play a huge part in this. Most investors are trying to hedge against inflation, so they are buying up all kinds of hard assets. End consumers just have to pay the price set by these speculators, whether we like it or not.

edit: Just saw Rich’s above post adressing this point. Agree with what he said.

[Anonymous]

[quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”

[Anonymous]

[quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”

[Anonymous]

[quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”

[Anonymous]

[quote=SD Realtor]So necessary commodities like food, resources and other tangible goods will go up in cost.[/quote]

Why?

What will prompt my local Ralphs to raise prices?

Is the store manager going to read about QE2 and start remarking items on the shelves?

And what will stop the manager at Albertsons from lowering his prices? Because of high unemployment his cost of labor is lower. So he decides to get an edge on Ralphs…

Can someone explain exactly how current policy leads to massive inflation without simply using the premise that “printing money leads to inflation?”

[ocrenter]

[quote=SD Realtor]Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it. [/quote]

agree we are unlikely to see significant housing appreciation. as for depreciation, I think we would have to break that down to segments of the market. for example the over $1 million market. Overall I think for the most part depreciation of the middle of the road inventory is pretty much done.

overall rising prices certainly is a concern, but I do believe WE THE PEOPLE prefer overall rise in daily prices than any policy that would lead to significant drop in housing price. And the government will bend to the will of the people.

[SD Realtor]

hahahaha

Excellent post. Yes WE THE PEOPLE do want that.

Very good point about different price levels depreciating differently in a high rate environment. Completely agree with that.

[SD Realtor]

hahahaha

Excellent post. Yes WE THE PEOPLE do want that.

Very good point about different price levels depreciating differently in a high rate environment. Completely agree with that.

[SD Realtor]

hahahaha

Excellent post. Yes WE THE PEOPLE do want that.

Very good point about different price levels depreciating differently in a high rate environment. Completely agree with that.

[SD Realtor]

hahahaha

Excellent post. Yes WE THE PEOPLE do want that.

Very good point about different price levels depreciating differently in a high rate environment. Completely agree with that.

[SD Realtor]

hahahaha

Excellent post. Yes WE THE PEOPLE do want that.

Very good point about different price levels depreciating differently in a high rate environment. Completely agree with that.

[ocrenter]

[quote=SD Realtor]Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it. [/quote]

agree we are unlikely to see significant housing appreciation. as for depreciation, I think we would have to break that down to segments of the market. for example the over $1 million market. Overall I think for the most part depreciation of the middle of the road inventory is pretty much done.

overall rising prices certainly is a concern, but I do believe WE THE PEOPLE prefer overall rise in daily prices than any policy that would lead to significant drop in housing price. And the government will bend to the will of the people.

[ocrenter]

[quote=SD Realtor]Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it. [/quote]

agree we are unlikely to see significant housing appreciation. as for depreciation, I think we would have to break that down to segments of the market. for example the over $1 million market. Overall I think for the most part depreciation of the middle of the road inventory is pretty much done.

overall rising prices certainly is a concern, but I do believe WE THE PEOPLE prefer overall rise in daily prices than any policy that would lead to significant drop in housing price. And the government will bend to the will of the people.

[ocrenter]

[quote=SD Realtor]Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it. [/quote]

agree we are unlikely to see significant housing appreciation. as for depreciation, I think we would have to break that down to segments of the market. for example the over $1 million market. Overall I think for the most part depreciation of the middle of the road inventory is pretty much done.

overall rising prices certainly is a concern, but I do believe WE THE PEOPLE prefer overall rise in daily prices than any policy that would lead to significant drop in housing price. And the government will bend to the will of the people.

[ocrenter]

[quote=SD Realtor]Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it. [/quote]

agree we are unlikely to see significant housing appreciation. as for depreciation, I think we would have to break that down to segments of the market. for example the over $1 million market. Overall I think for the most part depreciation of the middle of the road inventory is pretty much done.

overall rising prices certainly is a concern, but I do believe WE THE PEOPLE prefer overall rise in daily prices than any policy that would lead to significant drop in housing price. And the government will bend to the will of the people.

