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Yay, Inflation!


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2018 Feb 14, 7:50am   9,093 views  80 comments

by MisdemeanorRebel   ➕follow (12)   💰tip   ignore  

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.

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1   MrMagic   2018 Feb 14, 7:57am  

TwoScoopsPlissken says
The best help to debtors


In that case, do these household become WINNERS?

Total US household debt soars to record above $13 trillion.

The American consumer is loading up on debt.

Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017 from the previous quarter, according to the Federal Reserve Bank of New York's Center for Microeconomic Data report released Tuesday.

Mortgage debt balances rose the most in the December quarter rising by $139 billion to $8.88 trillion from the previous quarter. Credit card debt had the second largest increase of $26 billion to a total of $834 billion.

The report said it was fifth consecutive year of annual household debt growth with increases in the mortgage, student, auto and credit card categories.

https://www.cnbc.com/2018/02/13/total-us-household-debt-soars-to-record-above-13-trillion.html
2   MisdemeanorRebel   2018 Feb 14, 8:03am  

Great News! If you make $3000 a year, and have a $1000 fixed-rate mortgage, then if you only get COLA increases (not including any raises, promotions, etc.) with inflation at 5%, then in 10 years your mortgage payment goes from 30% of your budget to about 20%.

Since you'll go from making $3000 to just under $5000, but your mortgage payment remains $1000.

So beautiful. You could through in a few hundred bucks extra for that mortgage each month and pay it off earlier.

Given the huge debts Americans have in homes, this is wonderful. Boomfucks had several decades of low inflation, they had their chance, now it's time for X and Millenials to enjoy the lower home costs and easier mortgage repayments of moderate inflation! The higher the interest rate, which should be tracking inflation, the cheaper the home price. Then refi during a dip in rates/inflation.
3   anonymous   2018 Feb 14, 8:08am  

I agree--US needs a big dose of inflation. If Trump's tax cut had been structured differently, we may have gotten it-but sadly this one month rise will likely not continue..
4   anonymous   2018 Feb 14, 8:32am  

TwoScoopsPlissken says
The higher the interest rate, which should be tracking inflation, the cheaper the home price.


Except that's not really true. If you look at historical data there is actually a slightly positive correlation between home prices and inflation. Meaning prices rise with higher inflation and fall with low inflation.

Which makes sense. Prices are much more strongly tied to income than to interest rates.
5   anonymous   2018 Feb 14, 8:33am  

High inflation is fantastic for crypto holders and the future of the housing market! The news could not be better! More fiat (inflationary currency) will flow into crypto (which is deflationary). This will be the year of crypto!
For the housing market, higher mortgage rates finally mean the last nail in the coffin for the RE bubble. House prices will collapse!
6   MisdemeanorRebel   2018 Feb 14, 8:38am  

anon_8f378 says
Except that's not really true. If you look at historical data there is actually a slightly positive correlation between home prices and inflation. Meaning prices rise with higher inflation and fall with low inflation.


Have home prices fell in the last two decades of historically minimal inflation?

Low inflation generally means lower interest rates which means the seller can ask for a higher price. With high inflation, almost always correlated with higher rates, the seller's asking price is limited by the monthly payment a buyer will qualify for, which is retarded by a high interest rate.
7   Heraclitusstudent   2018 Feb 14, 8:52am  

I don't think there would be much inflation.
- still huge number of people out of labor pool.
- new automation wave in process now.
- still billions of people in poverty though out the world willing to pay for pennies/hours.
- inequalities high and climbing.
- debts increasing (feds notably)
All this means that the "main street wage deflation vs wall street inflation" meme is still in play in spite of all rumors of the contrary.
8   Heraclitusstudent   2018 Feb 14, 8:53am  

Unless Trump starts a trade war and kicks out millions of illegal workers.
9   Shaman   2018 Feb 14, 9:00am  

Payrolls are increasing while immigration rates are decreasing. The economy is picking up steam with the jobs added rate due to increase. The workforce demand is getting tighter, which means wages will be going up.
And as anyone who remembers the late 70s and 80s knows, big wage increases result in big inflation. No detours. Just inflation.
10   anonymous   2018 Feb 14, 10:05am  

Inflation if moderate, is a good thing. It's a sign of a truly healthy improving everybody's standard of living rather than a tiny fraction.

Neoliberal inequitable financial bs Era was marked by low inflation, rising inequality, and downward mobility for the 80%
11   anonymous   2018 Feb 14, 10:05am  

TwoScoopsPlissken says
Have home prices fell in the last two decades of historically minimal inflation?


