patrick.net

Darrell In Phoenix says

Don't be silly. Depreciating assets are NEVER a hedge.

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

they are when the reality -- only alternative -- is dealing with that trend.

Darrell In Phoenix says

$2400/month in principal and interest alone.

principal repayment is, historically, a form of savings

that was the mistake I made in my rent-vs-buy analysis ca. 2001, I was comparing a $2000/mo PITI vs my $800/mo rent.

Unfortunately, had I bought in 2001 my PITI would now be more like $1200/mo (thanks to interest rates falling from 8% to 3%), and my rent is now $2000/mo.

So I screwed myself but good not buying in 2001.

I suspect the system has another screw job awaiting me this decade, sigh.

As for "realtor math", as of now interest is tax-deductible (even on the AMT). $550,000 mortgage at 3.25% has $18,000 in interest, and at the 28% marginal bracket that's a ~$5000 tax credit, over $400/mo money back from Uncle Sam for carrying that insane mortgage.

David Losh says

mell says

Similar to a house.

A house has an economic viability. There is rental income.

You can peg the value of housing to the rental market, CPI, and wages.

Gold does have intrinsic value as well and does not deteriorate as fast (less upkeep but you need to keep it safe).

Kevin says

How do I have less buying power in a *refinance*?

I didn't mean that with regards to your refinance, that is always a deal if you can lower your rates, but those rates are only made possible by constant debasement of the dollar which affects everyone, so you likely still come out ahead.

mell says

but those rates are only made possible by constant debasement of the dollar

our "strong dollar" is killing us.

http://research.stlouisfed.org/fred2/series/NETEXP

we need a lot more "debasement"

plus we need to get off of our petro-economy, at least for transportation.

The true economic crimes were made 1999-2007:

http://research.stlouisfed.org/fred2/series/TCMDODNS

That graph should be at $24T now not $40T.

Bellingham Bill says

mell says

but those rates are only made possible by constant debasement of the dollar

our "strong dollar" is killing us.

http://research.stlouisfed.org/fred2/series/NETEXP

we need a lot more "debasement"

plus we need to get off of our petro-economy, at least for transportation.

The true economic crimes were made 1999-2007:

http://research.stlouisfed.org/fred2/series/TCMDODNS

That graph should be at $24T now not $40T.

The dollar is not strong it is very weak, it's just that the Euro i(and others) is equally in the toilet. Tons of countries with strong currencies still have balanced trade or better. Trade deficit does not come from a strong currency, it comes from mission manufacturing and deteriorating quality as well as a public focused on consumption. Also, I wouldn't call data about the strength of the dollar from the st louis fed unbiased research ;)

Billybigrig says

Darrell In Phoenix says

"Mark D."??? lmao

http://en.m.wikipedia.org/wiki/Internet_Sock_Puppet

you mean he didn't already know the meaning of that?

Goran_K says

Right now the market is basically investors/speculators, foreign buyers, and FHA'ers. Two of those sources are going to be seriously constricted within the next year. One of those is going to be left holding a stinky bag.

more BS from the resident negative nancy. you can tell this person has never attempted to apply for a mortgage before.

dude, learn how to fucking read first.

the interest cost (net tax benefits) roughly compares to the rent in the renting case.

your talent of producing counterfactuals is clearly immense.

3.25% (fixed!) rates are not "inflated borrowing costs".

QUITE the opposite.

$550k at 3.25% interest is a $1500/mo borrowing cost.

My rent is more than that, and that doesn't even figure in the MID.

AND that borrowing cost goes down as the principal is paid down.

rents, on the other hand, have not been going down for me lately, alas.

Bellingham Bill says

principal repayment is, historically, a form of savings

This is true only if the dollar and the house both hold values compared to other assets. Remember, low interest rates cause a higher house value, and hence a higher principal. Interest rates are also in historic lows. Of course, you may assume that will go lower or stay there forever.

mell says

Gold does have intrinsic value

Economic viability is different.

There is no purpose, or use for gold. It makes jewelry usually to hold diamonds which are about to sink in value.

Darrell In Phoenix says

Paying $1.67 for every dollar borrowed to buy a depreciating asset is a massive loss.

Thing is . . . homes haven't been "depreciating" in my lifetime.

http://research.stlouisfed.org/fred2/series/SPCS10RSA

Your thinking on home purchasing is utterly destroyed by the reality of wage inflation, population growth, and falling interest rates pushing up the price of housing in this country

http://research.stlouisfed.org/fred2/series/MORTG

shows since 1982 mortgage rates have been on a downward trend.

Now, things might change for the worse in this country, and housing crash along with everything else.

The fixed good turns to dust over time, but the land component does not.

And in high-cost areas like California, people are paying for the land, not the house per se.

