Inflation fears and prices of Manhattan RE

conceivable?? you mean inevitable. Think about the mid-late 70s when inflation was running rampant. What happened then? Home prices increased several hundred % points and never looked back.

Gov't policy is to inflate assets and destroy cash. They've even said so much, And they have to means to destroy the purchasing power of your savings earning 0% at the moment.

Not a slam dunk.

The flip side of high inflation is high interest rates. 8% mortgages might put a damper on the buy-rent decision.

Bernanke has stated that he will force inflation. Even accepting 4-5% rates to get this economy rolling again. But once the money supply is unleashed(easing/buying) it's very difficult to get it back in it's cage(tightening/selling). Because of the risk of stalling the current prosperity. So the Fed eases into tightening(25basis points) every meeting. That will just contain the velocity of money and prices. What's done is done and higher prices are here to stay. Think 1960 when a loaf of bread was a quarter.

Even when Paul Volker raised interest rates fast and hard in the early-mid 80s(he didn't give a sh-t) the inflation produced higher prices for homes stayed with us.

great thread, great question path. IMHO you are asking the most important question other than where is supply coming from when the credit freeze of 2007-2009 dried construction up?

SteveF is horribly wrong.

Inflation will be devastating for NYC real estate. While maintenance and other ownership costs will skyrocket, prices/rents will continue to be a function of supply/demand - Wall Street hiring is not coming back soon. This will be cataclysmic for NY real estate. Last thing you want to be in this situation is (a) an owner with rapidly escalating ownership costs or (b) a landlord who can't pass those costs onto renters.

SteveF also failed his history classes - the 70s were crushing years for NYC. You certainly did NOT want to own in NY in the 70s. And remember how miserable Wall St was in the 70s?

Feels kinda like now, no?

SteveF is horribly wrong.

The gov't wants to inflate asset prices and raise inflation expectatinos, which is rather confusing since hgher inflation expectations usually means higher rates(across all instruments), so if you believe the Fed can be successful, it pays to buy a house and borrow the funds to do so.

Last time we had high inflation, in the 70s, Wall St and NYC real estate got crushed. Without a supportive, growing Wall Street, NY real estate is in for a rough ride. Tack inflation onto that and things look quite dire.

c'mon beatyerputz, please keep going, you're only helping me out.

It sounds like the struggling economy will keep inflation in check, at least for the next year or so....
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aHivY11rcjMY&pos=4

expectatinos sneak into the US to give birth here, so the kid has instantaneous US citizenship.

SteveF - out of curiosity, do you actually believe what you're saying?

SteveF is horribly wrong.

Um, deflation not inflation is the thing to worry about when the economy is suffering from high unemployment and insufficient demand, no hiring in the private sector and massive state and local government cutbacks with no Federal fiscal expansion to compensate.

How exactly could there be inflationary overheating when people and real capital are sitting idle and financial capital can't find anything to invest in but government safety at 1% and lobbying/electioneering for more government handouts?

And regardless of the macro picture, NYC RE remains at bubble prices, so it is highly likely to drop in real terms even if the economy does well or inflation mysteriously appears. That's assuming that the foreclosure issue turns out to be "just" perjury and not a fatal flaw in securitization that puts all the title insurance companies out of business for a year.

no matter how you slice it, I DONT understand what you financial ninnies cannot see. NYC RE is fked, might as well be a double headed extra large dildo... it gonna hurt.

Seriously, leverage is to finance companies what inventory turns are to grocery stores. Your basic profit on a banana is $.05, but you do enough turns and you're paying the $200psf rent at TWC w/o issues... as the last 20 yrs can attest you, you couldn't help but MAKE $ as the turns increased in finance, let's see how many banks can continue to have blow out years with turns decreasing, bloated bubble human capital and realization moving money around is a game of musical chairs. good luckz, nyc re.

"The flip side of high inflation is high interest rates. 8% mortgages might put a damper on the buy-rent decision."

False. And it's been proven false.

Dollar's been taken a beating but yet 10 year notes continues to rally. Fed just announced QE2 and rumor has it, it's going to be around 1.5 trillion this time around. I won't be surprise if 30 year mortgage rates will see below 3 sometime next year.

but there's no inflation, that's the frigging point.

