patrick.net

The period around 1980 had the 3rd highest period for inflation increases in the past century.

The period between 1990-2010 was marked by low inflation.

Which one exhibited the most dramatic housing cost explosion in the absence of a prime household forming generation?

The late 90s to late 2000s, during the smallest cohort of new household formers entering the market.

anon_8f378 says

OK, please point out when house prices dropped during high interest rate times. That was your thesis.

I remember in 92 I had an older girl friend her best friend lived in Coral Springs. She paid a whopping $!20K for her house in 85 but could only sell it for $98K in 92 because interest rates were like 10%

Had she held on it, for another 12 years She could have gotten $700K for the main house, plus her double lot she could have built another $700K house.

Here's a chart with National Canadian Home Prices vs. Rates.

US National Inflation vs. Home Prices (FORBES)

Home prices will not go down with big inflation and interest rates. Reasons:
1. Homeowner with locked in 3 to 4% rate will just keep the house and live in it or rent it out. It would be stupid for them to sell in a high interest rate environment.
2. As long as wages are increasing, buyers will be looking at higher payments. But if inflation is high and their pay is increasing, they will have an incentive to pay a wopping mortgage at first, because they can lock that in, and they will believe that it will get easier with time. Mortgage standards will relax, because inflation will help people pay off their mortgages. The flip side of this is when inflation is pretty low, there isn't any huge penalty for renting over long time periods.

Plots of inflation versus home prices should be redone as inflation versus home price appreciation. Any plot of something that increases exponentially (prices of goods, home prices, stock prices) will look like it has exploded recently when plotted on a linear scale. It is more informative to see how appreciation looked in the 70s versus in recent times.

Holding onto assets during a period of high inflation is how the boomer generation produced a bunch of property barons. Those economic conditions haven’t repeated yet. Wages grew tremendously and drove inflation. However America was more unionized then with less wage pressure from overseas production and workers, so wages could rise in lockstep with inflation, which drove wages higher in a cycle. Only ridiculous interest rates eventually halted it, but by then the wealthy were cash poor and the middle class were quite well off! It led to boom times for a couple decades.

I think we could use another 25-30 year cycle like that.

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

TwoScoopsPlissken says

anon_24e57 says

Correct. If anyone has any questions, ask yourselves why didn't prices tank in seattle 1975-1980 when inflation was rocketing up?

It sure looks like your chart is evidence for me, not for you... the big upswing in home costs happens in the Neoliberal Era,when rates began to drop below 8%.

The most dramatic rise in home prices is exactly when the Fed cut rates way back in the 2000s.

There's a modest increase in the late 70s-80s but that's driven by Boomfuck demographics when every last boomer is firmly in early adulthood, ready to form housholds. And that Seattle was experiencing the first Tech Driven Boom in the late 70s.

Homebuyers buy the total monthly payment, not the total home price.

Correct me if I am wrong, but you seem to believe that a rise in rates will cause a FALL in nominal dollars. My chart shows that does not happen - nominal dollars did not fall at all. And yes, while this is just seattle, nominal prices nationwide did the same thing (slight nominal rise).

You can cite the rationale for why it happened in the late 70s & 80s but the point is, if you believe that a rise in rates will cause a fall in nominal dollars, not only is there NO evidence to support your assertion, but the only evidence out there shows that the prices will very slowly rise.

TwoScoopsPlissken says

Here's a chart with National Canadian Home Prices vs. Rates.

Yep, but to make an effective argument you need to show that prices fall during a period of high rates. That's what you've yet to show.

Tenpoundbass says

I remember in 92 I had an older girl friend her best friend lived in Coral Springs. She paid a whopping $!20K for her house in 85 but could only sell it for $98K in 92 because interest rates were like 10%

That's funny because interest rates had gone down for the entire time period. Lower rates made her house worth less.

TwoScoopsPlissken says

That isn't a prices vs. inflation chart at all.

And don't use inflation adjusted prices.

TwoScoopsPlissken says

My thesis was that inflation helps debtors pay off their homes, since the mortgage is typically fixed but the incomes rise, even if the household on gets COLA and no additional income from promotions or raises.

Um, here's what you said:

TwoScoopsPlissken says

The higher the interest rate, which should be tracking inflation, the cheaper the home price. Then refi during a dip in rates/inflation.

That's the statement that I pointed out has historically been incorrect. It was a very popular thesis on here in the past that people just needed to wait until rates rise and then house prices will fall and it's just not true.

TwoScoopsPlissken says

Your OWN CHART disproves the idea that low interest rates and low inflation keeps homes affordable because the greatest increase in prices in decades happened under that exact scenario.

That's not my idea at all. My idea, as I wrote in several previous posts, is that interest rates are a 2nd or 3rd order effect. Incomes drive home prices.

TwoScoopsPlissken says

The idea that high rates kept home prices in check is borne out by the fact that home prices rose very modestly, even in one tiny segment of the national market experiencing a tech boom, during massive home-formation demographic pressure from the largest generation in history all being at prime home-formation age in those years.