Same thing with landlords charging rent. In my old complex in Sunnyvale, rents used to be $700/mo back in the 1980s, but now they're $1700 and up.

It's the same apartment, the rise in rent has been due to the rise in area wages since then, and the generally tight supply of housing vs. demand.

(demand fell a bit 2001-2005 during the downturn but that didn't affect rents much)

gsr says

Remember, low interest rates cause a higher house value, and hence a higher principal. Interest rates are also in historic lows. Of course, you may assume that will go lower or stay there forever.

my thinking on that is we will only see higher interest rates -- courtesy of the Fed at least -- to combat wage inflation.

ie never, unless something exogenous happens

Darrell In Phoenix says

Houses, like ALL manmade items depreciate, ALWAYS.

LOL. They, along with all other assets, INFLATE, too.

My parents' 1500' place that was purchased for $60,000 new has a replacement cost of $150,000 now. Inflation!

With minimal maintenance -- call it $1000/yr -- my parent's place is still providing the services comparable new houses in the area are (they sell for $250,000 on up).

The bundle of services we generally need are -- keeping the weather, bugs, and criminals out, providing privacy and some space of one's own to relax in (both inside and outside), a place to stash our stuff, utility hookups, and ready access to the community for work and buying more stuff.

Even though my parent's place is 30-plus years old, it is still providing all of these services just as well as new homes in the area, which is why it hasn't "depreciated" at all. Hell, with the 30 year old landscaping it's gotten better over the decades, and if & when I do get a home in this area it's going to be an old home in an established neighborhood, not some barren acreage with nothing but snakes and scrubgrass for miles like you seem to want to live on.

Homes built in the 1920s in this area are also still around.

Homes don't "depreciate" like you think they do, LOL.

Bellingham Bill says

my thinking on that is we will only see higher interest rates -- courtesy of the Fed at least -- to combat wage inflation.

ie never, unless something exogenous happens

Here is the problem. Record low interest rates will continue to boost asset prices until it cannot. Of course,it has just started in Japan. But the problem here can happen before that, if the people get fed up of high debt, and the increasing gap between CPI and wage inflation.

gsr says

Record low interest rates will continue to boost asset prices until it cannot.

Japan's interest rates are 2% now. There's no reason the Fed can't pull that gun out.

Low interest rates are simply because our economy has too much money in it!

This is counter-intuitive, I know, but the more money gets pushed into the economy the lower interest rates will be pushed.

The only way to reverse this is to get some velocity --and wage inflation -- in the lower 95% of the economy.

But our economy is structured to pull money from the 95%, not keep money within that sphere.

gsr says

if the people get fed up of high debt

Debt vs. the LL's rent increase. That's the gauntlet the masses have to run this decade and next.

Darrell In Phoenix says

Don't be silly. ALL manmade items depreciate. ALWAYS.

Not in nominal terms. Inflation can and does outpace any depreciation.

Like i've said and demonstrated about 10 times to you already.

We don't really know how long modern houses in California can last. Plenty put up in the 1920s through 1940s are still soldiering on fine.

Where's the "depreciation"? The roof might last 30-40 years, carpets need replacing, paint needs redoing, all the appliances will certainly need replacing. But on the whole, houses in California are pretty durable. And inflation in land values can easily outpace any depreciation of they physical components.

Darrell In Phoenix says

But do try. It's quit entertaining to watch you

me and the rest of the planet, LOL

it's safe to say that you are the most bizarre person I've ever come across on the internet.

I happen to agree with you that real estate valuations are a "construct" of the system as-it-is and not fixed in stone.

Should mortgage interest rates rocket to 20%, taxes double, unemployment explode, and/or gasoline triple, all that will take a big bite out of present valuations.

But should present conditions continue as they are, inflation is the order of the day.

Bellingham Bill says

Japan's interest rates are 2% now. There's no reason the Fed can't pull that gun out.

Low interest rates are simply because our economy has too much money in it!

This is counter-intuitive, I know, but the more money gets pushed into the economy the lower interest rates will be pushed.

This is mainly due to similar problems in other countries, and our reserve currency status. No one should expect the Fed increase rate, given the increasing amount of debt.

The only way to reverse this is to get some velocity --and wage inflation -- in the lower 95% of the economy.

But our economy is structured to pull money from the 95%, not keep money within that sphere.

gsr says

if the people get fed up of high debt

Debt vs. the LL's rent increase. That's the gauntlet the masses have to run this decade and next.

And this is why I said it cannot stay that way forever. It will have a reset. It is hard to say when and how it will happen. Contrary to the popular belief, lower tax rate did not cause this, and increasing taxes on 5% won't cure this.

I disagree that it will stay this way for another decade. This is not Japan. People are less docile.

