Buying with monopoly money

[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=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).

[Doooh]

[quote=MountainBound]If I were to take a 5% loan,effective rate would be around 3.6% with the tax break, then get into 10-year treasury when rates are over 10%, I think it might work. Worse comes to worse and rates never go up, I could pay off the loan and be done with it. I’m sure there are risks, but I’m confident the financial mess will get much worse from here. What do you think?[/quote]

It would only be a 3.6% effective rate for the first year and goes back to 5% every year after that. At about 15 years (I think) your, principal/intrest ratio would be so low that you wouldn’t have a tax write off.

If you lost your job, or source of income your effective rate would rocket back to 5% because you wouldn’t have an income to write off.

So, let’s do some easy math on a $500,000 home loan.
Year 1 your cost is $18,000 to barrow the $500k. You can make 1% easily in savings accounts which offsets your cost by 5,000.

Year 1 your in the hole $13,000

Year 2 = ? (Now we have to get the mortgage calculator out because I don’t know what the Principal would be) It’s a safe assumption to be making 1.5% in a FDIC insured savings account by 2012.

Help anybody?

[Doooh]

[quote=MountainBound]If I were to take a 5% loan,effective rate would be around 3.6% with the tax break, then get into 10-year treasury when rates are over 10%, I think it might work. Worse comes to worse and rates never go up, I could pay off the loan and be done with it. I’m sure there are risks, but I’m confident the financial mess will get much worse from here. What do you think?[/quote]

It would only be a 3.6% effective rate for the first year and goes back to 5% every year after that. At about 15 years (I think) your, principal/intrest ratio would be so low that you wouldn’t have a tax write off.

If you lost your job, or source of income your effective rate would rocket back to 5% because you wouldn’t have an income to write off.

So, let’s do some easy math on a $500,000 home loan.
Year 1 your cost is $18,000 to barrow the $500k. You can make 1% easily in savings accounts which offsets your cost by 5,000.

Year 1 your in the hole $13,000

Year 2 = ? (Now we have to get the mortgage calculator out because I don’t know what the Principal would be) It’s a safe assumption to be making 1.5% in a FDIC insured savings account by 2012.

Help anybody?

[Doooh]

[quote=MountainBound]If I were to take a 5% loan,effective rate would be around 3.6% with the tax break, then get into 10-year treasury when rates are over 10%, I think it might work. Worse comes to worse and rates never go up, I could pay off the loan and be done with it. I’m sure there are risks, but I’m confident the financial mess will get much worse from here. What do you think?[/quote]

It would only be a 3.6% effective rate for the first year and goes back to 5% every year after that. At about 15 years (I think) your, principal/intrest ratio would be so low that you wouldn’t have a tax write off.

If you lost your job, or source of income your effective rate would rocket back to 5% because you wouldn’t have an income to write off.

So, let’s do some easy math on a $500,000 home loan.
Year 1 your cost is $18,000 to barrow the $500k. You can make 1% easily in savings accounts which offsets your cost by 5,000.

Year 1 your in the hole $13,000

Year 2 = ? (Now we have to get the mortgage calculator out because I don’t know what the Principal would be) It’s a safe assumption to be making 1.5% in a FDIC insured savings account by 2012.

Help anybody?

[Doooh]

[quote=MountainBound]If I were to take a 5% loan,effective rate would be around 3.6% with the tax break, then get into 10-year treasury when rates are over 10%, I think it might work. Worse comes to worse and rates never go up, I could pay off the loan and be done with it. I’m sure there are risks, but I’m confident the financial mess will get much worse from here. What do you think?[/quote]

It would only be a 3.6% effective rate for the first year and goes back to 5% every year after that. At about 15 years (I think) your, principal/intrest ratio would be so low that you wouldn’t have a tax write off.

If you lost your job, or source of income your effective rate would rocket back to 5% because you wouldn’t have an income to write off.

So, let’s do some easy math on a $500,000 home loan.
Year 1 your cost is $18,000 to barrow the $500k. You can make 1% easily in savings accounts which offsets your cost by 5,000.

Year 1 your in the hole $13,000

Year 2 = ? (Now we have to get the mortgage calculator out because I don’t know what the Principal would be) It’s a safe assumption to be making 1.5% in a FDIC insured savings account by 2012.

Help anybody?

[Doooh]

[quote=MountainBound]If I were to take a 5% loan,effective rate would be around 3.6% with the tax break, then get into 10-year treasury when rates are over 10%, I think it might work. Worse comes to worse and rates never go up, I could pay off the loan and be done with it. I’m sure there are risks, but I’m confident the financial mess will get much worse from here. What do you think?[/quote]

It would only be a 3.6% effective rate for the first year and goes back to 5% every year after that. At about 15 years (I think) your, principal/intrest ratio would be so low that you wouldn’t have a tax write off.

If you lost your job, or source of income your effective rate would rocket back to 5% because you wouldn’t have an income to write off.

So, let’s do some easy math on a $500,000 home loan.
Year 1 your cost is $18,000 to barrow the $500k. You can make 1% easily in savings accounts which offsets your cost by 5,000.

Year 1 your in the hole $13,000

Year 2 = ? (Now we have to get the mortgage calculator out because I don’t know what the Principal would be) It’s a safe assumption to be making 1.5% in a FDIC insured savings account by 2012.

Help anybody?

[Doooh]

You’d also need to find a way to keep your $500,000 split up into 5 different accounts to keep it under the $100k FDIC limit.

1 for you
1 for your wife
1 jointly

You’d need to find another bank for the last $200,000

[Doooh]

You’d also need to find a way to keep your $500,000 split up into 5 different accounts to keep it under the $100k FDIC limit.

1 for you
1 for your wife
1 jointly

You’d need to find another bank for the last $200,000

[Doooh]

You’d also need to find a way to keep your $500,000 split up into 5 different accounts to keep it under the $100k FDIC limit.

1 for you
1 for your wife
1 jointly

You’d need to find another bank for the last $200,000

[Doooh]

You’d also need to find a way to keep your $500,000 split up into 5 different accounts to keep it under the $100k FDIC limit.

1 for you
1 for your wife
1 jointly

You’d need to find another bank for the last $200,000

[Author]

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