- This topic has 55 replies, 16 voices, and was last updated 12 years, 6 months ago by
an.
-
AuthorPosts
-
October 28, 2011 at 8:41 PM #731551October 28, 2011 at 9:33 PM #731555
bearishgurl
ParticipantThe “immediate former” is a VERY ASTUTE post, IMHO, patientrenter.
October 29, 2011 at 6:45 PM #731616hslinger
Participant[quote=patientrenter]Modern Americans, especially in the worst bubble zones where prices have become unaffordable, have come to rely so heavily on financing that they think that buying is the same as financed buying.[/quote]Define modern Americans because your posts come off as highly naive.
Do you know anything about the history of the mortgage or just how long the vast majority of Americans have relied heavily on financing?
October 29, 2011 at 7:55 PM #731618briansd1
Guest[quote=UCGal][quote=walterwhite]Still, no one likes to be called Harry howmuchamonth. What is his opposite? Neil kashkarry?[/quote]
Love your wordplay, WW.(for those that didn’t get it – look him up with his name spelled right.)
http://en.wikipedia.org/wiki/Neel_Kashkari
[/quote]yeah, that was really good.
The thing is that Neil Kashkari worked hard to perpetuate Harry howmuchamonth’s addiction.
We live in a credit society where economic development is front-loaded. Front loading investments into productive uses is great, but front-loading consumption eventually leads to a crash.
October 30, 2011 at 9:04 PM #731664
barnaby33ParticipantDo you know anything about the history of the mortgage or just how long the vast majority of Americans have relied heavily on financing?
hslinger, many of those of us who’ve been around a while are quite cognizant of the history of mortgages and finance. Tanta viva!
October 31, 2011 at 12:37 AM #731672Participant[quote=barnaby33]many of those of us who’ve been around a while are quite cognizant of the history of mortgages and finance. Tanta viva![/quote]Well if that’s true then it’s a shame your buddy is so determined to feign ignorance.
Gå dör i en brand!!
October 31, 2011 at 10:12 AM #731708lifeizfunhuh
Participant[quote=barnaby33]FSD, I posted because I disagree. Housing is only cheap because of unrealistic financing. Housing will be fairly priced when we return to historic norms for ALL the important aspects of how housing is priced, including incomes AND interest rates. Its only cheap if you ignore risk. Risk is NOT intangible. Unemployment is high and probably going higher. Interest rates are driven to lows only because our govt is buying all the mortgages and subsidizing risk at a huge level. Costs for everything basic are surging MUCH faster than increases in income. Its nuts to say housing is affordable.
I’ve had this argument with Rich several times over dinner. I suppose the way I view it is that in order for housing to recover it has to be fairly priced. In order for fairly priced to occur, employment must be on the rebound or at least stable. Lenders must also be accurately compensated for the risk of lending money. One other often overlooked issue is rising taxation. Too many of the unspoken assumptions in this and many other threads are that none of the fundamentals have changed radically. If nothing else this period of instability should point out that many of those either no longer are true, or are due to be changed in the near future.
If you just look at the statistics of rent to own in aggregate I’d agree that things aren’t awful. Of course, again you are making assumptions that the rest of the “market” is functioning normally as well. One of those assumptions is that rent to own ratios encompass a very broad swath of society. In the US where unemployment hovers near 10% I don’t think that’s a valid claim. If unemployment were close to average sure. So now there are two problems I have with that metric. One it covers a much smaller group of people than it used to. Second there is no compensatory stat for those who aren’t covered and probably aren’t working. That’s just one of the traditional metrics that people use. There are of course others.[/quote]
Right now I think people are missing one of the most historic opportunities to protect personal security and assets by not purchasing real estate. There is too much focus on traditional considerations such as job growth and the real economy, which scares people away. The focus should be the government subsidized financing that provides a FIXED, historically low interest rate on a real asset (a home). Governments around the world are expanding the money supply at an exponential rate, and it is a mathematical inevitability that inflation will rise SIGNIFICANTLY in the (near?) future.
Who will win? People owning claims to physical assets, with lots of fixed interest rate debt.
Who will lose? People with lots of cash and the holders of the low-interest rate debt.
Trade the funny money for something real, whether it is a house, a classic car, precious metals, art, whatever.
Think of it this way… it doesn’t matter what the house is worth in the future, because you get to pay that loan back with increasingly less valuable dollars. At some point, those dollars will be worth sufficiently less that the nominal value of the real estate will increase as well. This is always true, but for the past 25 years or so, inflation has been so low that you couldn’t see the process working. Give it 5-10 years, and your monthly payment will be truly insignificant.
So what is a “fair price”? How do you determine a fair price when the medium of exchange (money) is so unstable. By focusing on the market for the house, you are missing the other half of the exchange, the market for money. At this point in history, it is the latter part of the exchange that truly matters.
October 31, 2011 at 10:31 AM #731711jstoesz
Participantread up on how Argentina’s home prices fared through their last serious bout with hyper-inflation.
Things are far from a sure bet.
October 31, 2011 at 10:54 AM #731713
Rich ToscanoKeymasterlifeizfun — I think you make a lot of good points in there. I tend to be very sympathetic with your point of view… the “value” in the house investment is taking advantage of these super-low subsidized rates, and the ensuing grinding down of your real monthly pmts via inflation. However, you have to actually keep the house indefinitely to benefit from that, which is why I think buying is a good move for some but not for others.
jstoesz – I am not sure that analogy is right, because in Argentina houses were transacted in US dollar terms. Prices plummeted, as you say — but in dollar terms. But how did they do in the local currency, which also plummeted? And more to the point, how much are they worth now in the local currency as compared to before the hyperinflation. Unfortunately I do not know the answers to these questions. I’d be really interested to hear if anyone does. (Please note, this is not a prediction of hyperinflation here… I just think it would be instructive).