[SD Realtor]

Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it.

So that theary by the OP to buy now with someone elses money seems to make sense regardless of whether the home appreciates or depreciates. Buy the asset now with money that is borrowed and becoming worthless verses waiting until your own money is much more worthless but the asset has declined in value. I think the premise makes sense but everyone has a different situation depending on their holdings.

[SD Realtor]

Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it.

So that theary by the OP to buy now with someone elses money seems to make sense regardless of whether the home appreciates or depreciates. Buy the asset now with money that is borrowed and becoming worthless verses waiting until your own money is much more worthless but the asset has declined in value. I think the premise makes sense but everyone has a different situation depending on their holdings.

[SD Realtor]

Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it.

So that theary by the OP to buy now with someone elses money seems to make sense regardless of whether the home appreciates or depreciates. Buy the asset now with money that is borrowed and becoming worthless verses waiting until your own money is much more worthless but the asset has declined in value. I think the premise makes sense but everyone has a different situation depending on their holdings.

[SD Realtor]

Pretty much agree with you ocr. I don’t see home prices rising due to the rate hikes that will come. Rather I see them depreciating, it is just how severe that I am unsure of. Inflation without job growth to me will be the worst of both worlds. So necessary commodities like food, resources and other tangible goods will go up in cost. Similarly other investment vehicles like bonds and such will be giving healthy returns as the money supply tightens. Also, as with any situation there will be alot of people with money and they will take advantage of the cheaper rela estate without having to incur large financing issues. To me depreciation will occur but I am not sure how much. It will be a great time to buy real estate but not if you have to finance much of it.

So that theary by the OP to buy now with someone elses money seems to make sense regardless of whether the home appreciates or depreciates. Buy the asset now with money that is borrowed and becoming worthless verses waiting until your own money is much more worthless but the asset has declined in value. I think the premise makes sense but everyone has a different situation depending on their holdings.

[ocrenter]

aimloan’s jr jumbo is now at 4.875%. The refi just a few months ago is already looking better.

[ocrenter]

aimloan’s jr jumbo is now at 4.875%. The refi just a few months ago is already looking better.

[ocrenter]

aimloan’s jr jumbo is now at 4.875%. The refi just a few months ago is already looking better.

[ocrenter]

aimloan’s jr jumbo is now at 4.875%. The refi just a few months ago is already looking better.

[permabear]

[quote=ocrenter]While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.[/quote]

Did somebody say my name? 🙂

I actually think the economy is getting better, albeit very slowly. Monthly fluctuations can obscure the overall trend:

http://www.aheadofthecurve-thebook.com/11-03.html

It is interesting that the bond market is giving the middle finger to QE2 though.

In the long term, our country is still f’ed unless we figure out a way to fund stuff like education and bridges. Maybe we just need a few more bridges to collapse and then we can push thru a TBRP – Troubled Bridge Relief Program.

[permabear]

[quote=ocrenter]While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.[/quote]

Did somebody say my name? 🙂

I actually think the economy is getting better, albeit very slowly. Monthly fluctuations can obscure the overall trend:

http://www.aheadofthecurve-thebook.com/11-03.html

It is interesting that the bond market is giving the middle finger to QE2 though.

In the long term, our country is still f’ed unless we figure out a way to fund stuff like education and bridges. Maybe we just need a few more bridges to collapse and then we can push thru a TBRP – Troubled Bridge Relief Program.

[permabear]

[quote=ocrenter]While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.[/quote]

Did somebody say my name? 🙂

I actually think the economy is getting better, albeit very slowly. Monthly fluctuations can obscure the overall trend:

http://www.aheadofthecurve-thebook.com/11-03.html

It is interesting that the bond market is giving the middle finger to QE2 though.

