House as a hedge for inflation

If we experience a loss of buying power, borrowing at low rates to purchase hard assets could be a smart move. Real Estate, comodities, etc. Real Estate taxes cancel out Income taxes to a point(one is deductible from the other) and Maintenance/Common charge cancels out Rent(you would be renting if you don't own).

> Real Estate taxes cancel out Income taxes to a point(one is deductible from the other)

not under the AMT, which will keep on being used imho

this will have 200 posts by tomorrow

> borrowing at low rates to purchase hard assets could be a smart move

right, the issue with the housing stock in USA imho is that depreciates quickly. the construction standards are not those of "build to last" that other countries use at the high end (where living in the grandparent's home is not unusual). it makes sense for USA to build this way (milder weather, higher mobility...)... but makes housing a "semi-hard" asset.

Houses aren't cars or factories. They may need maintenance which is not the same thing. The San Remo has certainly maintained value as have many well made houses.

http://whiskeyandgunpowder.com/is-real-estate-a-good-hedge-against-hyperinflation/

http://news.morningstar.com/articlenet/article.aspx?id=168086

sure the san remo... but even in nyc (queens, brooklyn, bronx) but especially around the rest of USA tons of single family houses use lumber for example. the crappiest material possible (saved for cardboard). how is that crappy house considered a HARD asset? i would consider it a semi-soft one. it will not last 3 generations imho.

> The San Remo has certainly maintained value as have many well made houses.

Not a meaningful assessment given we're coming off the largest RE bubble in history.

Historically, housing barely beats inflation.

Coops on West End Avenue and Park Avenue built 80 years ago are still going. Condos today are built to last a hundred years. Many homes in Forest Hill Gardens will pass the three generation test, and you don't really need longer since you'll be dead.

"Historically, housing barely beats inflation."

historically, how high RE taxes used to be? i've never seen anything on that topic. my guess is that they will keep on going up faster than overall inflation.

wad, i guess the trick there is that those variables that would move faster than inflation (taxes and maintenance costs) will not be beating hyperinflation. so yes, if there's hyperinflation (those processes are brutal though, 15% crocodile tear inflation from the 70s is a piece of cake in comparison)... then RE might the way to go. besides, in that case the mtg will be absolutely negligible.

the other side of the coin is that during hyperinflation processes there's also price fixing of rents. so many investors that rent their properties bleed cash and walk away in that case, not RE bullish.

With an increase in inflation, come higher mortgage rates. Would that equate to less demand for mortgages which would lead to lower home prices? So is this a zero sum game?

Let me try to nip it bf 200 posts.
Forget the word "hedging". Its' got weird connotations of you knowing what you (not you admin, but others) are doing, but for the most part should not enter into a discussion as it relates to nyc re at the moment (until rents at least stabilize for 3 quarters). It's like talking about where to send your kids to college, while peeing on a pregnancy stick. It's way way too premature.

another thought on your stmt, the best hedge against inflation is the road to riches.... and buying in nyc re at the moment ain't a "hedge" by a long shot... one could argue... WTF are ppl not locking in this great bubble gift from Greenie and now being propped up by geitner? Beats me, but to me any nycer living in a $1000psf and above apt is "living" in retirement fund more than a "home."

> Coops on West End Avenue and Park Avenue built 80 years ago are still going.

With TONS of maintenance.... few of the mechanical systems of 80 years ago still work... or the wiring... or the...

you get the picture.

Just look at how much you have to pay in maintenance!

great point a_g!

with really high inflation (above 20% annual) you barely have mortgages, so purchase will be made with cash. that's great for buyers. actually, that will be real affordability as supposed to 30 years of debt at 8-10 times annual income.

when the avg home in usa was around $220k, i've read a paper that said that if only cash purchases would be possible (no credit available) prices would drop below $80k.