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Debate House Prices
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Is inflation starting to hit the housing market?
Comments
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Graham_Devon wrote: »If you isolate the mortgage from all other cost increase, then sure, your argument is valid.
Assuming people have other bills to pay (which i's fair to say most do) which are increasing, it's less so. Infact it's hardly valid at all, for the reason (amongst others) grizzly has pointed out.
It's a bit like saying I've saved £5 on my electricity bill this month and ignoring that to do so I've had to spend £600 on new energy efficient goods.
It's sub-optimal for wages to lag inflation when trying to make an argument about inflation eroding mortgage payments but it doesn't invalidate the argument and you need to remember that buying a house, especially using debt, is a hedge against inflation in other ways.
The key is really to try and ensure that spending is as small a proportion a possible of income which further hedges against inflation because that further reduces the impact of inflation. It's not easy but given the mortgage rationing of recent years mortgage lenders have selected decent risks so it's likely that this group spend less of their income compared to the average.0 -
is a hedge against inflation in other ways.
House prices bear no correlation to inflation.
In the USA house prices rose more in % terms in the 10 years from 1996 to 2006. Than the previous 80 years.
What changed is that everybody thought financial engineering by using derivatives had reduced risk to such a low level. That banks and other financial institutions could leverage up and up. As we now know this was a fallacy.0 -
Inflation is expansion of the money supply apparently.
So in that case yes, new money is created then used for government funding of banks to perform mortgage lending which in turn is allowing more purchases then otherwise would occur. All leading to higher pricesHouse prices bear no correlation to inflation.
In the USA house prices rose more in % terms in the 10 years from 1996 to 2006. Than the previous 80 years.
Maybe it appears a tenuous link but interest rates at 1% during that time was coincidence ?
The availability of money might be related to the standards levied on those who wish to borrow it and then its failure to succeed as correct investment
that doesn't sound new. Technology and more immediate communication maybe but otherwise people overextending themselves is age old repetition.What changed is that everybody thought
The ability for that to continue for so long despite being wrong, that is a bit different. Its down to a few factors but the main theme is, this is government backed. Its a powerful unification and bias put out by the most powerful financial force in the world.
To say, it turns out people are greedy and thats our new reason for failure ?0 -
sabretoothtigger wrote: »that doesn't sound new. Technology and more immediate communication maybe but otherwise people overextending themselves is age old repetition
The US Fed and Treasury bought the concept. Various papers were written by eminent individuals backing the assertion. While the Germans, Chinese and Japanese were happy to buy the paper as lending to the US housing market was such a secure investment. Offering a better return than in home markets.
No one cared that total US mortgage debt rose to 90% of GDP , nor that consumer debt rose to 130% of retail savings.
So was far more than people over extending. Of course with hindsight the extent of fraudulent activity is now known.0 -
Thrugelmir wrote: »House prices bear no correlation to inflation.
In the USA house prices rose more in % terms in the 10 years from 1996 to 2006. Than the previous 80 years.
What changed is that everybody thought financial engineering by using derivatives had reduced risk to such a low level. That banks and other financial institutions could leverage up and up. As we now know this was a fallacy.
It doesn't follow that house prices aren't correlated with inflation - a 10 year aberration (followed by a correction) doesn't mean that there isn't a correlation.
Anyway I said buying a house (with debt) was a hedge against inflation in other ways. No rent increases/ opportunity to fix a large proportion costs for a period/ erosion of debt etc. etc.0 -
It doesn't follow that house prices aren't correlated with inflation - a 10 year aberration (followed by a correction) doesn't mean that there isn't a correlation.
Anyway I said buying a house (with debt) was a hedge against inflation in other ways. No rent increases/ opportunity to fix a large proportion costs for a period/ erosion of debt etc. etc.
Buying anything is a bet against inflation.
Buy a fridge today and it may well be cheaper than next year if inflation hits it.
It's not limited to houses, though of course, houses generally hold their value, but so do many other investments.0 -
Graham_Devon wrote: »Buying anything is a bet against inflation.
Buy a fridge today and it may well be cheaper than next year if inflation hits it.
It's not limited to houses, though of course, houses generally hold their value, but so do many other investments.
It does depend on the cost of ownership too. You haven't really hedged against inflation by buying a fridge if you don't need one. Same with cars - they seem to be going up in price but depreciation needs to be offset against inflation.
Inflation makes things more expensive and it requires an effort to keep up. Depending on personal circumstances it may well make the monthly mortgage payments more difficult. If someone is really worried about inflation and renting it's probably worth making a real effort to buy a house with debt. Others may well decide that there will be a downward pressure on prices as a result and so it's worth waiting.
I don't know the answer (although tending towards housing/ debt being a good hedge) and as a result I just bought houses when I needed/ wanted them plus I'm not particularly worried about inflation just yet.0 -
I don't know the answer (although tending towards housing/ debt being a good hedge) and as a result I just bought houses when I needed/ wanted them plus I'm not particularly worried about inflation just yet.
Despite recent history you are right. If you need a home you can't always get the timing spot on.
As long as you don't over commit it has got to be better than renting."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
Graham_Devon wrote: »If you isolate the mortgage from all other cost increase, then sure, your argument is valid.
Assuming people have other bills to pay (which i's fair to say most do) which are increasing, it's less so. Infact it's hardly valid at all, for the reason (amongst others) grizzly has pointed out.
It's a bit like saying I've saved £5 on my electricity bill this month and ignoring that to do so I've had to spend £600 on new energy efficient goods.
I'm sure that inflation is hitting renters a lot more than home owners. My mortgage debt is fixed at the point I bought my home. As the months and years go by the debt reduces and so do my monthly costs. Inflation is having zero impact on this. If I am worried about rising interest rates than I can get a fixed rate (10 years at 3.99% is the current market leader).
Contrast this with someone who rents. They have a double whammy of rising food, energy AND housing costs. For most people, their housing costs are their largest outgoing - much better then to be able to freeze those outgoings in an inflationary environment.0 -
Graham_Devon wrote: »Buying anything is a bet against inflation.
Inflation can be in asset values. I dont this idea is ever included in official stats though, so bonds as an inflated price is ignored.
Or housing price inflation, we mention that all the time here so I guess we the people at least know its possible even if a central bank or government will not admit or determine policy by this phenomena
So you cannot always avoid inflation easily by buying something. Its probably more about a ratio of its usefulness, so yield to price.
They did think housing was impossible to be a bad investment at some point. They were selling for 50 years worth of rent or more?
What is the ratio now
http://www.youtube.com/watch?v=INmqvibv4UU0
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