In the long term, our country is still f’ed unless we figure out a way to fund stuff like education and bridges. Maybe we just need a few more bridges to collapse and then we can push thru a TBRP – Troubled Bridge Relief Program.

[permabear]

[quote=ocrenter]While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.[/quote]

Did somebody say my name? 🙂

I actually think the economy is getting better, albeit very slowly. Monthly fluctuations can obscure the overall trend:

http://www.aheadofthecurve-thebook.com/11-03.html

It is interesting that the bond market is giving the middle finger to QE2 though.

In the long term, our country is still f’ed unless we figure out a way to fund stuff like education and bridges. Maybe we just need a few more bridges to collapse and then we can push thru a TBRP – Troubled Bridge Relief Program.

[permabear]

[quote=ocrenter]While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.[/quote]

Did somebody say my name? 🙂

I actually think the economy is getting better, albeit very slowly. Monthly fluctuations can obscure the overall trend:

http://www.aheadofthecurve-thebook.com/11-03.html

It is interesting that the bond market is giving the middle finger to QE2 though.

In the long term, our country is still f’ed unless we figure out a way to fund stuff like education and bridges. Maybe we just need a few more bridges to collapse and then we can push thru a TBRP – Troubled Bridge Relief Program.

[ocrenter]

I firmly agree with OP in regard to the coming inflation and the feeling that essentially that is the ultimate game plan to get us out of the debt crisis.

This scenario will still work for homeowners even if home prices remain stagnate for the foreseeable future. Since homeowners will be using dollars that are significantly less to pay down debt that was worth significantly more.

If instead home prices increase at rate of inflation, that would be an added bonus.

While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.

[ocrenter]

I firmly agree with OP in regard to the coming inflation and the feeling that essentially that is the ultimate game plan to get us out of the debt crisis.

This scenario will still work for homeowners even if home prices remain stagnate for the foreseeable future. Since homeowners will be using dollars that are significantly less to pay down debt that was worth significantly more.

If instead home prices increase at rate of inflation, that would be an added bonus.

While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.

[ocrenter]

I firmly agree with OP in regard to the coming inflation and the feeling that essentially that is the ultimate game plan to get us out of the debt crisis.

This scenario will still work for homeowners even if home prices remain stagnate for the foreseeable future. Since homeowners will be using dollars that are significantly less to pay down debt that was worth significantly more.

If instead home prices increase at rate of inflation, that would be an added bonus.

While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.

[ocrenter]

I firmly agree with OP in regard to the coming inflation and the feeling that essentially that is the ultimate game plan to get us out of the debt crisis.

This scenario will still work for homeowners even if home prices remain stagnate for the foreseeable future. Since homeowners will be using dollars that are significantly less to pay down debt that was worth significantly more.

If instead home prices increase at rate of inflation, that would be an added bonus.

While jumping on bandwagons is typically not the smartest move, being a permabear can be just as bad as for one’s financial health as being a permabull.

[Effective Demand]

imho, i think the fed has won the inflation/deflation debate and that changes the purchase dynamics a lot. Tempering that thought is that we have a lot of stuff to still get through. Also i think many people on the inflation debate equate inflation with hyperinflation and i think that is a mistake (especially if they are using that fear and buying at the limits of their affordability)

Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.

[temeculaguy]

[quote=Effective Demand]Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.[/quote]

If you combine what ED said above and the collective discussion about potential inflation, you’ll be O.K.

If you buy a house that you cannot afford because you think inflation will alter the situation, you are nothing more than a 2006 bubble buyer with a toxic loan. They were buying a house they couldn’t afford because they thought it’s value would rise indefinately. But if you can afford what you are planning on buying, if it works with or without inflation, you will probably end up in great position 15 years from now when your house payment is the size of your car payment.

Prepare for inflation but don’t count on it! It is the system’s “easy button” but it has consequences that they would prefer to avoid. I think the odds are in favor of it but I wouldn’t make it my entire financial plan, just a component of it.

