Buying with monopoly money

[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.

[lifeizfunhuh]

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[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?

[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.

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