[Daniel]

Follow-up to my previous comment: it may seem hard to believe to some, but there was a time in the recent past (late nineties) when oil, gold or the euro went down abruptly against the dollar. When measured by these yardsticks, prices of everything from toasters to tomatoes rocketed upwards. I didn’t hear anybody complaining that jeans prices tripled when measured in oil, and were therefore too expensive. Did you?

And another thing: there is current inflation, and a lot of it, outside the US. That is because many people worldwide used to keep their savings in dollars. They are the ones “being robbed”. But they can’t really blame the Fed: there is no mandate for the Fed to keep inflation low in Brazil or Kazahstan. Individuals and central banks outside the US keeping their savings in dollars did so at their own risk. They may think “fool me once, shame on you, fool me twice, shame on me”, and move away from the dollar, and that would hurt us. Fair enough. But, again, the bond market would go haywire if this happens. Interest rates would go up. That’s not good for housing prices, nominal or otherwise.

[Daniel]

Follow-up to my previous comment: it may seem hard to believe to some, but there was a time in the recent past (late nineties) when oil, gold or the euro went down abruptly against the dollar. When measured by these yardsticks, prices of everything from toasters to tomatoes rocketed upwards. I didn’t hear anybody complaining that jeans prices tripled when measured in oil, and were therefore too expensive. Did you?

And another thing: there is current inflation, and a lot of it, outside the US. That is because many people worldwide used to keep their savings in dollars. They are the ones “being robbed”. But they can’t really blame the Fed: there is no mandate for the Fed to keep inflation low in Brazil or Kazahstan. Individuals and central banks outside the US keeping their savings in dollars did so at their own risk. They may think “fool me once, shame on you, fool me twice, shame on me”, and move away from the dollar, and that would hurt us. Fair enough. But, again, the bond market would go haywire if this happens. Interest rates would go up. That’s not good for housing prices, nominal or otherwise.

[Daniel]

Follow-up to my previous comment: it may seem hard to believe to some, but there was a time in the recent past (late nineties) when oil, gold or the euro went down abruptly against the dollar. When measured by these yardsticks, prices of everything from toasters to tomatoes rocketed upwards. I didn’t hear anybody complaining that jeans prices tripled when measured in oil, and were therefore too expensive. Did you?

And another thing: there is current inflation, and a lot of it, outside the US. That is because many people worldwide used to keep their savings in dollars. They are the ones “being robbed”. But they can’t really blame the Fed: there is no mandate for the Fed to keep inflation low in Brazil or Kazahstan. Individuals and central banks outside the US keeping their savings in dollars did so at their own risk. They may think “fool me once, shame on you, fool me twice, shame on me”, and move away from the dollar, and that would hurt us. Fair enough. But, again, the bond market would go haywire if this happens. Interest rates would go up. That’s not good for housing prices, nominal or otherwise.

[Daniel]

Follow-up to my previous comment: it may seem hard to believe to some, but there was a time in the recent past (late nineties) when oil, gold or the euro went down abruptly against the dollar. When measured by these yardsticks, prices of everything from toasters to tomatoes rocketed upwards. I didn’t hear anybody complaining that jeans prices tripled when measured in oil, and were therefore too expensive. Did you?

And another thing: there is current inflation, and a lot of it, outside the US. That is because many people worldwide used to keep their savings in dollars. They are the ones “being robbed”. But they can’t really blame the Fed: there is no mandate for the Fed to keep inflation low in Brazil or Kazahstan. Individuals and central banks outside the US keeping their savings in dollars did so at their own risk. They may think “fool me once, shame on you, fool me twice, shame on me”, and move away from the dollar, and that would hurt us. Fair enough. But, again, the bond market would go haywire if this happens. Interest rates would go up. That’s not good for housing prices, nominal or otherwise.

[Daniel]

Diego,

I understand exactly what you mean, but I don’t agree with your arguments (although I do agree with some). Clearly, bringing house prices in balance with rents or incomes can be done by decreasing house prices, increasing rents/incomes (also known as inflation), or a combination of both. It seems that you were hoping the adjustment would come primarily from decreasing house prices, but now you are afraid that a larger than expected part would come from inflation.