If we do enter a period of high inflation, lets say 6% a year for 5+ years, wages tend to follow but they also tend to lag. Most people’s wages do not adjust on a monthly basis, it balances out over a decade or so but it usually is a game of catch up.

In the early 1970’s you could buy a house with a 30 yr mortgage and by the mid 1980’s your mortgage was similar to a car payment. But it took 15 years and I’m cherry picking a period of time from the past, who knows what the future will bring.

If hyperinflation actually shows up, then those who own will make out like bandits, but it’s never happened in this country, so i wouldn’t bank on it.

[temeculaguy]

[quote=Effective Demand]Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.[/quote]

If you combine what ED said above and the collective discussion about potential inflation, you’ll be O.K.

If you buy a house that you cannot afford because you think inflation will alter the situation, you are nothing more than a 2006 bubble buyer with a toxic loan. They were buying a house they couldn’t afford because they thought it’s value would rise indefinately. But if you can afford what you are planning on buying, if it works with or without inflation, you will probably end up in great position 15 years from now when your house payment is the size of your car payment.

Prepare for inflation but don’t count on it! It is the system’s “easy button” but it has consequences that they would prefer to avoid. I think the odds are in favor of it but I wouldn’t make it my entire financial plan, just a component of it.

If we do enter a period of high inflation, lets say 6% a year for 5+ years, wages tend to follow but they also tend to lag. Most people’s wages do not adjust on a monthly basis, it balances out over a decade or so but it usually is a game of catch up.

In the early 1970’s you could buy a house with a 30 yr mortgage and by the mid 1980’s your mortgage was similar to a car payment. But it took 15 years and I’m cherry picking a period of time from the past, who knows what the future will bring.

If hyperinflation actually shows up, then those who own will make out like bandits, but it’s never happened in this country, so i wouldn’t bank on it.

[temeculaguy]

[quote=Effective Demand]Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.[/quote]

If you combine what ED said above and the collective discussion about potential inflation, you’ll be O.K.

If you buy a house that you cannot afford because you think inflation will alter the situation, you are nothing more than a 2006 bubble buyer with a toxic loan. They were buying a house they couldn’t afford because they thought it’s value would rise indefinately. But if you can afford what you are planning on buying, if it works with or without inflation, you will probably end up in great position 15 years from now when your house payment is the size of your car payment.

Prepare for inflation but don’t count on it! It is the system’s “easy button” but it has consequences that they would prefer to avoid. I think the odds are in favor of it but I wouldn’t make it my entire financial plan, just a component of it.

If we do enter a period of high inflation, lets say 6% a year for 5+ years, wages tend to follow but they also tend to lag. Most people’s wages do not adjust on a monthly basis, it balances out over a decade or so but it usually is a game of catch up.

In the early 1970’s you could buy a house with a 30 yr mortgage and by the mid 1980’s your mortgage was similar to a car payment. But it took 15 years and I’m cherry picking a period of time from the past, who knows what the future will bring.

If hyperinflation actually shows up, then those who own will make out like bandits, but it’s never happened in this country, so i wouldn’t bank on it.

[temeculaguy]

[quote=Effective Demand]Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.[/quote]

If you combine what ED said above and the collective discussion about potential inflation, you’ll be O.K.

If you buy a house that you cannot afford because you think inflation will alter the situation, you are nothing more than a 2006 bubble buyer with a toxic loan. They were buying a house they couldn’t afford because they thought it’s value would rise indefinately. But if you can afford what you are planning on buying, if it works with or without inflation, you will probably end up in great position 15 years from now when your house payment is the size of your car payment.

Prepare for inflation but don’t count on it! It is the system’s “easy button” but it has consequences that they would prefer to avoid. I think the odds are in favor of it but I wouldn’t make it my entire financial plan, just a component of it.

If we do enter a period of high inflation, lets say 6% a year for 5+ years, wages tend to follow but they also tend to lag. Most people’s wages do not adjust on a monthly basis, it balances out over a decade or so but it usually is a game of catch up.

