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@ Nuttboxer and all,
"the price people are paying RIGHT NOW is locked into inflation-proof debt"
This comment taken alone, doesn't appear to make any economic sense to me. Could someone please explain this to me? Thank you.
inflation typically causes interest rates to rise.
in california, the base tax rate is also mostly shielded.
long term, housing is appreciating.
"I still just look at the rent / buy ratio. If you can pay less rent than the cost of owning the same thing (interest + taxes + ins + maint), well, fuck owning then. Maybe you lose out on some leveraged appreciation, but that could just as well go the other way: you could rapidly be underwater due to leveraged depreciation. Can't happen? Heard that before."
You have to account for the fact that debt payments are constant while rent rises with inflation. So, owning gets cheaper wrt renting every year after you buy. That's why you have to use a rent/buy calculator to really see the best buy.
-in no way shape or form are those homes worth a million dollars. Standard rent would be about $3k per month on those houses. They should reasonable sell in the high $800's if recently renovated, in the mid-high $700's in original early 70's condition or with an 80's-90's renovation
Wow, in my area you cna get 2k rent on a 350k-400k 4b house . Townhomes are still 120-170k for which you cna get 1-1.3k a month in rent. property taxes are sky high-sometimes exceeding 3% and are not locked in.
Farther away in bullet riddled land, you can buy a 4b home for 30-50k , that rent for 500 bucks a month or so-but that is crime central.
"No one makes more money during inflation, because salaries rarely keep up with the rising cost of goods."
That's not true at all. I've seen no evidence that real incomes perform worse under high inflation environments. If anything, it appears that real incomes do better.
You have to account for the fact that debt payments are constant while rent rises with inflation. So, owning gets cheaper wrt renting every year after you buy.
Yes, rents could rise higher, but never higher than what people can afford, otherwise they go un-rented. Owning a huge debt in the face of economic collapse is not a good thing. You need liquidity, which you won't have. You need a higher percentage of your income for basics like food and gas, which a locked in debt doesn't allow adjustment for. You need a job, which a down economy and layoffs doesn't provide, and again you can't just move to a cheaper rent because you're locked in.
In a bright economic future I agree with these guys 500%. But that's not reality, sorry Trumpers.
That's not true at all. I've seen no evidence that real incomes perform worse under high inflation environments. If anything, it appears that real incomes do better.
Tell me what inflation does, I have a feeling you are clueless based on the oxymoron you just posited.
"Tell me what inflation does, I have a feeling you are clueless based on the oxymoron you just posited."
No offense, but I almost guarantee I know much, much more on this topic than you. Inflation is generally defined (outside of Dan) as in increase in the prices of goods and services.
And as you probably don't realize, inflation also increases wages and salaries. That's why, historically, real income does fine under inflation and why what I posted is a historical fact, not an oxymoron.
as in increase in the prices of goods and services.
What causes inflation, you are speaking of effects, not root cause.
And as you probably don't realize, inflation also increases wages and salaries.
Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver.
"Yes, rents could rise higher"
And by could--you mean, they pretty much always do. Rents go up with inflation.
"Owning a huge debt in the face of economic collapse is not a good thing. You need liquidity, which you won't have. You need a higher percentage of your income for basics like food and gas, which a locked in debt doesn't allow adjustment for. You need a job, which a down economy and layoffs doesn't provide, and again you can't just move to a cheaper rent because you're locked in."
Most people are locked into leases too so it's not all that different. If there's an economic collapse, you're screwed no matter what. And nobody should buy if it impacts their ability to have an emergency fund.
"What causes inflation, you are speaking of effects, not root cause."
Typically inflation is caused when the demand for goods and services outstrips the supply of said goods and services.
"Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver."
History doesn't agree with you. Real incomes typically rise during periods of inflation.
"Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver."
History doesn't agree with you. Real incomes typically rise during periods of inflation.
Folks, inflation on essential goods and services cannot exceed for very long wage inflation.
For a simple reason.