"Last time we had high inflation, in the 70s, Wall St and NYC real estate got crushed. Without a supportive, growing Wall Street, NY real estate is in for a rough ride. Tack inflation onto that and things look quite dire."

Again, we are in a very different environment. Fed isn't fighting inflation you knuckle heads like what Volcker did. They're inducing inflation.

yeah the fker that was SO SURE gold was going up he sold 1/2 his position right bf it continued to rally is a RE GENIUS too. You can't make this shit up.

"The gov't wants to inflate asset prices and raise inflation expectatinos, which is rather confusing since hgher inflation expectations usually means higher rates(across all instruments), so if you believe the Fed can be successful, it pays to buy a house and borrow the funds to do so."

Gold is saying inflation is coming in a BIG way.

Junk bonds new highs today.
http://finance.yahoo.com/q/bc?s=SHIAX&t=1y&l=on&z=l&q=l&c=

Dow back above 11K.

Industrial Metals all at new highs and some at all time highs.

Some of you bears JUST don't get it.

"yeah the fker that was SO SURE gold was going up he sold 1/2 his position right bf it continued to rally is a RE GENIUS too. You can't make this shit up."

I sold at 1350 half a position.
The next day it came down to 1328.
Now back to 1375.

Yes, i am still long a few December 2010 GC.
Thank You.

But wait....you've been advising us to SHORT it for the past 2 years.

***OUCH****

You've pitched everything for the last year except real estate.....we DO get it.

Tell us about all the REITS you've bought.

"Tell us about all the REITS you've bought."

Up 20% from where i bought it.
thank you.

I love coming to this site and watch how you bears 'pretend' to understand the situation.

Again...you folks been wrong about almost everything for the past 18 months.
At least since i've been here (Spring of 2009).

tool, my wife and I LIVE OFF our earnings... not day trading profits. Once again HOW MUCH are we talking about? one contract, enough to buy an oyster 66? seriously, I wanna know.... can you finally afford to live in MANHATTAN?

The most important thing and it was W67 who got it right was you in one word.....a Yahoo.

"At least since i've been here (Spring of 2009)."
Except for the 3 month vacation you took after your infamous "bonus money is going to blow your mind thread."
Stop drinking the tap water.. {and read the Brita fine print} "Not for use in Long island City."

Cheap money everywhere.
Rates low.
Inflation is cooking but the fed wants MORE of it.

No wonder these folks from China are buying it up.
http://www.bing.com/videos/watch/video/chinese-investors-scooping-up-us-real-estate/3xh9buun

Now, tell me how are prices going to drop???

"tool, my wife and I LIVE OFF our earnings... not day trading profits. Once again HOW MUCH are we talking about? one contract, enough to buy an oyster 66? seriously, I wanna know.... can you finally afford to live in MANHATTAN?"

you got a wife???/

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Not only are you living with your parents, but you got your wife living off of them too.
You such a loser.

yo truthsker... gotta grab dinner.

look at me selling my gold position to buy dinner!!!!!

I like how people think we have no inflation when most commodities(food, oil, metals...), bond prices, stock prices are all registering strong gains.

And pick up those pennies....copper's going up up up

".. can you finally afford to live in MANHATTAN? "

What's it with you and Manhattan? Prices on a per square foot can't even compare to some of the other major cities in the world.

Let me try this shit.

CAN YOU AFFORD TO LIVE IN TOKYO?
CAN YOU AFFORD TO LIVE IN HONG KONG?

Ericho - to refresh your memory, the Fed didn't fight inflation until under Reagan. That was in the 80s.

RS,

You know. I come here to have fun with these guys. The ones that really want to buy a place and grasp what's going on out there, probably bought already. We have a few of these knuckleheads that can't afford it or just come on these boards to rattle a few cages for the hell of it.

:)

"Ericho - to refresh your memory, the Fed didn't fight inflation until under Reagan. That was in the 80s."

Rate started to climb in 72 silly.
From 78 to 82, rates went from 7% to 15%.

In the current environment, rates continue to collapse.

"Rate started to climb in 72 silly.
From 78 to 82, rates went from 7% to 15%.