Absolutely. Did you forget the crash in 2008?

TwoScoopsPlissken says
Low inflation generally means lower interest rates which means the seller can ask for a higher price. With high inflation, almost always correlated with higher rates, the seller's asking price is limited by the monthly payment a buyer will qualify for, which is retarded by a high interest rate.


Obviously. But that effect is strongly outweighed by the effect higher inflation has on a buyer's pocketbook.
12   anonymous   2018 Feb 14, 10:05am  

anon_d8885 says
For the housing market, higher mortgage rates finally mean the last nail in the coffin for the RE bubble. House prices will collapse!


Keep dreaming. Nominal house prices rose during the high inflation of the late 70s/early 80s.
13   anonymous   2018 Feb 14, 10:20am  

Make sure you get your annual cost of living adjustment before mindlessly cheering simply because it happens under Trump.
14   Heraclitusstudent   2018 Feb 14, 10:35am  

anon_8f378 says
Keep dreaming. Nominal house prices rose during the high inflation of the late 70s/early 80s.

Up to 1997 real home prices were relatively stable. Then madness began...
15   Tenpoundbass   2018 Feb 14, 10:40am  

The return of 5 for $1.00.

This is why we had cheap food during Reagan years. Businesses could write off their losses through inflation. They wholesale blitz of old stock and clear the way for this years production.

The last 8 years, we were still trying to clear out 2009 inventory of over priced junk, so they can make way for the next year over priced junk.
There was no write off to off set losses and protect the market models. Instead they got free money up front through QE checks. Which they took and diversed into other rich man schemes that had nothing to do with the business models the QE was supposed to ease and help.
16   anonymous   2018 Feb 14, 10:55am  

“Keep dreaming. Nominal house prices rose during the high inflation of the late 70s/early 80s.”

Has nothing to do with dreams. Prices are already waaaaay to high and we have historic low sales and historic low ownership rates. More expensive mortgages will just end the housing bubble. Not sure why you compare that to the 70’s.
In the 70’s house prices were dirt cheap. House prices were never pushed that high due to artificially low interest rates in the worlds history. The next crash will be epic!
17   FNWGMOBDVZXDNW   2018 Feb 14, 11:04am  

Heraclitusstudent says

Up to 1997 real home prices were relatively stable. Then madness began

It's true that what happened pre-1997 makes more sense in terms of real prices.
OTOH, this proves the anon comment correct. Home prices went up with in the 70s along with inflation. Real prices stayed relatively level (within 10%), but between 1973 and 1980, inflation was about 9% on average. That means that prices of everything including houses nearly doubled in that 7 year span. So, expecting 9% inflation and high interest rates to result in flat or decreasing nominal house prices is not what happened historically. There are also plenty of logical reasons that this doesn't happen. If anyone is waiting to buy a house, they have to hope for deflation and depression. 2008 was great for those people if they acted in 2009-2011. On the flip side of that bet sits anyone who leveraged up and has a lot of debt. They hope for inflation, and 2008-2009 killed those people unless they walked. Trump and Kushner are leveraged up and hope for inflation. That is an obvious fact, and anyone who thinks/thought that Trump would not steer us toward inflation is an idiot. He loves debt, and he tells everybody about it.
18   anonymous   2018 Feb 14, 11:25am  

anon_d8885 says
Prices are already waaaaay to high and we have historic low sales and historic low ownership rates.


Low ownership rates is actually a bullish signal for housing.

anon_d8885 says
More expensive mortgages will just end the housing bubble. Not sure why you compare that to the 70’s.


Obviously because we had extremely high interest rates
19   anonymous   2018 Feb 14, 11:25am  

anon_8f378 says
TwoScoopsPlissken says
The higher the interest rate, which should be tracking inflation, the cheaper the home price.


Except that's not really true. If you look at historical data there is actually a slightly positive correlation between home prices and inflation. Meaning prices rise with higher inflation and fall with low inflation.

Which makes sense. Prices are much more strongly tied to income than to interest rates.


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

20   anonymous   2018 Feb 14, 11:43am  

Inflation & wages go hand in hand.
If not it's not MAGA.
......
Only psychics take on debt,because they know they can always repay it in the future.
Their motto:"What could go wrong?"