They didn't keep prices in check. Prices actually rose extremely fast in the 70s compared to the previous 3 decades.

However you estimate it, home prices are not just linked to interest rates.
There has been a systematic under building as the population grew by tens of millions.
The problem is not just assets inflation: housing is now a luxury item. As in scarce. In CA, a large fraction of the population is now free to go homeless, or surf couches, or live at 4 in their friends garage. Only the wealthiest bid up on housing, and the price reflect that.

Can inflation just start popping up in an environment that has been deflationary?
No, because raising rates would cause a host of problems and immediately plunge back the system into deflation. It has to be done slowly, eroding debts, in a growing economy. Most likely it takes 10 years to switch to a 70s style inflationary/stagflationary environment.
Even that is probably not what would happen, because today’s fed would not act like the 70s. They would rather strangle the economy, than let inflation run.

Heraclitusstudent says

Even that is probably not what would happen, because today’s fed would not act like the 70s. They would rather strangle the economy, than let inflation run

Agreed. We need to adjust our target inflation rate to 5%. Enough with the 2-3% target nonsense.

anon_8f378 says

TwoScoopsPlissken says

The higher the interest rate, which should be tracking inflation, the cheaper the home price. Then refi during a dip in rates/inflation.

That's the statement that I pointed out has historically been incorrect.

Link?

I'll be waiting a long time for it, though.

anon_8f378 says

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

Link???

Ha Ha, I know that won't happen.

anon_8f378 says

Listen--you can cherry pick time periods to your hearts content, but if you look at al the data, there is a slightly positive correlation between interest rates and housing prices. Higher interest rates = higher prices.

Haha, I'm using YOUR OWN chart, and then Canadian and USA Charts. I'm literally doing the opposite of cherry picking data, since I used two nation charts and you cherry picked Western Washington.

I admit I exaggerated when I stated that high rates would substantially reduce home prices - but it may have a short term effect as anecdotes on this thread have illustrated- but low interest, low inflation era has clearly shown the most explosive home price growth in the past 50 years, far outstripping the high interest, high inflation era around 1980.

As your own chart shows, high inflation, high interest rate eras exhibit weaker price increases (again, combined with massive demographic demand) than low inflation, low interest rate eras.

Heraclitusstudent says

However you estimate it, home prices are not just linked to interest rates.

This is also correct. There's also the impact of the lack of affordable housing programs (inc. breaks for developers) as well as (dunnn dunnn dunnn) rent control.

A one-two punch of rent control and tax breaks for affordable housing would TKO the Landlords, who must be God Damned in order to God Bless America.

TwoScoopsPlissken says

anon_8f378 says

Also, Anon, get a username or go to my ignore list, please. I'm reasonably sure you were a poster that had a name at one point.

TwoScoopsPlissken says

There's also the impact of the lack of affordable housing programs (inc. breaks for developers) as well as (dunnn dunnn dunnn) rent control.

A one-two punch of rent control and tax breaks for affordable housing would TKO the Landlords, who must be God Damned in order to God Bless America.

Rent control is a bad idea. Just incentivize building. You really don't even need to worry about affordable housing--more supply will take of that naturally.

Higher interest rates=RE crash = fantastic !

TwoScoopsPlissken says

aha, I'm using YOUR OWN chart, and then Canadian and USA Charts. I'm literally doing the opposite of cherry picking data, since I used two nation charts and you cherry picked Western Washington.

No, you're cherry picking time periods. It doesn't matter who posted the charts--what matters is you are picking selected time periods that fit your narrative and ignoring those that do not. That's pretty much the definition of cherry picking.


TwoScoopsPlissken says

As your own chart shows, high inflation, high interest rate eras exhibit weaker price increases (again, combined with massive demographic demand) than low inflation, low interest rate eras

Nope--the chart doesn't show that at all. The 70s rise is substantially greater than any rise over the previous 3 decades.

The 50s and 60s were another low interest rate period--why didn't we see substantial gains over that time frame?

TwoScoopsPlissken says

Also, Anon, get a username or go to my ignore list, please. I'm reasonably sure you were a poster that had a name at one point.

Do what you need to do McGee. Not sure why an anonymous name that starts with anon is any different than an anonymous name that starts with Two, but whatever floats your boat.

Weimar republic, 1990's russia and venezuela today show that inflation results in hopelessness and despair. There are other issues at play besides paying off debts in devalued dollars...everyone wants something for nothing.

anon_313db says

Weimar republic, 1990's russia and venezuela today show that inflation results in hopelessness and despair. There are other issues at play besides paying off debts in devalued dollars...everyone wants something for nothing.

No, they show that runaway inflation is bad. Moderate inflation is good.

anon_24e57 says

Correct. If anyone has any questions, ask yourselves why didn't prices tank in seattle 1975-1980 when inflation was rocketing up?

The reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it naturally made home prices rise.

