Deflation and real estate

Deflation for sure as it is usually due to poor economic conditions. Inflation is usually accompanied by strong economy and individual earnings growth which negate the effect of higher interest rates.

i've been reading that deflation is coming but it's a mixed bag since housing will be cheaper but everything else will also collapse.

Housing may be cheaper, taxes higher destroying entrepreneurship and hiring.

add to that less household formation, hence less buyers.

even before the housing crash it was estimated that from 2012 on there will be more sellers (elderly downsizing) than buyers entering as 1st timers. so it's gonna get even better for those on the sidelines with a steady income as the long recession plus bad demographics should help towards lowering prices faster.

we will see what happens, it will be interesting for sure.

The biggest issue with deflation is that every one would like to postpone their purchases as the prices will be lower in the future increasing the downward spiral. However, I do not think defaltion is coming. China will be exporting a lot of inflation with workers getting large increases. High jobless rate, increasing real estate taxes and maintenance will defintely put a pressure on the property prices.

very true 300Mercer, also don't forget that the benefit of inflation helping to pay the mortgage is not there anymore. furthermore, rents cannot increase much during a period of econ stagnation.

i think we are expecting a period of deflation on asset and consumer durables (great deals can be had) but coupled with inflation on food/energy and not so cheap anymore products from china. it's an environment where i'd say retirees and the unemployed lose and those employed with stable jobs that rent and save stand to be the beneficiaries. kind of a reversal of bubble years.

china is going through it's own internal outsourcing, companies are moving from now expensive areas to the rural ones to keep labor costs down. so i wouldn't expect a whole lot of inflation coming from those 30% annual wage increases anytime soon.

julia, first you need to figure out how YOU define deflation. I happen to be with MISH on the definition. Others tend to see deflation as simply falling prices - but I think it goes beyond that, as Mish defines it.

Deflation is "a net contraction of money supply and credit, with credit marked-to-market".

READ THIS: http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html

Now, money supply has risen with this crisis, many are confused. Why? Because they miss the biggest thing we went through: destruction of asset prices of credit based derivatives on the balance sheet of banks, insurance companies, GSEs, and whomever else bought all the CDOs, CLOs, and other securitized credit products whipped up by the Investment Banking industry. The destruction of wealth in the shadow banking system was girnomous. Think about trillions in lost wealth. So, the fed started injecting money and printing money, to the tune of 1.8 trln to fill that hole. Imagine two spots on a field. One spot is level ground, the other spot is a big empty hole representing 2Trln+ in lost value from the credit crisis. The fed prints 1.75Trln INTO that hole to fill it, but it never makes its way into the economy. Thats what is happening. That money is sitting in excess reserves as bank recapitalize. And that is what the fed is engineering, an environment for banks to fix themselves so we as an economy can grow later on.

Falling prices, deleveraging, recessions, capital raising etc.. are all a symptom of this huge contraction in credit and credit derivative assets that were marked to market trades; not marked to model valuations. Lenders eliminated exotic credit products and tightened standards, lendees saw their HELOCs cut back, consumers saw their credit card limits reduced, on and on...and lending in general took a huge move down. THAT is deflation in a fiat based system where credit is money.

noadmin...why would renting be a winner? wouldn't deflation cause the housing market to also drop?

Consumer Price Index - All Urban Consumers

Series Id: CUURA101SA0,CUUSA101SA0
Not Seasonally Adjusted
Area: New York-Northern New Jersey-Long Island, NY-NJ-CT-PA
Item: All items
Base Period: 1982-84=100

Year Jun
2000 182
2001 188.3
2002 191.5
2003 196.9
2004 206
2005 210.7
2006 222.6
2007 228.258
2008 238.58
2009 237.172
2010 240.817

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA101SA0,CUUSA101SA0

If we have deflation, how come the U.S. dollar is tanking against the Swiss Franc, Japanese Yen & Gold?
Shouldn't the purchasing power of currency improve in a deflationary environment?

This might be considered a deflationary;
http://www.theonion.com/articles/84-million-new-yorkers-suddenly-realize-new-york-c,18003/

that's almost as good as when Bernanke discovered the dollar was worthless..

http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/