1. There's good inflation and there's bad inflation.
2. There are factors other than inflation that can affect interest rate changes.
3. Interests rates can increase faster than inflation (and wages) for a period of time.
4. Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned.
"4. Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."
Of course. You can import inflation. The US could default on it's bonds. Lots of things could happen. But, I'm just pointing out what happens 99% of the time.
1. There's good inflation and there's bad inflation.
What do you mean by good inflation? I didn't know such thing exists.
What do you mean by good inflation? I didn't know such thing exists.
Inflation, which is the results of increased economic activity, leading to rising incomes of a large part of the population, rising consumption, and hence upward pressure on prices.
Actually 100% of the two times you are arbitrarily calling inflation
Actually 100% of the two times you are arbitrarily calling inflation
OK 100% of the two times.
Uncertainty goes as sqrt(sample size)
OK 100% of the two times.
Uncertainty goes as sqrt(sample size)
Yep--but you are arbitrarily restricting sample size.
Yep--but you are arbitrarily restricting sample size.
I suspect that you are the one doing it, by not looking beyond the USA
I suspect that you are the one doing it, by not looking beyond the USA
True, and you are doing it by pretending that there are only two periods of inflation in the last 200 years of US History.
Which are the periods of rising inflation in the US that you think are relevant to this conversation?
Let's see:
1916-1920
1941-43
1946-48
1951
1969-70
1973-75
1978-81
1989-91
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
That's only the last 100 years, but its a good start.
What would it cost you to rent the same thing long term?
There's no doubt that renting is cheaper than buying. If I were to buy a $900K home here, my guess is that it would rent for $3,500-$3,800 / month.
Bought with cash in March 2012 for 43k. 15k for renovation. Renting out for $1250 mo. Current appraisal is $130k. Property tax still assessed at 43k. Hoa is $250. If I would have been paying even $900 rent this whole time, which cumulatively, was the cost of the entire home, I would have nothing to show for it today. Basically, the way I look at it is this, I have a $130k home for free which is now giving me free rental income. Paying rent is throwing money out the window. How can you even compare it to home ownership?
"There's no doubt that renting is cheaper than buying. If I were to buy a $900K home here, my guess is that it would rent for $3,500-$3,800 / month."
It actually depends on how long you plan to stay. As long as you plan to stay at least 5 years, it's cheaper to buy. And gets significantly cheaper with each additional year past 5 that you stay in the house.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
1916-1920
1941-43
1946-48
1951
1969-70
1973-75
1978-81
1989-91
1916-1920, 1941-43, 1946-48, 1951 -war, postwar years
Then you have one decade (the 70's) and two isolated years.
What I wrote:
"Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."
remains valid. Pay attention especially to the last sentence.
What I wrote:
"Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."
remains valid. Pay attention especially to the last sentence.
Which sentence? One cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned? Yes, I already acknowledged that. It's the correct default position until someone can present evidence for why this time will be different, however.
Do you acknowledge that there are a lot more than 2 periods of inflation?
It's the correct default position until someone can present evidence for why this time will be different, however.
You have it backwards amigo. If you want to rely on history, you must show that there is a historical precedent that matches the current situation.
That is how learning works: (1) empirical evidence, (2) understanding of 1, (3) formulating general principles based on 2.
You are trying to skip (2) and you don't even know if (1) is sufficient.
Do you acknowledge that there are a lot more than 2 periods of inflation?
War years, a decade, and an isolated year - 2,3,4 periods, whatever (if you call the months "periods" you can have 20) - this is the history on which you base your blind beliefs.
"You have it backwards amigo. If you want to rely on history, you must show that there is a historical precedent that matches the current situation.
That is how learning works: (1) empirical evidence, (2) understanding of 1, (3) formulating general principles based on 2.
You are trying to skip (2) and you don't even know if (1) is sufficient."
Nonsense. I clearly understand the empirical evidence and have formulated a principle based on it. That demand outstripping supply has been the (major) cause of inflation in the United States for the last 200 years. The US economy is still the US economy. So the historical precedent matches.
