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"A key inflation gauge soared in October, the government reported Tuesday, as higher energy costs helped fuel the biggest increase in prices at the wholesale level in nearly 15 years."
This combined with the low US dollar, spells trouble. Get your mortgage locked in and prepare for the coming economic storm.
Our company is a click and brick operation, we have had large increases in commodities such as steel, paper and plastic over the last six months. So we have slowly been increasing prices to offset our cost increases.
So here comes some inflation.
:-(
Oh, ya. You got that right. It is funny how people forget that interest rates will not stay at these levels for ever. But, they continue to live beyond their means and rack up huge piles of debt. Then the rates rise and they can no longer afford even the minimum payments.
But I am not wishing for the rates to rise, US dollar to drop, I am just preparing for the certainty of these events.
Stocks have reached what looks like a permanently high plateau.
Irving Fisher, Professor of Economics, Yale University, 1929.
1930 will be a splendid employment year.
U.S. Department of Labor, 1929.
Who can genuinely predict the future?
Syzygy, WebmasterWorld, 18th Nov 2004.
...;-)
My philosophy is to expect the best, but prepare for the worst.
The scary part is that I'm finding this applies to doctors too. It never ceases to amaze me how little they know about their subject and how much of the diagnosis and treatment is based on guesswork.
PS ..maybe just me but I thought that politics of any sort was a "no no" here ....noticed recently more and more overtly political posts and more "happy ( insert your choice of religious event )" stuff too ...as an "apolitical aetheist" ( that means I beleive no one's hype , priest or politician ) I have to say I find it is becoming a little "in yer face" ...
As I predicted, here is a quote from CBS Marketwatch dated Nov. 29, 04.
"U.S. stocks turned sharply lower Monday morning as weakness in the bond market sparked by concern that U.S. interest rates may have to rise in order to stoke foreign investor appetite for U.S. assets weighed on sentiment."
"...and on to the foreign exchange markets - against the Euro the pound fell, against the dollar the pound rose."
I suppose if the dollar keeps on falling, even foreign investors are going to get fed up with buying it at such cheap rates.
A year ago two thirds of my client base were US companies, now that figure stands at less than half. I don't want to keep selling services to companies from a given region at a time when the currency of that region is worth so little.
When you buy a house, the value goes up because of inflation. Therefore, if you ever need to sell it, it's usually worth more than you owe on it.
However, if there is a period of deflations, most homeowners would owe more than their houses are worth. If they have any financial problems and need to sell, they won't be able to. Then they file bankruptcy. Too many people do this, and banks start to collapse. etc. etc.
In my area, the value of houses in desirable neighborhoods is rising faster than the general inflation rate.
The value of homes in the cookie-cutter subdivisions is staying flat. These neighborhoods spring up one after another, with the price of the new cookie-cutter homes the same as those in the last subdivision. Of course, no one in their right mind would pay more for homes in the previous subdivision when they can get a spanking new one for the same price, inflation notwithstanding.
Now, explain to me how the inflation rate affects the value of homes.
I submit that if the selling price for a home increases, that is not BECAUSE of inflation - that IS inflation.
I am neither a real-estate specialist nor an economist. Rely on any info provided in this post at your own peril. ;)
In Las Vegas, the general value has doubled. Our land value has more than tripled in the last year. While the higher value would be lovely if I was selling, it's horrifying when I'm not. For sure, my income has neither doubled nor tripled. Odd thing, the value of my house itself has gone down slightly (it's 3.5 years old), but the value of my parents' house (10+ years old) about ten miles away has gone up 1k. My mom wondered if I'd chopped off part of the house. ;) Unless you count knocking down walls attached to the house to make the yard larger, I haven't done anything to the house itself.
Las Vegas is no longer a cheap place to move, unless you're coming from California or New York. When we bought the house, the median price around here was about 120k, it's now around 300k. Granted, I do live in the fastest growing area in the country (we're getting one of those Mall of America type deals here within the next few years), but the inflation is stunning. If I hadn't bought 3.5 years ago, I would be priced out of my own neighborhood, as would my neighbors.