First, let me say that I have exactly the same concerns as you. And I put my money where my mouth is: I have no money invested in dollar-denominated bonds, because the real returns are so low. I also agree that inflation is a very atractive political option, as most Americans are debtors, and the creditors are mostly foreign.

That being said, you need to realize however that current inflation is actually quite low. It has gone up every year since 2002, and that makes many people very nervous (including me). But it is still less than what it was in the early 90s, for instance.

Also, using euros, oil, or gold as a yardstick for measuring dollar-denominated prices is very misleading, in my opinion. Oil and gold are very volatile commodities. As such, they are terrible price measures. The price of a Honda Civic measured in oil or gold would have been all over the place over the last 30 years, while it behaved quite reasonably when measured in dollars. Simply put, I believe that measuring US house prices in anything else but dollars (real dollars, if you don’t like nominal) is meaningless.

So it all comes down to whether one believes that high commodity prices and a weak dollar constitutes inflation. I believe it doesn’t. However, I agree with you on one important point: high commodity prices and a weak dollar may be a strong signal of FUTURE inflation. This, indeed I’m afraid of. But if this does happen, I believe the Fed will raise, or the bond market will get spooked and do the raising for them.

Your argument, in a nutshell, is that all signs (gold, oil, euro) point to high inflation in the future and that the bond market has it terribly wrong (the TIPS predict less than 3% headline inflation going forward). Maybe. I believe your worst fears won’t come to pass, but I guess we’ll have to wait and see.

[Daniel]

Diego,

I understand exactly what you mean, but I don’t agree with your arguments (although I do agree with some). Clearly, bringing house prices in balance with rents or incomes can be done by decreasing house prices, increasing rents/incomes (also known as inflation), or a combination of both. It seems that you were hoping the adjustment would come primarily from decreasing house prices, but now you are afraid that a larger than expected part would come from inflation.

First, let me say that I have exactly the same concerns as you. And I put my money where my mouth is: I have no money invested in dollar-denominated bonds, because the real returns are so low. I also agree that inflation is a very atractive political option, as most Americans are debtors, and the creditors are mostly foreign.

That being said, you need to realize however that current inflation is actually quite low. It has gone up every year since 2002, and that makes many people very nervous (including me). But it is still less than what it was in the early 90s, for instance.

Also, using euros, oil, or gold as a yardstick for measuring dollar-denominated prices is very misleading, in my opinion. Oil and gold are very volatile commodities. As such, they are terrible price measures. The price of a Honda Civic measured in oil or gold would have been all over the place over the last 30 years, while it behaved quite reasonably when measured in dollars. Simply put, I believe that measuring US house prices in anything else but dollars (real dollars, if you don’t like nominal) is meaningless.

So it all comes down to whether one believes that high commodity prices and a weak dollar constitutes inflation. I believe it doesn’t. However, I agree with you on one important point: high commodity prices and a weak dollar may be a strong signal of FUTURE inflation. This, indeed I’m afraid of. But if this does happen, I believe the Fed will raise, or the bond market will get spooked and do the raising for them.

Your argument, in a nutshell, is that all signs (gold, oil, euro) point to high inflation in the future and that the bond market has it terribly wrong (the TIPS predict less than 3% headline inflation going forward). Maybe. I believe your worst fears won’t come to pass, but I guess we’ll have to wait and see.

[Daniel]

Diego,

I understand exactly what you mean, but I don’t agree with your arguments (although I do agree with some). Clearly, bringing house prices in balance with rents or incomes can be done by decreasing house prices, increasing rents/incomes (also known as inflation), or a combination of both. It seems that you were hoping the adjustment would come primarily from decreasing house prices, but now you are afraid that a larger than expected part would come from inflation.

First, let me say that I have exactly the same concerns as you. And I put my money where my mouth is: I have no money invested in dollar-denominated bonds, because the real returns are so low. I also agree that inflation is a very atractive political option, as most Americans are debtors, and the creditors are mostly foreign.

