Conventional wisdom says holding real-estate during inflationary periods is an effective way to protect assets but this assumes real estate as an asset class keeps pace with inflation. I am beginning to think we may not see too much more in the way of nominal price declines for NYC real estate but rather a further erosion in real prices as real estate underperforms inflation over the next 5 to 10... [more]
Conventional wisdom says holding real-estate during inflationary periods is an effective way to protect assets but this assumes real estate as an asset class keeps pace with inflation. I am beginning to think we may not see too much more in the way of nominal price declines for NYC real estate but rather a further erosion in real prices as real estate underperforms inflation over the next 5 to 10 years. The problem with this and ironically why I think it is the most likely scenario is that this is the most difficult scenario to take advantage of. Rents will probably rise faster than sell prices which eventually brings the rent/own metrics back to historic norms but rising interest rates make non cash purchase more expensive and further acts to supress prices. If I think this is the way things play out, what is the best way to "win"?
[less]
Response by huntersburg
almost 15 years ago
Posts: 11329
Member since: Nov 2010
> I am beginning to think we may not see too much more in the way of nominal price declines for NYC real estate but rather a further erosion in real prices as real estate underperforms inflation over the next 5 to 10 years.
Total agreement from me. I continue to fail to see why prices will actually decline. I don't believe that we'll see appreciation, and given still the relative cost to own vs. the cost to rent, I don't believe that buying is, on balance, the favorable economic option.
> If I think this is the way things play out, what is the best way to "win"?
Don't "play" to "win" at all. Live within your means, counting as a renter likely price increases of a modest amount, and as an owner as someone who won't make a return for a long time and will also be facing increasing maintenance and taxes. Live within your means with cusion for the future.
Ignored comment.
Unhide
Response by SkinnyNsweet
almost 15 years ago
Posts: 408
Member since: Jun 2006
Why do you think it plays out this way? Is there historical precedent for this scenario?
Ignored comment.
Unhide
Response by stevejhx
almost 15 years ago
Posts: 12656
Member since: Feb 2008
"Conventional wisdom says holding real-estate during inflationary periods is an effective way to protect assets"
No it doesn't. Read "The Intelligent Investor." There is no shield against inflation. It is brokerspeak.
Ignored comment.
Unhide
Response by nicercatch
almost 15 years ago
Posts: 242
Member since: Sep 2008
actually you csn make a lot of money holding real estate during inflation. that is the power of a fixed rate mortgage at negative real interest rates
the historical precedent is everywhere in the world. in the US the 70's
Check www.danielamerman.com and sign up for the minicourse (free) or google daniel amerman 3 little pigs story.
I'm not a broker, but an investor.don't listen to tenants for investment advice.
Ignored comment.
Unhide
Response by w67thstreet
almost 15 years ago
Posts: 9003
Member since: Dec 2008
So if you bought all 2,500 open houses on super bowl Sunday in manhattan, and you stuffed yourself with 5% mortgages in one year you'd be up? How about in 2 yrs? How about 3?, 5?, 10? How about 20yr. How about I remind you we had the greatest credit bubble in mankind that popped 3 yrs ago. How about in 30 yrs? Now tell me fktard, better trade than what?
Nxt week I better see 0 open houses. Now remember 30 yr debt bet takes alot of dough to carry. Good luckz with that. I'm rooting for you.
Ignored comment.
Unhide
Response by SkinnyNsweet
almost 15 years ago
Posts: 408
Member since: Jun 2006
I'm pretty sure that I saw an article in the middle of the new economy that assured me "inflation is over because of the internerds". I think McKinsey wrote it. That is, because the internet makes it so easy to shop around that there will be no inflation anymore...ever. No PPI or CPI inflation. You'll have CommerceOne running auctions for raw materials and eBay running auctions for finished goods.
This time it's different.
Where is my nanotech cure for this disease? Mondo2k disappoints me.
Ignored comment.
Unhide
Response by bhh
almost 15 years ago
Posts: 120
Member since: Sep 2008
"Why do you think it plays out this way? Is there historical precedent for this scenario?"
I don't really think there is historic precedent for the situation we are in right now...
a) Huge housing bubble clearly still deflating, at least nationally
b) Unprecedented infusion of liquidity by the Fed
c) Huge number of people so underwater they can't afford to move even if they want to
d) Near-historic unemployment rates
e) Historically low interest rates
f) Record sovereign debt levels
g) Record budget deficits
h) etc.
Assuming modest 3% inflation, if prices stagnate and just hold at current levels for the next 5 years, that represents a further 16% (15.9274%) loss in real value.
Ignored comment.
Unhide
Response by w67thstreet
almost 15 years ago
Posts: 9003
Member since: Dec 2008
Oh may I add, $30 billion decrease in wall street comp from 2007 to 2010 (props to Inonada).
Excellent read - interesting stuff.
Part of my own strategy to hedge against inflation is to short treasuries via TBT in my tax deferred accounts. My TBT position is currently up 32% over the past few months.
Ignored comment.