"War years, a decade, and an isolated year - 2,3,4 periods, whatever (if you call the months "periods" you can have 20) - this is the history on which you base your blind beliefs"
If I call the months periods, there are well over 100. But, no, I call a period a period. Generally at least a year. So there are actually 8 periods. And I like the "blind" beliefs comment--very funny. I "believe" in facts and data. What do you believe in?
"Yes, rents could rise higher"
And by could--you mean, they pretty much always do.
Yes, rents could rise higher, but never higher than what people can afford, otherwise they go un-rented.
Do you always try to sound right by cherry picking parts of comments instead of the facing the truth of what was said? Or do you just stop reading as soon as you hit something you don't understand?
Most people are locked into leases too so it's not all that different.
Are you shitting me!? In California the landlord always has to make reasonable effort to re-rent, even if you break lease. Otherwise they are liable for unrented months, not the tenant. Second leases average a year, not THIRTY. Third, even if you do break lease, landlord can't fill the unit, and you do end up paying rent after leaving, it's still NO WHERE CLOSE to the amount you will owe if you try backing out of a mortgage.
Will you stop at no blatant exaggeration in an attempt to sound right!?
Typically inflation is caused when the demand for goods and services outstrips the supply of said goods and services.
No, in every economic collapse there has always been plenty of available resources. Scarcity is due to unaffordability(mostly), hording, and government manipulation. And we have now gotten closer to root cause than any of these effects. Central bank over-printing of fiat currency is the driver behind every inflation. This is why at some point the cost to produce or transport goods outstrips the return when they are sold. Another effect that leads to your choked supply.
Paying rent is throwing money out the window. How can you even compare it to home ownership?
Because apparently you don't know of another "investment" other than buying a structure that degrades over time, and requires constant maintenance. Which you haven't included in your calculation vs renting, or the additional taxes and interest you're paying(how very convenient). And if those HOA fees ever rise, forget about just moving...
"Do you always try to sound right by cherry picking parts of comments instead of the facing the truth of what was said? Or do you just stop reading as soon as you hit something you don't understand?"
Sorry--didn't mean to. Here, I'll respond to the other part as well.
NuttBoxer says
"Yes, rents could rise higher, but never higher than what people can afford, otherwise they go un-rented."
This is true, but somehow people always manager to afford it. Probably because they'd rather cut elsewhere rather than being homeless.
This is true, but somehow people always manager to afford it.
WTF... So if I only make $1,000 per month, and rent is $1,000 month, I'm going to just not eat? That reasoning is unfounded, and absurd.
joeyjojojunior says "Typically inflation is caused when the demand for goods and services outstrips the supply of said goods and services."
Nuttboxer says, "No, in every economic collapse there has always been plenty of available resources. Scarcity is due to unaffordability(mostly), hording, and government manipulation. And we have now gotten closer to root cause than any of these effects. Central bank over-printing of fiat currency is the driver behind every inflation. This is why at some point the cost to produce or transport goods outstrips the return when they are sold. Another effect that leads to your choked supply."
I figured that's where you were trying to go. It's the FED!! Hate to break it to you, but inflation existed long before the Federal Reserve. Certainly printing money can cause inflation. But it's far from the only mechanism. And, regardless, printing money causes demand to outstrip supply, which causes inflation.
"WTF... So if I only make $1,000 per month, and rent is $1,000 month, I'm going to just not eat? That reasoning is unfounded, and absurd."
Is eating the only other thing you spend money on?
wtf is right--look at the last 100 years of rent prices and then overlay it against 100 years of inflation. You'll find they match pretty damn close.
Joe Jr, it seems like you and I have different standards for logic and reason.
"Joe Jr, it seems like you and I have different standards for logic and reason."
Yep, it sure does.
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I live in the north SD city area. I've been scouring Redfin for a while and noticed that a ton of higher end homes ($700K - $1.2M) are coming onto the market, and it's not even Spring yet. Is this the year that the market goes in favor of the buyer? Of course I want this to be true because I'm looking to buy, but I want to stay objective.
#housing