Darrell In Phoenix says

unless you suspend the 2nd law of thermodynamics.

That's the nutiest thing you've posted, but.....

Bellingham Bill says

it's safe to say that you are the most bizarre person I've ever come across on the internet.

Darrel is a very normal, and predictable troll.

You address him, or her, and she responds with an attempt to hijack the thread.

Some trolls are paid, others just have a screen up for amusement.

gsr says

I disagree that it will stay this way for another decade. This is not Japan. People are less docile.

yes, one thing is certain is that we are not Japan. They're in semi-crisis in that they posted a $6B trade deficit for September, even though their ~$3T net asset position brought in $12B to compensate it. (Our trade deficit is ~$50B/mo and we're the #1 debtor nation by far)

It is Japan who owns $1T+ of our national debt, not the other way around.

I cannot pretend to see our future AT ALL. I don't know what's going to happen next month or next year politically.

I do think I have some larger understanding of the general trends involved.

But what can happen should we allow it is a "virtuous" debt/print cycle taking hold, where we maintain some semblance of an economy via the $40B/mo QE3 accreting into more massive money creation as borrowing/spend/saving cycle counteracts the general deflation going on.

The government's upcoming baby boom payments are going to be massively stimulative! 80 million people getting $20,000+ in free money from the government! Yowza!

Darrell In Phoenix says

Kevin says

My mortgage is $1900 a month.

And you're monthly costs are twice that. Stop lying about it.

Huh? P+I is $1900. Taxes are $400. Insurance is $85.

Tax deductions save me $600. So my total comparison vs rent is $1700.

I spend less than $1000 a year on maintenance if you want to count that too.

Now put up or shut up. Where is the home I can rent for half the cost? If you can find a single home of comparable quality (even a much smaller one!) In a comparable neighborhood that is renting for half of that I will give you $100. Or buy you a two year premium membership. Or never post again. Your choice.

Hell, I'd be impressed if you could find one renting for less than my total monthly costs, never mind half the cost.

By the way, confusing depreciation with entropy is hilarious. As certain things become more rare they absolutely increase in value, even if they technically are rotting or eroding.

You're clearly just arguing for arguing sake. Reality doesn't agree with anything you say.

Bellingham Bill says

But what can happen should we allow it is a "virtuous" debt/print cycle taking hold, where we maintain some semblance of an economy via the $40B/mo QE3 accreting into more massive money creation as borrowing/spend/saving cycle counteracts the general deflation going on.

Remember, with each recession, the economy will require increasingly higher doses of "stimulus".

Currently, very few people have enough cash available to make a sizable down-payment. Investors have been buying up a lot of houses lately. Next, they will have to rent them to the so called 95%. This will cause oversupply of rental units, and they won't be able to get more than the market rate in the long run. Without wage inflation, it is virtually impossible to have a strict rent inflation. When this happens, there will be another "crisis".

Darrell In Phoenix says

Darrell In Phoenix says

And you're monthly costs are twice that. Stop lying about it.

And worse yet, you couldn't find a buyer for it for a fraction of what you paid.

K. Let me know when you actually see an account balance with more than $50 in it.

But hey..... I'll be happy to build you another retail product for $400/sq.

Send me your drawings.

rjb.sitecivil@gmail.com

I'd rather have someone who actually knows what they're talking about do it for $200.

gsr says

Without wage inflation, it is virtually impossible to have a strict rent inflation.

while I agree (rents in real terms went down quite a lot in the 1970s) the higher the proportion of the housing stock being rented the more market power the landlords have to squeeze more rent out of their tenants.

And demographically we have the peak of the baby boom echo turning 20 this year.

Darrell In Phoenix says

$20k replacing $60k in wages.... yeah. Mighty "stimulative".

No, SSA income is additional personal income in the national accounts.

Either people who retire leave that job for the next person, or still work and collect SS and Medicare benefits.

SSA checks (and Medicare) are going to be an IMMENSE flow into the consumer economy later this decade.

Bellingham Bill says

SSA checks (and Medicare) are going to be an IMMENSE flow into the consumer economy later this decade.

I don't see how it's a net positive. Every dollar that comes out just came out of somebody else's taxes. If it was coming out of useless marginal dollars that might be a different story, but given how regressive these taxes are it seems unlikely.

Darrell In Phoenix says

$20k replacing $60k in wages.... yeah. Mighty "stimulative".

LOL

I was thinking the same thing. I can't wait to see the geriatrics buying up the LCD TVs, and Maserati's on their fixed income from the government. Good times coming.

Kevin says

I don't see how it's a net positive. Every dollar that comes out just came out of somebody else's taxes. If it was coming out of useless marginal dollars that might be a different story, but given how regressive these taxes are it seems unlikely.

