Is property really a good hedge against inflation? Maybe not

matbe

Cleaver wrote: »

You've only been here 25 days.

In this guise.

IronWolf

pararct wrote: »

If there were a full blown sovereign debt crisis or some (or all) UK banks teetered to a position where not even UK PLC could bail them out fully remember the knock on effect of those CDS (Credit Default Swops) magnify any losses several times over are still out there, then property is still a very good bet.

Your deposits in the bank or investment equity may be wiped out or severally devalued with (high) inflation whilst your bricks and mortar would hold a steady value and rise with inflation.

Do you seriously believe that in that situation, with peoples wealth being severely devalued, it wouldn't have a knock on effect on house prices? Seriously?

Flight2quality

IronWolf wrote: »

Do you seriously believe that in that situation, with peoples wealth being severely devalued, it wouldn't have a knock on effect on house prices? Seriously?

It will have a huge knock on effect on house prices.

House prices may still go up a little over the next decade, but a lot less than everything else, so they are crashing in value.

Darthvader

Price is what you pay, value is what you get.

So real terms reffers to VALUE! Price refers to how many units of fiat currency something is measured in. So to measure price is easy, but means nothing really. To measure value is more tricky. Best way is measure how much stuff is worth the same as some other stuff through history and at present time.

So how much of any commodity is worth the same as average house prices over recent history.

One example I like is in 1980 for example at the top of the last bull run in silver it took about 500 oz to be worth the same as an average house.

At the moment its still something like 10,000 ounces of silver worth the same as an average house. So either houses are over valued by a long way or silver is undervalued by a long way.

I would love to know the answer to this, is it a bit of both, or should I say a lot of both.

robmatic

Darthvader wrote: »

One example I like is in 1980 for example at the top of the last bull run in silver it took about 500 oz to be worth the same as an average house.

At the moment its still something like 10,000 ounces of silver worth the same as an average house. So either houses are over valued by a long way or silver is undervalued by a long way.

I would love to know the answer to this, is it a bit of both, or should I say a lot of both.

You are missing one very obvious option from your analysis: silver was tremendously overvalued in 1980.

I wonder why that might have been...

wotsthat

Darthvader wrote: »

One example I like is in 1980 for example at the top of the last bull run in silver it took about 500 oz to be worth the same as an average house.

At the moment its still something like 10,000 ounces of silver worth the same as an average house. So either houses are over valued by a long way or silver is undervalued by a long way.

I would love to know the answer to this, is it a bit of both, or should I say a lot of both.

Or both are valued correctly.

Taking a ratio of silver vs house price 31 years ago then taking the same ratio today and concluding "So either houses are over valued by a long way or silver is undervalued by a long way" is just plain ridiculous.

chewmylegoff

Darthvader wrote: »

Price is what you pay, value is what you get.

So real terms reffers to VALUE! Price refers to how many units of fiat currency something is measured in. So to measure price is easy, but means nothing really. To measure value is more tricky. Best way is measure how much stuff is worth the same as some other stuff through history and at present time.

So how much of any commodity is worth the same as average house prices over recent history.

One example I like is in 1980 for example at the top of the last bull run in silver it took about 500 oz to be worth the same as an average house.

At the moment its still something like 10,000 ounces of silver worth the same as an average house. So either houses are over valued by a long way or silver is undervalued by a long way.

I would love to know the answer to this, is it a bit of both, or should I say a lot of both.

are imperial credits backed by silver? how much silver is required to build a death star? what impact would the destruction of the death star have on inter-galactic silver prices?

chewmylegoff

robmatic wrote: »

You are missing one very obvious option from your analysis: silver was tremendously overvalued in 1980.

I wonder why that might have been...

could it have been caused by increased demand due to the construction of the second death star?

Flight2quality

chewmylegoff wrote: »

could it have been caused by increased demand due to the construction of the second death star?

Do not know about that, but I think it's laughable when people say the Hunts tried to corner the market. If it's possible to corner a market and demand is still so strong then this should be reflected in the price before someone takes a large position in it (silver) if it's not reflected in the price now then it's just asking for someone to buy a lot of silver then they will do very well when the price goes to the moon because of limited supply left available.

Cleaver

Darthvader wrote: »

One example I like is in 1980 for example at the top of the last bull run in silver it took about 500 oz to be worth the same as an average house.

At the moment its still something like 10,000 ounces of silver worth the same as an average house. So either houses are over valued by a long way or silver is undervalued by a long way.

Yet another username Fight4YourRight?

Anyway, there's a massive third consideration here, which is that a multitude of factors have come in to play, and will always continue to come in to play, which renders such comparisons pointless. It's simplistic in the extreme to look at two assets at a point in time and assume that just because they have changed at another point in time that simply because they are now 'out of sync' one must be overvalued and one must be undervalued. Maybe both are are at the right prices because of a multitude of factors that have brought them to that right price.

Let's take two examples: Apple shares and Las Vegas property. Let's say that in 2007 Apple shares and a typical Las Vegas property were both at a level of 100 (to keep it simple). Since 2007 property in Vegas is down 50%, so now at 50, and Apple shares are up around 250%, so now 250.

Under your logic, Apple shares are either really over valued and Las Vegas Property is undervalued. But why? Why do they have to go in cycles? It is highly probable that factors in the world (Apple going from strength to strength, the financial crisis, trends in lifestyle) have had effects on the prices of both assets and both are at the 'right' value.

I know what you're going to say, and that's that gold and silver are a historic store of wealth and that they'll always be some form of 'base' asset that we can record the prices of other things against. Which might be true, but it might also be the case that human beings just stop caring about stuff in relation to gold and silver.