In the early 1970’s you could buy a house with a 30 yr mortgage and by the mid 1980’s your mortgage was similar to a car payment. But it took 15 years and I’m cherry picking a period of time from the past, who knows what the future will bring.

If hyperinflation actually shows up, then those who own will make out like bandits, but it’s never happened in this country, so i wouldn’t bank on it.

[temeculaguy]

[quote=Effective Demand]Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.[/quote]

If you combine what ED said above and the collective discussion about potential inflation, you’ll be O.K.

If you buy a house that you cannot afford because you think inflation will alter the situation, you are nothing more than a 2006 bubble buyer with a toxic loan. They were buying a house they couldn’t afford because they thought it’s value would rise indefinately. But if you can afford what you are planning on buying, if it works with or without inflation, you will probably end up in great position 15 years from now when your house payment is the size of your car payment.

Prepare for inflation but don’t count on it! It is the system’s “easy button” but it has consequences that they would prefer to avoid. I think the odds are in favor of it but I wouldn’t make it my entire financial plan, just a component of it.

If we do enter a period of high inflation, lets say 6% a year for 5+ years, wages tend to follow but they also tend to lag. Most people’s wages do not adjust on a monthly basis, it balances out over a decade or so but it usually is a game of catch up.

In the early 1970’s you could buy a house with a 30 yr mortgage and by the mid 1980’s your mortgage was similar to a car payment. But it took 15 years and I’m cherry picking a period of time from the past, who knows what the future will bring.

If hyperinflation actually shows up, then those who own will make out like bandits, but it’s never happened in this country, so i wouldn’t bank on it.

[Effective Demand]

imho, i think the fed has won the inflation/deflation debate and that changes the purchase dynamics a lot. Tempering that thought is that we have a lot of stuff to still get through. Also i think many people on the inflation debate equate inflation with hyperinflation and i think that is a mistake (especially if they are using that fear and buying at the limits of their affordability)

Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.

[Effective Demand]

imho, i think the fed has won the inflation/deflation debate and that changes the purchase dynamics a lot. Tempering that thought is that we have a lot of stuff to still get through. Also i think many people on the inflation debate equate inflation with hyperinflation and i think that is a mistake (especially if they are using that fear and buying at the limits of their affordability)

Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.

[Effective Demand]

imho, i think the fed has won the inflation/deflation debate and that changes the purchase dynamics a lot. Tempering that thought is that we have a lot of stuff to still get through. Also i think many people on the inflation debate equate inflation with hyperinflation and i think that is a mistake (especially if they are using that fear and buying at the limits of their affordability)

Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.

[Effective Demand]

imho, i think the fed has won the inflation/deflation debate and that changes the purchase dynamics a lot. Tempering that thought is that we have a lot of stuff to still get through. Also i think many people on the inflation debate equate inflation with hyperinflation and i think that is a mistake (especially if they are using that fear and buying at the limits of their affordability)

Buy a house for the right reasons. its right for you and your family and you can afford it. Dont buy expecting to get rich off the house or expecting the house will protect ,you from the ills of the world.

[Rich Toscano]

As to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.

I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).

The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.

Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).

[Rich Toscano]

As to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.

I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).

The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.

Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).

[Rich Toscano]

As to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.

I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).

The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.

Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).

[Rich Toscano]

As to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.

I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).

The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.

Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).

[Rich Toscano]

As to the OP, in my opinion the thinking is pretty sound and I more or less feel exactly the same way.

I am jealous of my friends who have all locked in sub 4.5% 30 year loans. I think their monthly payments will be laughably small in 10 years. Housing prices may go up or down in the years ahead, but unless you are buying in an area that is still heavily on the overpriced side (or maybe even if you do!), I think it will not outweigh the simple benefit of locking in a low nominal payment. (And in aggregate, payments are as low as they’ve ever been).