Exactly. Any dollar paid out by the government for old timer fixed incomes came from someone else, and is taken away from other spending.

If it was housing, where Obama and Bernanke keep trying to inject magically created liquidity, then that's a different story. Not so much with geriatric SSA payments.

And as for old people's "other income", good luck with that. The people who got most screwed by Bernanke were old people. Their interest accounts are practically losing value everyday.

@Mell, @Bellingham Bill, @Kevin I would encourage you guys to put him on ignore. He just draws people in and destroys the threads. I like hearing what you have to say, but arguing with him is pointless. He is like a bot generating topical bear comments with little behind them.

BG

The Professor says

The "dollar paid out" came from the "old timer"s withholdings throughout their working life.

Having said that I do not feel entitled to social security. It should be the safety net against old age poverty, not the depended on income.

That's true, but it's not some magical form of liquidity like that other poster was trying to imply, it came out of someone's paycheck (and I agree, old timers deserve to get what they paid into).

The cure for cancer, new robots, and viable fusion technology, yes that will expand the economy. SSA checks?

Not likely.

The Professor says

The "dollar paid out" came from the "old timer"s withholdings throughout their working life.

SS is a pay as you go plan. The money isn't put into the bank and then withdrawn. Current workers pay current retirees. The "trust fund" isn't that all that big at 2.7 trillion (about 3 years payouts) and only consists of IOU's from the government's general fund.

So any money going out in SS is being taken in with fica deductions. It's a wash.

Bellingham Bill says

Debt vs. the LL's rent increase. That's the gauntlet the masses have to run this decade and next.

love my rent controlled pad!

bob2356 says

SS is a pay as you go plan. The money isn't put into the bank and then withdrawn. Current workers pay current retirees. The "trust fund" isn't that all that big at 2.7 trillion (about 3 years payouts) and only consists of IOU's from the government's general fund.

That Trust fund took 20 years to build up, though. It's now time to spend it down as originally intended (FICA pay-ins aren't going away so we need to look at how long the surplus will actually last as a supplement to FICA).

If we just raise taxes on the lower 90% to pay off the bonds the whole Greenspan Commission thing will have been something of a scam to lower taxes on the wealthy by having the boomers (and Gen X) overpay their FICA and then have the boomer children (and Gen X) pay off the bonds now.

So I fully expect this is what's going to happen.

Goran_K says

The cure for cancer, new robots, and viable fusion technology, yes that will expand the economy. SSA checks?

we don't actually need to "expand the economy" to get things back in balance.

The top 5% clear 30%+ of the national income.

There's your problem, mate.

SS checks this decade and next are ~$2T pure redistribution if the top 10% pay up on their end of the Greenspan Deal over the next 15-20 years.

Just what the doctor ordered.

Kevin says

I don't see how it's a net positive. Every dollar that comes out just came out of somebody else's taxes. If it was coming out of useless marginal dollars that might be a different story

yes, I'm thinking higher taxes on non FICA-hit income. That's the only thing that would be "fair". And thus the least likely, LOL.

Also we can just print the payouts somehow. That's also possible, sigh.

Bellingham Bill says

Goran_K says

The cure for cancer, new robots, and viable fusion technology, yes that will expand the economy. SSA checks?

we don't actually need to "expand the economy" to get things back in balance.

The top 5% clear 30%+ of the national income.

There's your problem, mate.

SS checks this decade and next are ~$2T pure redistribution if the top 10% pay up on their end of the Greenspan Deal over the next 15-20 years.

Just what the doctor ordered.

Only accurate if SS is fixed to no longer be a regressive tax (maybe we quit the current charade and just fold it into income tax). The top 10% pay significantly less as a percentage of income in SS than the regular folks.

Bellingham Bill says

That's the only thing that would be "fair". And thus the least likely, LOL.

Just remove the cap and it'd have a big impact. If you move a marginal dollar from someone who wasn't spending it (or wasn't spending it efficiently anyway), and give it to someone who must spend every dollar that they get, you'll stimulate the economy.

SS taxes at present just take dollars from people who need them (those making under $115k/year or thereabouts) and gives them to people who need them slightly more.

Bellingham Bill says

Goran_K says

The cure for cancer, new robots, and viable fusion technology, yes that will expand the economy. SSA checks?

we don't actually need to "expand the economy" to get things back in balance.

The top 5% clear 30%+ of the national income.

There's your problem, mate.

SS checks this decade and next are ~$2T pure redistribution if the top 10% pay up on their end of the Greenspan Deal over the next 15-20 years.

Just what the doctor ordered.

All of that money is just going to keep a huge geriatric boomer population (the largest percentage of old timers in U.S history) alive, and off the streets. I'm not sure how that helps your point.