~$1,500,000,000,000 in circulation.
Household debt ! $13,000,000,000,000
Damn math!
21   anonymous   2018 Feb 14, 11:43am  

Here's what I always feared the most with Trump (second most including nuclear war):

He succeeds in causing an ugly form of inflation. One where incomes don't nearly keep up. Sure, if you own your home you have somewhat of a hedge, but this will be terrible for the country. It's not that Trump intentionally causes this ugly type of inflation, it's just that if we have inflation now, it's bound to be ugly, due to the amount of debt out there, and the trend we've already sen of real interest rates (interest rates minus inflation being close tozer to negative.

What people don't get is that there must be a price for using inflation to pay your debts.

LEt's say a couple years from now we have 10% inflation with 7% long term debt available to those with capital and good credit. . This will be an incredible boon to those with a lot of capital (the owners!) . They can buy everything up with low risk. If inflation ends they refinance, if it continues or goes up they win win win.

The public is so gullible.
22   anonymous   2018 Feb 14, 11:52am  

anon_cf3e5,
HEYYOU didn't log in.....again.
23   MisdemeanorRebel   2018 Feb 14, 11:56am  

anon_b62db says
, it's just that if we have inflation now, it's bound to be ugly, due to the amount of debt out there,

Uh, inflation is the best killer of debt.

Low inflation or worse, deflation, is the best incubator of debt

anon_b62db says
LEt's say a couple years from now we have 10% inflation with 7% long term debt available to those with capital and good credit. . This will be an incredible boon to those with a lot of capital (the owners!) . They can buy everything up with low risk. If inflation ends they refinance, if it continues or goes up they win win win.


Why would lenders take a 3% loss?
24   MisdemeanorRebel   2018 Feb 14, 12:00pm  

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.
25   MisdemeanorRebel   2018 Feb 14, 12:06pm  

A $250k house is:

~$1250/month at 4.5% 30-year fixed
~$1950/month at 8.5% 30 year fixed.

That $700/month is a big difference. It means far fewer people would qualify, putting downward price pressure or at least restraining price increases.

Many households make $45k. Much fewer make $72k
26   MisdemeanorRebel   2018 Feb 14, 12:20pm  

Tenpoundbass says
This is why we had cheap food during Reagan years. Businesses could write off their losses through inflation. They wholesale blitz of old stock and clear the way for this years production.


I know a ton of Boomers who did well in the liquidation business in the 80s.
27   anonymous   2018 Feb 14, 1:00pm  

TwoScoopsPlissken says
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%.


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

TwoScoopsPlissken says
A $250k house is:

~$1250/month at 4.5% 30-year fixed
~$1950/month at 8.5% 30 year fixed.

That $700/month is a big difference. It means far fewer people would qualify, putting downward price pressure or at least restraining price increases.

Many households make $45k. Much fewer make $72k


Except you're only looking at half the equation. Under which scenario does the household income go up more?
28   MisdemeanorRebel   2018 Feb 14, 1:04pm  

anon_8f378 says
OK, please point out when house prices dropped during high interest rate times. That was your thesis.


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.

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. Boomers were either buying their first homes or trading up to a larger place with an expanding family.

Contrast with the fact that during the late 90s - late 2000s period, the smallest generation in recent history, Gen X, was in peak household formation years, while the bulk of millenials were too young. Yet low inflation/low rates and weak demand resulted in a massive increase in home prices regardless even with that low demographic demand

The real surprise was how modestly home prices rose around 1980 relative to the inflation rate.

So yes, I think your chart actually makes my case.
29   MisdemeanorRebel   2018 Feb 14, 1:19pm  

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.

30   Tenpoundbass   2018 Feb 14, 1:24pm  

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.
31   MisdemeanorRebel   2018 Feb 14, 1:25pm  

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


32   MisdemeanorRebel   2018 Feb 14, 1:38pm  

US National Inflation vs. Home Prices (FORBES)
33   FNWGMOBDVZXDNW   2018 Feb 14, 1:49pm  

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.
34   Shaman   2018 Feb 14, 2:16pm  

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.
35   anonymous   2018 Feb 14, 2:19pm  

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.
36   anonymous   2018 Feb 14, 2:19pm  

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.
37   anonymous   2018 Feb 14, 2:19pm  

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.
38   anonymous   2018 Feb 14, 2:19pm  

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.
39   anonymous   2018 Feb 14, 2:19pm  

TwoScoopsPlissken says


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

And don't use inflation adjusted prices.
40   anonymous   2018 Feb 14, 2:19pm  

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.

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