Big problem. I am not sure what the policy is everywhere, but is your property tax not based on the value of your house.
A serious rouond of inflation when people are holding a record amount of debt is going to trigger a recession. At a time when the US economy has not really recovered from the last recession. These are perilious times and we are hearing very little about a solution.
[edited by: lawman at 1:40 pm (utc) on Nov. 30, 2004]
[edit reason] Please leave the govt out of discussion or thread will be shut down [/edit]
Unless I missed your point, I was trying to make a different one.
These are perilious times [sic] and we are hearing very little about a solution.
Let's hope the people concerned spend themselves into oblivion.
Good luck to the rest of the world.
Mike Tyson was asked what he planned on doing after boxing. He said, "I dunno, I guess I'll just fade into bolivion."
I don't know about the fading part, but he seems to have spent himself into bolivion. :)
Depression is when I can't afford to pay for all the old crap I bought. Same old Economics Prof
Economics is the science of being able to justify buying all that old crap that I can no longer pay for. Yep, that same old Economics Prof.
Keep in mind that most people don't actually BUY a house - they pay a mortgage for a few years while a bank owns it. Lower interest rates have driven down the amount of money required every month to own a home of a given value. So people aren't actually paying more for housing - although the "selling price" of houses may have gone up. Because interest rates are low, that selling price does not affect the monthly note the average homeowner pays.
The problem in the housing market is not inflation but a "bubble" of high prices propped up solely by low interest rates. When rates go up - and they always do, eventually, - the selling price of homes will go down. And that will be bad news news for people holding homes purchased at top dollar with low interest rate loans. Potential buyers spending the same amount of money every month (but on a higher interest loan) won't be able to afford the house. As a result, owners looking to sell - especially those who have tapped into equity with second mortgages - may find themselves upside down on their loans.
Semantics notwithstanding, that's how most people BUY houses. Lending institutions must have some type of enforceable security interest in the property in order to ensure repayment of the loan.
>>The problem in the housing market is not inflation but a "bubble" of high prices propped up solely by low interest rates.
Those who should know do not agree on whether a bubble even exists.
>>When rates go up - and they always do, eventually, - the selling price of homes will go down.
I bet you hated Keynesian econometric formulas when you took macroeconomics. :)
The factors that go into determining the price of a house are too varied to reduce to a one-factor formula.
I really wasn't trying to argue on semantics. My point was that most people buy houses based on what they can afford per month, not the total price. Interest rates have a dramatic impact on what people can afford per month.
>>Those who should know do not agree on whether a bubble even exists.
I agree. But but there is certainly considerable support for the bubble theory.
>>I bet you hated Keynesian econometric formulas when you took macroeconomics.
I'm a supply-sider, not a Keynesian.
Anyway, Keynes would be arguing that the jobs picture is more important than inflation rates. :)
Specifically you were saying that home prices are high because of low interest rates, and that when interest rates rise, the prices of homes will be depressed.
Since you have now refined the statement to mean that people buy based on monthly payments rather than selling price, let me modify my previous statement:
The factors that go into determining the monthly payments of a house are too varied to reduce to a one-factor formula.
I can think of several factors. I bet you can too.
These are not mutually exclusive theories.
It would seem to me that when you look at both in strict terms they are pretty much mutually exclusive. The whole basis of Keynesian economics is that the demand side is the driving factor in large economies and that government manipulation of certain aspects of that demand could bring stable growth to an economy. Supply-siders prefer to avoid government intervention (unless you consider lowering taxes a form of intervention, which I guess you could).
In general practice, one could embrace portions of both theories. Certainly, neither is without its flaws.
Well sure, but then what would we have to debate about? ;) And where else can you find somebody to even talk about this stuff?
Haha, my father. But for sure he wouldn't be as much fun. :)