That being said, you need to realize however that current inflation is actually quite low. It has gone up every year since 2002, and that makes many people very nervous (including me). But it is still less than what it was in the early 90s, for instance.

Also, using euros, oil, or gold as a yardstick for measuring dollar-denominated prices is very misleading, in my opinion. Oil and gold are very volatile commodities. As such, they are terrible price measures. The price of a Honda Civic measured in oil or gold would have been all over the place over the last 30 years, while it behaved quite reasonably when measured in dollars. Simply put, I believe that measuring US house prices in anything else but dollars (real dollars, if you don’t like nominal) is meaningless.

So it all comes down to whether one believes that high commodity prices and a weak dollar constitutes inflation. I believe it doesn’t. However, I agree with you on one important point: high commodity prices and a weak dollar may be a strong signal of FUTURE inflation. This, indeed I’m afraid of. But if this does happen, I believe the Fed will raise, or the bond market will get spooked and do the raising for them.

Your argument, in a nutshell, is that all signs (gold, oil, euro) point to high inflation in the future and that the bond market has it terribly wrong (the TIPS predict less than 3% headline inflation going forward). Maybe. I believe your worst fears won’t come to pass, but I guess we’ll have to wait and see.

[Daniel]

Diego,

I understand exactly what you mean, but I don’t agree with your arguments (although I do agree with some). Clearly, bringing house prices in balance with rents or incomes can be done by decreasing house prices, increasing rents/incomes (also known as inflation), or a combination of both. It seems that you were hoping the adjustment would come primarily from decreasing house prices, but now you are afraid that a larger than expected part would come from inflation.

First, let me say that I have exactly the same concerns as you. And I put my money where my mouth is: I have no money invested in dollar-denominated bonds, because the real returns are so low. I also agree that inflation is a very atractive political option, as most Americans are debtors, and the creditors are mostly foreign.

That being said, you need to realize however that current inflation is actually quite low. It has gone up every year since 2002, and that makes many people very nervous (including me). But it is still less than what it was in the early 90s, for instance.

Also, using euros, oil, or gold as a yardstick for measuring dollar-denominated prices is very misleading, in my opinion. Oil and gold are very volatile commodities. As such, they are terrible price measures. The price of a Honda Civic measured in oil or gold would have been all over the place over the last 30 years, while it behaved quite reasonably when measured in dollars. Simply put, I believe that measuring US house prices in anything else but dollars (real dollars, if you don’t like nominal) is meaningless.

So it all comes down to whether one believes that high commodity prices and a weak dollar constitutes inflation. I believe it doesn’t. However, I agree with you on one important point: high commodity prices and a weak dollar may be a strong signal of FUTURE inflation. This, indeed I’m afraid of. But if this does happen, I believe the Fed will raise, or the bond market will get spooked and do the raising for them.

Your argument, in a nutshell, is that all signs (gold, oil, euro) point to high inflation in the future and that the bond market has it terribly wrong (the TIPS predict less than 3% headline inflation going forward). Maybe. I believe your worst fears won’t come to pass, but I guess we’ll have to wait and see.

[Daniel]

Diego,

I understand exactly what you mean, but I don’t agree with your arguments (although I do agree with some). Clearly, bringing house prices in balance with rents or incomes can be done by decreasing house prices, increasing rents/incomes (also known as inflation), or a combination of both. It seems that you were hoping the adjustment would come primarily from decreasing house prices, but now you are afraid that a larger than expected part would come from inflation.

First, let me say that I have exactly the same concerns as you. And I put my money where my mouth is: I have no money invested in dollar-denominated bonds, because the real returns are so low. I also agree that inflation is a very atractive political option, as most Americans are debtors, and the creditors are mostly foreign.

That being said, you need to realize however that current inflation is actually quite low. It has gone up every year since 2002, and that makes many people very nervous (including me). But it is still less than what it was in the early 90s, for instance.