The hitch is that this only works if you stay in the place (or at least keep it, whether you live there or not) indefinitely. I myself am not ready to commit to buying my indefinite house. There are various reasons for this, but the main two are: 1) a desire for liquidity due to owning my own business, 2) I happen to like living in the areas that are still pretty spendy compared to rents (ie, payments wouldn’t be locked in as low as they might in other areas). As a bonus item the house we are renting is the greatest house ever, which really reduces motivation to buy. If not for these me-specific facts, though, I would probably have already bought, and serially refi’d all the way down to sub 4.5%.

Note that only one of those reasons is related to the market, and note that even that item only applies to certain pockets of town. So, it comes down to personal situation such as how certain you are that you can commit to stay in the place long term, what area you want to live in, etc… but in some situations, I think it absolutely makes sense to buy for exactly the reasons outlined by the OP (and I have told many a client exactly that).

[AK]

“Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.

[Rich Toscano]

[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]

Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).

[Rich Toscano]

[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]

Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).

[Rich Toscano]

[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]

Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).

[Rich Toscano]

[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]

Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).

[Rich Toscano]

[quote=AK]”Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.[/quote]

Actually I believe that it’s only required for nominal incomes to keep up. As long as your fixed payment is falling against your nominal income, you win, even if your real income is falling. (Nominal income, or nominal rents, or nominal rate of investment return… depends what you want to measure your mortgage against, but the point is it’s the nominal number that matters).

[AK]

“Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.

[AK]

“Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.

[AK]

“Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.

[AK]

“Buying with monopoly money” worked for an earlier generation. It’s comforting to know that I have some protection against inflation. Of course this relies on the assumption that real incomes will keep up, or at least won’t fall too far behind.

[Coronita]

You folks are making me regret refinance from a 30 year to 15 year loan, because I thought I would be able to pay off the home early. At this point, perhaps, I should just done another 30 year and made minimum payments of $2k/month, since it’s going to be worthless anyway…Sheesh…

[Coronita]

You folks are making me regret refinance from a 30 year to 15 year loan, because I thought I would be able to pay off the home early. At this point, perhaps, I should just done another 30 year and made minimum payments of $2k/month, since it’s going to be worthless anyway…Sheesh…

[Coronita]

You folks are making me regret refinance from a 30 year to 15 year loan, because I thought I would be able to pay off the home early. At this point, perhaps, I should just done another 30 year and made minimum payments of $2k/month, since it’s going to be worthless anyway…Sheesh…

[Coronita]

You folks are making me regret refinance from a 30 year to 15 year loan, because I thought I would be able to pay off the home early. At this point, perhaps, I should just done another 30 year and made minimum payments of $2k/month, since it’s going to be worthless anyway…Sheesh…

[Coronita]

You folks are making me regret refinance from a 30 year to 15 year loan, because I thought I would be able to pay off the home early. At this point, perhaps, I should just done another 30 year and made minimum payments of $2k/month, since it’s going to be worthless anyway…Sheesh…

[desmond]

Has everybody bought their ideal retirement home?

[sdrealtor]

Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.

[bearishgurl]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I don’t have any degrees in finance and/or economics and thus cannot “walk and talk” this subject what what I CAN “walk and talk” are areas of SD County that I am intimately familiar with and what has transpired in those areas in the past. For this reason, I am completely and utterly “earth-bound.”

[bearishgurl]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I don’t have any degrees in finance and/or economics and thus cannot “walk and talk” this subject what what I CAN “walk and talk” are areas of SD County that I am intimately familiar with and what has transpired in those areas in the past. For this reason, I am completely and utterly “earth-bound.”

[bearishgurl]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I don’t have any degrees in finance and/or economics and thus cannot “walk and talk” this subject what what I CAN “walk and talk” are areas of SD County that I am intimately familiar with and what has transpired in those areas in the past. For this reason, I am completely and utterly “earth-bound.”

[bearishgurl]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I don’t have any degrees in finance and/or economics and thus cannot “walk and talk” this subject what what I CAN “walk and talk” are areas of SD County that I am intimately familiar with and what has transpired in those areas in the past. For this reason, I am completely and utterly “earth-bound.”