In the current environment, rates continue to collapse."

Ericho, you need to think before you type. You don't want grow up to be SteveF, do you?

Rates are low NOW because we're in a deflationary period NOW. I have a few questions for you, just to keep it simple:

1. What will happen to rates if the Fed gets its much-desired inflation?
2. What will happen to your maintenance costs if inflation kicks in?
3. Based on your answers to #1 and #2, how will inflation affect the value of your studio apartment in Long island City.

Hint:

1. Rates will go up (see your previous post, you made my point)
2. You're fucked
3. You're fucked

Does that help?

Inflation, if you count food and fuel (which the CPI conveniently leaves out), is between 6-9% already.

We are experiencing deflation in what were over-inflated assets (namely real estate) and inflation in commodities and equities because money is cheap and more is promised ala QE2.

The central banks of the world seem intent on debasing their currencies in a fiat/paper-money circle jerk to the bottom of what is destined to be a debaucherous hyperinflationary end.

Short of raising the Federal Funds Rate (I'm pretty sure that would render the USA unable to service its debts and would crush equities, commodities, housing [further]) and/or instituting austerity measures (riots in the streets) it looks like they will print, print, print away.

Some say "the banks aren't lending so runaway inflation isn't an issue".
A) "Isn't" doesn't equal "won't be".
B) Every paper money currency has ended the same way. Government becomes overindebted. Government attempts to print its way out. Hyperinflation ensues.

Hyperinflation is a misnomer as it is not "inflation on steroids" but, in fact, the complete collapse of confidence in the paper currency and subsequent flight from it, which is brought about by government/central bank money printing, which is usually in response to deflationary pressure (attempting to reflate bubbles).

Would love to be proven incorrect.

I lived through and bought homes in inflationary times, when mortgages were offered at a point or two over prime and prime eventually hit 21.5% I remember the company I worked for bought a townhouse on East 37th St. at 22% interest rates. Why? Because the price was so low, because few could afford to borrow money at such high rates. Inflation does not necessarily increase housing prices, it just makes borrowing money more expensive.

Wouldnt hyperinflation increase the cost of everything? Including housing. If rents go up, re prices will follow.

i dont understand the comments. If you bought in the 70's and owned now wouldn't you be ecstatic? $40K for a brownstone in Brooklyn now worth $3 million?

Inflation does not hit all prices the same.

Look at current RE prices. At best they are holding stable after a moderate to significant decline (depending on region). But energy and food prices are rising, with food rising rapidly. Sugar (a major commodity) is up 50% in the US in just since summer. Many others are up to (food prices are part of my business). Gasoline is up some $0.20-25 in the last couple of months despite an obvious drop in demand over that time.

RE and rental prices are driven by jobs and incomes. If there aren't enough jobs or enough income then no QE will increase the pricing for them at the same rate as other items still in demand, like food, or where there is competition with other economies, like energy.

financeguy: That's assuming that the foreclosure issue turns out to be "just" perjury and not a fatal flaw in securitization that puts all the title insurance companies out of business for a year.

I think that this is more than possible considering the fact that pizza delivery guys were leaving their jobs to sell mortgages in CA. If I had bought into mortgage backed securities and lost money on them, I would be parsing every paper to see if there was clear title. If the lawsuits start, RE is f**ded. Even cash buyers may recede if title is an issue. CNBC was all over this all day today. Which means that every journalist is going after this story to see if they can get their pulitizer on the story that might presage the second RE market crash.

Plus, when you have all 50 state AG's going after the banks for foreclosure fraud, you know there is trouble. The last time that happened was the suit over the tobacco industry wasn't it. Those guys are like rabid dogs. They have to get their pound of flesh or they won't be re-elected. So if any of you have Bank of America stock, I would sell now. They bought Countrywide, a horrific purveyor of fraud.

ericho is right. Bears here have been so wrong for so long, that they try to hide it by being rude and nasty with their comments.

LIC: these left-over bears are not really bears they are just those people in life that like to aggravate everyone for no reason. We all can name 1 or 2 of them. This place is where they can get their biggest jollies. The real bears are long gone and are owners.

Anyhow, User is right on! Keep it simple bro just as Buffet does!