Notice, as soon as interest rates lowered to around 10%, home prices climbed faster. Proving once again, people buy "Payments", not "Houses".

TwoScoopsPlissken says

I admit I exaggerated when I stated that high rates would substantially reduce home prices - but it may have a short term effect as anecdotes on this thread have illustrated- but low interest, low inflation era has clearly shown the most explosive home price growth in the past 50 years, far outstripping the high interest, high inflation era around 1980.

Absolutely true. Anon (joey) must not remember that the majority of people who buy houses with a mortgage actually buy the PAYMENT not the house. What's the first thing a realtor asks you at the first meeting? "Let's see how much you qualify for" and then they go shopping for a house that fits that payment.

Sniper says

The reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it
naturally made home prices rise.

Correct - yet whether its females entering the workplace, improvements in productivity, or any other conceivable reason, the lagging yet FUNDAMENTALLY NECESSARY precondition of an inflation cycle is increasing wages. Remember this. No matter what inflationary cycle you happen happening in the future, there will somehow be more money available to those people to pay $27 for that loaf of bread, $84 for a pound of steak, $78,999 for a bargain basement car, and $1.2MM for a starter home in Temecula. In this case, the family who is now making 200K (double what they were before) is in wretched agony being bled dry by enormous prices for everything. Yet to escape the ass raping of 8K a month they are "Throwing away on rent" those that can will gladly sign up for the loan for the home - thereby causing the price support confounding those who believe prices must crash.

This site is full of poor Republicans who know nothing about investing.

Having $5K in the stock market doesn’t make you an expert.

anon_fad35 says

This site is full of poor Republicans who know nothing about investing.

Having $5K in the stock market doesn’t make you an expert.

Posting as anon doesn't either.

I like how people pretend that wages are going to be going up. Lol

The better question is why is Trump selling US Debt so cheap when it’s obvious that it would sell for MUCH Moar? Not very good at making deals, it seems

Sniper says

he reason why prices didn't tank in the 1980's was because there was a big influx of females that entered the workforce (who are the Boomers now) at that time, adding income to the family budget with two wage earners. With more money available for housing, it naturally made home prices rise.

Notice, as soon as interest rates lowered to around 10%, home prices climbed faster. Proving once again, people buy "Payments", not "Houses".

Not sure how a graph can be misread so much. Prices stalled because the economy was in a recession. Recession = lower wage growth.

Home prices rose on that chart from 1976 - 1980 : higher rates and rising rates. From 1989- 1991: high and stable rates. From 1995-2008: moderate and falling rates.

Prices fell from 2008-2012: Low and falling rates.

Not sure how anyone could look at these time periods and the resulting housing price changes and conclude that low interest rates are good for home prices and high rates are bad.

Sniper says

Anon (joey) must not remember that the majority of people who buy houses with a mortgage actually buy the PAYMENT not the house.

Nope---anon remembers that. Anon always remembers that during times of higher inflation, wages/salaries go up much more/faster, so the higher income can easily afford to pay a bit more interest.

Flat wages and higher interest means even less people will buy homes. RE market will collapse in an epic way!

If we have high inflation, how angry will the perma renters be?

Permarenter will mutter to himself that house payments are much higher than rent, so it's a great deal to rent. 3 years later, his rent will have gone up 30%, and his wife's friend will be talking about how her mortgage is now lower than permarenter's wife's rent, and it is fixed and getting easier every year. Permarenter's wife will be sad.

Didn't work out that way for me. My rent went up only slowly, and the stock market beat housing appreciation. Wife is happy.

Conversely, I'm sure there were a ton of divorces in the wake of the housing bubble implosion starting in 2008.

It totally depends on the numbers involved. It is wrong to say that renting or buying is always better.

TwoScoopsPlissken says

Consumer prices jump much more than forecast, sparking inflation fears
The Consumer Price Index, a key indicator of inflation trends, jumped 0.5 percent in January, well above market expectations.
Markets reacted sharply to the news, with stocks sliding and government bond yields rising.
The Fed is watching inflation closely, so the report could add fuel to interest rate hikes.
https://www.cnbc.com/2018/02/14/us-consumer-price-index-jan-2018.html

Fantastic News! The best help to debtors is some decent inflation. No more wimpy inflation to pad the wallets of the banks and lenders.

The CuntFace McRacist administration has gutted regulations aimed at keeping banks for fist fucking the nation, so it's not like consumers getting reamed by poor fiscal and monetary policy is going to harm the banks in any way. That carried interest loophole the Cunt was going to close to rein in Wall Street? What a fucking joke, like the rest of his lies.

Patrick says

Didn't work out that way for me.

Did you make this decision in a period of high inflation? That is what we are talking about after all.

It's wrong to say that renting or buying is always better.
However, generally speaking, if you buy right before a period of high inflation, you will come out ahead. That is not rocket science. As an example of things working out badly, you mentioned buying right before a period of deflation and huge recession. That is the opposite of the situation that we are discussing.