[bearishgurl]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I don’t have any degrees in finance and/or economics and thus cannot “walk and talk” this subject what what I CAN “walk and talk” are areas of SD County that I am intimately familiar with and what has transpired in those areas in the past. For this reason, I am completely and utterly “earth-bound.”

[Anonymous]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[Anonymous]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.

[Anonymous]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.

[Anonymous]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.

[Anonymous]

[quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.

[sdrealtor]

Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.

[sdrealtor]

Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.

[sdrealtor]

Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.

[sdrealtor]

Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.

[desmond]

Has everybody bought their ideal retirement home?

[desmond]

Has everybody bought their ideal retirement home?

[desmond]

Has everybody bought their ideal retirement home?

[desmond]

Has everybody bought their ideal retirement home?

[MountainBound]

Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?

[bearishgurl]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

Lol, MB, LUV IT!! I couldn’t answer your question here as to whether you would be better off but CAN say that if you re-mortgage your principal residence to invest in a modest SFR in an area which you are intimately familiar with, live close to and can manage yourself and which will be a positive cash flow for you, than I see this move as building your own net worth IF you can acquire the property as a decent enough price.

[bearishgurl]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

Lol, MB, LUV IT!! I couldn’t answer your question here as to whether you would be better off but CAN say that if you re-mortgage your principal residence to invest in a modest SFR in an area which you are intimately familiar with, live close to and can manage yourself and which will be a positive cash flow for you, than I see this move as building your own net worth IF you can acquire the property as a decent enough price.

[bearishgurl]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

Lol, MB, LUV IT!! I couldn’t answer your question here as to whether you would be better off but CAN say that if you re-mortgage your principal residence to invest in a modest SFR in an area which you are intimately familiar with, live close to and can manage yourself and which will be a positive cash flow for you, than I see this move as building your own net worth IF you can acquire the property as a decent enough price.

[bearishgurl]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

Lol, MB, LUV IT!! I couldn’t answer your question here as to whether you would be better off but CAN say that if you re-mortgage your principal residence to invest in a modest SFR in an area which you are intimately familiar with, live close to and can manage yourself and which will be a positive cash flow for you, than I see this move as building your own net worth IF you can acquire the property as a decent enough price.

[bearishgurl]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

Lol, MB, LUV IT!! I couldn’t answer your question here as to whether you would be better off but CAN say that if you re-mortgage your principal residence to invest in a modest SFR in an area which you are intimately familiar with, live close to and can manage yourself and which will be a positive cash flow for you, than I see this move as building your own net worth IF you can acquire the property as a decent enough price.

[Anonymous]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.

[jpinpb]

[quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[jpinpb]

[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]

deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.

[jpinpb]

[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]

deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.

[jpinpb]

[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]

deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.

[jpinpb]

[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]

deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.

[jpinpb]

[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]

deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[jpinpb]

[quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.

[jpinpb]

[quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.

[jpinpb]

[quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.

[jpinpb]

[quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.

[Anonymous]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.

[Anonymous]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.

[Anonymous]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.

[Anonymous]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.

[sdrealtor]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

You are my new hero!

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[Anonymous]

[quote=EconProf]The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.[/quote]

The current situation has nothing to do with economic theory. Today, unlike anytime in history, there are billions of dollars worth of underwater residential mortgages with interest only variable rate mortgages. The only thing keeping many of these mortgages from foreclosure is the historically low rates being driven down by the Fed. Nohing from this scenario has ever happened before so historical data is meaningless.

Sure interest rates went up very high in the early 80s. But how many homeowners had I/O ARMs? NONE. Yes, things are different now.

[EconProf]

Deadzone, you are reading much more into my post than I actually said, which was limited to the influence of interest rate changes to housing price changes.
As I said, and you echoed, lots of factors other than interest rates also matter. And those factors are always changing–no cycle is exactly like the last. And to explain events, predict the future, make investment decisions, we need those dratted economic theories. We need to test them, invite critics to challenge them, pay attention to the past records of advocates and detractors, etc. And study history to learn its lessons.