? The idea is that a weakening dollar will attract sufficient additional foreign investment so as to replace organic, income-based purchase demand and not only sustain what are artificially high prices (thanks to both cheap money and existing foreign investment demand) but boost them from this level?

We would be talking about nominal gains and possibly real losses then, correct?

"1. What will happen to rates if the Fed gets its much-desired inflation?
2. What will happen to your maintenance costs if inflation kicks in?
3. Based on your answers to #1 and #2, how will inflation affect the value of your studio apartment in Long island City.

Hint:

1. Rates will go up (see your previous post, you made my point)
2. You're fucked
3. You're fucked"

You spend too much time reading and not enough time analyzing.
We are going to get another round of QE. The word on the street is, it's going to be around 1.5 TRILLION. The last round of QE pushed the 10 year into the low 2s. What about this round?
They are using these money to drive rates low for a LONG time. Even with inflation, our government have the ability to bid up their own debt (sweet). Rates aren't going anywhere for a LONG time.

Are we fucked?
No

Get into debt fucks, and let inflation and a weak dollar erode it away over time.

Gold new high again! 1388.
Dollar new low on this move.

now how do we go about obtaining one of these low rate mortgages here to buy property in another country? that would be ideal. have debt in dollars, but asset in a different currency. inflation hits, you win win

The thing is that asset prices, including especially NY real estate, are already inflated. But I do agree that if we have 3 years of ~7% CPI growth then at the end of that, current nominal prices may actually make sense.

Already inflation in comparison to what?
Gold?

Compared to CPI. Over the long term, real estate prices generally track CPI. If we have lots of inflation in consumer prices over the next few years (as all these gold buyers are apparently expecting), and real estate values remain flat, then things will just about return to normal.

ekartash:
this is exactly what US banks are doing, and precisely why other countries are competitively devaluing their currencies. It's a currency war.

ericho75:
Already inflated compared to historical prices: http://ny.curbed.com/archives/2010/02/04/manhattan_housing_prices_doubled_over_past_decade.php

There's been a downward correction from the peak that has brought us closer to the historical mean, but in a depression (which is what we are in, paper printing and the fudging of statistics has allowed the government to obscure that fact) you will usually correct to a point well below that mean, and for quite some time, so in real terms, real estate may not realize any gains.

Yes, indebt yourself now and it will be inflated away, and the nominal price of your property will rise even as the real value remains flat or takes a hit, but long term, you are paying it off with ever-devaluing paper money, so you'll have come out ahead of the game.

The other side of that coin (or paper/cotton Federal Reserve Note in this case) is that your income earnings will also be in that ever-devaluing paper currency, so while food and fuel prices explode and double/triple/quadruple in a matter of months, you may find yourself in a bit of a squeeze to come up with the mortgage payment as your grocery and untility bills equal and surpass it.

And....
what's not inflated? bond prices, stock market?

PICK YOUR POISON

Riversider...
what's not inflated?

INCOMES. And therein lies the problem.

Which brings us into why the housing bubble was allowed to happen in the first place. Incomes were stagnant and it was easier to subsidize home ownership via tax-deductions and below market rates and low lending standards instead of focusing on the income situation. Plus in the short term a housing bubble puts people to work building homes( Of course those jobs go away once the music ceases...and it did)

Many building mortgages are about to reset lower in the near term, which will offset any inflationary pressures wrt maintenance. For buildings approaching the end of a 5 or 10 yr mortgage term, maintenance costs will recede, not increase.

No no no no no! Lower interest rates, thatz gonna kill me on my taxes! WTF?? Fking geitner, increase my interest rate ao that I can lower my taxes!

It's like complaining about the cost of the wedding cake, that's just a downpayment on the marriage. The big expenses are to come.

Housing, kids, education, vacations, divorce second marriage..... F'k splurge on the cake.

bubba, the answer for you is to quit pussy footing around and get in the goddamn game. Be a man and end the pain of your poor suffering spousal unit. Don't let logic guide your life, try some passion instead. Make a sensible play, and kiss the frigidaire farm goodbye.
I recommend a Thanksgiving low ball. By the time spring hits, the clouds may very well be parting.