Also, using euros, oil, or gold as a yardstick for measuring dollar-denominated prices is very misleading, in my opinion. Oil and gold are very volatile commodities. As such, they are terrible price measures. The price of a Honda Civic measured in oil or gold would have been all over the place over the last 30 years, while it behaved quite reasonably when measured in dollars. Simply put, I believe that measuring US house prices in anything else but dollars (real dollars, if you don’t like nominal) is meaningless.

So it all comes down to whether one believes that high commodity prices and a weak dollar constitutes inflation. I believe it doesn’t. However, I agree with you on one important point: high commodity prices and a weak dollar may be a strong signal of FUTURE inflation. This, indeed I’m afraid of. But if this does happen, I believe the Fed will raise, or the bond market will get spooked and do the raising for them.

Your argument, in a nutshell, is that all signs (gold, oil, euro) point to high inflation in the future and that the bond market has it terribly wrong (the TIPS predict less than 3% headline inflation going forward). Maybe. I believe your worst fears won’t come to pass, but I guess we’ll have to wait and see.

[Daniel]

To follow up on my previous post: I’m fairly certain that they made some recent changes to their algorithm. I bet that what they’re doing now is that the price of a house is influenced more by the prices of nearby houses (say, within a 200 yards radius, for example). The $800K house in my example happens to sit at the edge of the subdivision, with cheaper townhomes on the other side. The identical (actually, sligthly worse) $1M house sits at the other end, a bit closer to more expensive houses. While it makes some sense to consider the prices of nearby houses, it seems that they’re now giving this factor way too much weight in their formula.

[Daniel]

To follow up on my previous post: I’m fairly certain that they made some recent changes to their algorithm. I bet that what they’re doing now is that the price of a house is influenced more by the prices of nearby houses (say, within a 200 yards radius, for example). The $800K house in my example happens to sit at the edge of the subdivision, with cheaper townhomes on the other side. The identical (actually, sligthly worse) $1M house sits at the other end, a bit closer to more expensive houses. While it makes some sense to consider the prices of nearby houses, it seems that they’re now giving this factor way too much weight in their formula.

[Daniel]

To follow up on my previous post: I’m fairly certain that they made some recent changes to their algorithm. I bet that what they’re doing now is that the price of a house is influenced more by the prices of nearby houses (say, within a 200 yards radius, for example). The $800K house in my example happens to sit at the edge of the subdivision, with cheaper townhomes on the other side. The identical (actually, sligthly worse) $1M house sits at the other end, a bit closer to more expensive houses. While it makes some sense to consider the prices of nearby houses, it seems that they’re now giving this factor way too much weight in their formula.

[Daniel]

To follow up on my previous post: I’m fairly certain that they made some recent changes to their algorithm. I bet that what they’re doing now is that the price of a house is influenced more by the prices of nearby houses (say, within a 200 yards radius, for example). The $800K house in my example happens to sit at the edge of the subdivision, with cheaper townhomes on the other side. The identical (actually, sligthly worse) $1M house sits at the other end, a bit closer to more expensive houses. While it makes some sense to consider the prices of nearby houses, it seems that they’re now giving this factor way too much weight in their formula.

[Daniel]

To follow up on my previous post: I’m fairly certain that they made some recent changes to their algorithm. I bet that what they’re doing now is that the price of a house is influenced more by the prices of nearby houses (say, within a 200 yards radius, for example). The $800K house in my example happens to sit at the edge of the subdivision, with cheaper townhomes on the other side. The identical (actually, sligthly worse) $1M house sits at the other end, a bit closer to more expensive houses. While it makes some sense to consider the prices of nearby houses, it seems that they’re now giving this factor way too much weight in their formula.

[Daniel]

I have to say that I’ve noticed some very odd moves on Zillow as well. In my neighborhood, one house “went down” by $45K over the last 30 days, while an identical house a couple of blocks away “went up” by $45K. One is now valued at $800K, while the other is valued at over $1M. The funny thing is, I know both houses, and the cheaper one is the better one (better location, upgrades, etc). It seems that the grain of salt for Zillow estimates grows larger by the day.

[Author]

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