[EconProf]

Deadzone, you are reading much more into my post than I actually said, which was limited to the influence of interest rate changes to housing price changes.
As I said, and you echoed, lots of factors other than interest rates also matter. And those factors are always changing–no cycle is exactly like the last. And to explain events, predict the future, make investment decisions, we need those dratted economic theories. We need to test them, invite critics to challenge them, pay attention to the past records of advocates and detractors, etc. And study history to learn its lessons.

[EconProf]

Deadzone, you are reading much more into my post than I actually said, which was limited to the influence of interest rate changes to housing price changes.
As I said, and you echoed, lots of factors other than interest rates also matter. And those factors are always changing–no cycle is exactly like the last. And to explain events, predict the future, make investment decisions, we need those dratted economic theories. We need to test them, invite critics to challenge them, pay attention to the past records of advocates and detractors, etc. And study history to learn its lessons.

[EconProf]

Deadzone, you are reading much more into my post than I actually said, which was limited to the influence of interest rate changes to housing price changes.
As I said, and you echoed, lots of factors other than interest rates also matter. And those factors are always changing–no cycle is exactly like the last. And to explain events, predict the future, make investment decisions, we need those dratted economic theories. We need to test them, invite critics to challenge them, pay attention to the past records of advocates and detractors, etc. And study history to learn its lessons.

[EconProf]

Deadzone, you are reading much more into my post than I actually said, which was limited to the influence of interest rate changes to housing price changes.
As I said, and you echoed, lots of factors other than interest rates also matter. And those factors are always changing–no cycle is exactly like the last. And to explain events, predict the future, make investment decisions, we need those dratted economic theories. We need to test them, invite critics to challenge them, pay attention to the past records of advocates and detractors, etc. And study history to learn its lessons.

[Anonymous]

[quote=EconProf]The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.[/quote]

The current situation has nothing to do with economic theory. Today, unlike anytime in history, there are billions of dollars worth of underwater residential mortgages with interest only variable rate mortgages. The only thing keeping many of these mortgages from foreclosure is the historically low rates being driven down by the Fed. Nohing from this scenario has ever happened before so historical data is meaningless.

Sure interest rates went up very high in the early 80s. But how many homeowners had I/O ARMs? NONE. Yes, things are different now.

[Anonymous]

[quote=EconProf]The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.[/quote]

The current situation has nothing to do with economic theory. Today, unlike anytime in history, there are billions of dollars worth of underwater residential mortgages with interest only variable rate mortgages. The only thing keeping many of these mortgages from foreclosure is the historically low rates being driven down by the Fed. Nohing from this scenario has ever happened before so historical data is meaningless.

Sure interest rates went up very high in the early 80s. But how many homeowners had I/O ARMs? NONE. Yes, things are different now.

[Anonymous]

[quote=EconProf]The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.[/quote]

The current situation has nothing to do with economic theory. Today, unlike anytime in history, there are billions of dollars worth of underwater residential mortgages with interest only variable rate mortgages. The only thing keeping many of these mortgages from foreclosure is the historically low rates being driven down by the Fed. Nohing from this scenario has ever happened before so historical data is meaningless.

Sure interest rates went up very high in the early 80s. But how many homeowners had I/O ARMs? NONE. Yes, things are different now.

[Anonymous]

[quote=EconProf]The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.[/quote]

The current situation has nothing to do with economic theory. Today, unlike anytime in history, there are billions of dollars worth of underwater residential mortgages with interest only variable rate mortgages. The only thing keeping many of these mortgages from foreclosure is the historically low rates being driven down by the Fed. Nohing from this scenario has ever happened before so historical data is meaningless.

Sure interest rates went up very high in the early 80s. But how many homeowners had I/O ARMs? NONE. Yes, things are different now.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.