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Only 5 to 10% and in the long run it doesn't matter ...
invite response
2007 Jan 2, 5:38am 13,689 views 158 comments
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Randy H
2007 Jan 4, 6:03am
HARM you pussy. Just buy a house with a 2yr IO Option ARM and do a cash-back closing for the $200K! Then you'd be hedged either way, lol.
Inflation and housing prices - are they tied together?
I'm increasingly of belief that we will see dramatic inflation in the near future. The perpetual fall of the dollar. The massive government debts. Continued upwards trend of the price of raw materials.
I'm too young to know - but what happens to housing prices if inflation say... hits something moderate like 5-6%?
Does it tend to match?
I've been futzing a lot with this calculator recently: http://www.dinkytown.com/java/MortgageRentvsBuy.html and I'm perpetually surprised at how close the break even point is... especially when I tweak the inflation knob.
Inflation and housing prices - are they tied together?
I have a feeling they are -- like a bizarre twist to the business cycle and capitalist waves -- in a way that share prices probably are not, due to elastic demand for shares, etc...
ahem, my theory, the theory that is mine, is that...
speculative inflation in housing prices which outstrip general inflation cause mayhem in the economy -- the petit bourgeoisie (shopholders, etc) can put up their asking prices to meet increased mortgage repayments, as can tradesmen, etc. This is the beginning of the inflationary cycle. However, these increases in turn spark increases in wage demands from wage workers, as well as increased asking prices for housing, and wage growth tries to catch up. Next thing you know, you have high inflation. It's currently tracking at about 4% p.a. here, and the Treasury is 'worried'. Increased oil prices and other 'external' price shocks also trigger inflation, of course -- it is hard to disentangle multiple inputs as we are experiencing them now.
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Happy New Year to you all ! Hope everyone had a great holiday.
There is a new kool-aid flavor in town. During the holiday parties, I sensed a different mood and encountered a new argument. Coincidentally, I also overheard a similar argument while in the line at a local Safeway.
Here is a snippet of conversation between two males, standing behind me in the line while I was paying.
First : So did you buy a house yet ?
Second : No man, still waiting. Prices seem to be coming down.
First : Oh common. They won't go down much. Maybe 5 to 10%. At the most. And you know what, in the long run it doesn't matter.
Second : Yeah, that's right.
I completed my payment and had to leave, so I do not know how it ended.
Now, it's not a completely wrong argument. But when it was made to be, I calmly pointed out that 5 to 10% of a typical BA home (800K to 1M range) is anywhere from 40K to 100K. This amount is nothing to sneeze at. Considering how long it takes to save this amount of money, IT DOES MATTER ! The discussion ended right there.
Given the most bullish scenario seems to be for prices to stay same in 2007, there is absolutely no harm in waiting. Even in that case, I will have saved more for my down payment, which would help offset any increase in mortgage rates.
Assuming many would come to similar conclusions, I think it is very safe to make one prediction. This year, buyers will not feel the pressure. There is no hurry to buy in 2007.
StuckInBA
#housing