October 31, 2011 at 10:55 AM #731715ParticipantYour analysis must be something like this:
Assuming it is true empirically (I’ll take it at face value), the situation discussed is falling prices because there is no lending in periods of high inflation. I admit the argument is intuitive. However, that does not negate the fact that if a person can hold the asset, the medium of exchange will be worth less. Whether buyers dry up is irrelevant to whether a person ends up with an essentially free home.
October 31, 2011 at 11:37 AM #731716an
Participant[quote=jstoesz]read up on how Argentina’s home prices fared through their last serious bout with hyper-inflation.
Things are far from a sure bet.[/quote]
Thanks for pointing me to Argentina’s experience w/ hyper-inflation. According to Wikipedia:[quote=wiki]Argentina
Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentinos. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 (1992) peso = 100,000,000,000 pre-1983 pesos.[/quote]
Even if housing price dip nominally, if the currency weaken at a much faster rate due to inflation, then you still come out ahead. Which, I think is what lifeizfunhuh is trying to say. A 1000 peso in 1975 is equivalent to 1M peso in 1983. If we see this kind of inflation, everything that have fixed rate interest will look dirt cheap in the future. Even if we don’t see hyper inflation like Argentina, if we see inflation like we experienced in the US in the 70s, it will still be dirt cheap to pay back with much weaker currency.October 31, 2011 at 1:47 PM #731753Participant[quote=AN][quote=jstoesz]read up on how Argentina’s home prices fared through their last serious bout with hyper-inflation.
Things are far from a sure bet.[/quote]
Thanks for pointing me to Argentina’s experience w/ hyper-inflation. According to Wikipedia:[quote=wiki]Argentina
Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentinos. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 (1992) peso = 100,000,000,000 pre-1983 pesos.[/quote]
Even if housing price dip nominally, if the currency weaken at a much faster rate due to inflation, then you still come out ahead. Which, I think is what lifeizfunhuh is trying to say. A 1000 peso in 1975 is equivalent to 1M peso in 1983. If we see this kind of inflation, everything that have fixed rate interest will look dirt cheap in the future. Even if we don’t see hyper inflation like Argentina, if we see inflation like we experienced in the US in the 70s, it will still be dirt cheap to pay back with much weaker currency.[/quote]That was exactly the article I was referring to. I saw it on the Gonzolo Lira blog
My point was that it is not so simple. Lifeisfunhuh, was making the point that A leads to B. Except, it is far from that simple. There are many times when inflation has crushed peoples buying power, and ability to borrow. They now have less to spend on housing and interest so that they can keep eating.
This is economics we are talking here. If you are predicting the future, you are either stupid, delusional, or a combination of the two.
As a parting contrarian statement…markets can stay irrational longer than you can stay solvent.
October 31, 2011 at 2:09 PM #731755Participant[quote=jstoesz]That was exactly the article I was referring to. I saw it on the Gonzolo Lira blog
My point was that it is not so simple. Lifeisfunhuh, was making the point that A leads to B. Except, it is far from that simple. There are many times when inflation has crushed peoples buying power, and ability to borrow. They now have less to spend on housing and interest so that they can keep eating.
This is economics we are talking here. If you are predicting the future, you are either stupid, delusional, or a combination of the two.
As a parting contrarian statement…markets can stay irrational longer than you can stay solvent.[/quote]
I agree it’s not so simple. There are many unforeseen scenarios. I agree that inflation will crush people’s buying power and ability to borrow. However, if you already bought/already borrowed with a fixed rate, ability to borrow won’t affect you. However, the devaluation of your currency will affect positively. I assume that inflation won’t get to a point where no one can even buy food to eat without bringing a bag of cash to the market. However, glass half full would say hell with it, I’ll be hungry anyways, I can skip one meal and use my bag of cash that would buy me a loaf of bread and pay off my house. You get where I’m going with this?I’m not predicting the future. I’m just stating what I understand about inflation or hyper inflation. Feel free to correct me if I make any mistake with my assumption. How does the statement “markets can stay irrational longer than you can stay solvent.” apply to inflation and devaluation of the currency debate?
October 31, 2011 at 2:21 PM #731761ParticipantI doubt I disagree with you AN, at least I am not trying too. Fun just said something that struck me as overly optomistic. Now might be a good time, but I sincerely doubt it’s a sure thing.
My statement was meant to convey self doubt. You can think something and be right about it, but still get clobbered. Timing…
October 31, 2011 at 3:06 PM #731766Participant[quote=jstoesz]I doubt I disagree with you AN, at least I am not trying too. Fun just said something that struck me as overly optomistic. Now might be a good time, but I sincerely doubt it’s a sure thing.
My statement was meant to convey self doubt. You can think something and be right about it, but still get clobbered. Timing…[/quote]
I agree with you. I was only stating what would happen if we get run away inflation. I’m not saying that we will see run away inflation. Which is why I agree with you that it’s not a sure thing that it’s a good time to buy if one based their buying decision on hope for inflation. -
AuthorPosts
- You must be logged in to reply to this topic.