Unhide
Response by CMD
almost 15 years ago
Posts: 4
Member since: Jan 2009
Another totally unique situation in real estate now is that the Federal Reserve holds something like $5 trillion in mortgages. The real estate market has never experienced that before. What happens if / when they start selling off mortgages? It would crush the securitization market, which will be under enough pressure anyway, as interest rates must rise and investors rotate away from fixed income to equity. I suppose it probably won't happen - the mortgages probably just sit on the Fed's balance sheet and they are amortized away over 30 years.
I guess one bullish argument to real estate is that the Fed has an ownership interest in getting real estate prices back up, I mean, they hold ~50% of the market on their balance sheet.
Ignored comment.
Unhide
Response by nicercatch
almost 15 years ago
Posts: 242
Member since: Sep 2008
but the real inflationary thing is none of that: it is the stealth bailout of financial derivatives, nominal 1 quadrillion (1000 trillion, or 1 million billion) owned by just 4 (5 with hsbc) banks: JPM 50 % (jpm is the fed) then citi, boa,gs.
that alone gauarantees QE to gazillion dollars. ther's no way around it unless the fed does a Moubarak (which he didn't do apparently).
inflation tax is the real killer, unless u have fixed debt.
Ignored comment.
Unhide
Response by somewhereelse
almost 15 years ago
Posts: 7435
Member since: Oct 2009
"Check www.danielamerman.com and sign up for the minicourse (free) or google daniel amerman 3 little pigs story. "
Yes, brilliant, take the advice off the site of the guy trying to sell you a course on how do buy real estate.
Brilliant.
> I'm not a broker, but an investor.don't listen to tenants for investment advice
'/%3e%3c/g%3e%3c/svg%3e)
> I am beginning to think we may not see too much more in the way of nominal price declines for NYC real estate but rather a further erosion in real prices as real estate underperforms inflation over the next 5 to 10 years.
Total agreement from me. I continue to fail to see why prices will actually decline. I don't believe that we'll see appreciation, and given still the relative cost to own vs. the cost to rent, I don't believe that buying is, on balance, the favorable economic option.
> If I think this is the way things play out, what is the best way to "win"?
Don't "play" to "win" at all. Live within your means, counting as a renter likely price increases of a modest amount, and as an owner as someone who won't make a return for a long time and will also be facing increasing maintenance and taxes. Live within your means with cusion for the future.
Why do you think it plays out this way? Is there historical precedent for this scenario?
"Conventional wisdom says holding real-estate during inflationary periods is an effective way to protect assets"
No it doesn't. Read "The Intelligent Investor." There is no shield against inflation. It is brokerspeak.
actually you csn make a lot of money holding real estate during inflation. that is the power of a fixed rate mortgage at negative real interest rates
the historical precedent is everywhere in the world. in the US the 70's
Check www.danielamerman.com and sign up for the minicourse (free) or google daniel amerman 3 little pigs story.
I'm not a broker, but an investor.don't listen to tenants for investment advice.
So if you bought all 2,500 open houses on super bowl Sunday in manhattan, and you stuffed yourself with 5% mortgages in one year you'd be up? How about in 2 yrs? How about 3?, 5?, 10? How about 20yr. How about I remind you we had the greatest credit bubble in mankind that popped 3 yrs ago. How about in 30 yrs? Now tell me fktard, better trade than what?
Nxt week I better see 0 open houses. Now remember 30 yr debt bet takes alot of dough to carry. Good luckz with that. I'm rooting for you.
I'm pretty sure that I saw an article in the middle of the new economy that assured me "inflation is over because of the internerds". I think McKinsey wrote it. That is, because the internet makes it so easy to shop around that there will be no inflation anymore...ever. No PPI or CPI inflation. You'll have CommerceOne running auctions for raw materials and eBay running auctions for finished goods.
This time it's different.
Where is my nanotech cure for this disease? Mondo2k disappoints me.
"Why do you think it plays out this way? Is there historical precedent for this scenario?"
I don't really think there is historic precedent for the situation we are in right now...
a) Huge housing bubble clearly still deflating, at least nationally
b) Unprecedented infusion of liquidity by the Fed
c) Huge number of people so underwater they can't afford to move even if they want to
d) Near-historic unemployment rates
e) Historically low interest rates
f) Record sovereign debt levels
g) Record budget deficits
h) etc.
Assuming modest 3% inflation, if prices stagnate and just hold at current levels for the next 5 years, that represents a further 16% (15.9274%) loss in real value.
Oh may I add, $30 billion decrease in wall street comp from 2007 to 2010 (props to Inonada).
http://news.goldseek.com/GoldSeek/1297358418.php
how bonds, even short maturity do in an inflationary environment.
Excellent read - interesting stuff.
Part of my own strategy to hedge against inflation is to short treasuries via TBT in my tax deferred accounts. My TBT position is currently up 32% over the past few months.
Another totally unique situation in real estate now is that the Federal Reserve holds something like $5 trillion in mortgages. The real estate market has never experienced that before. What happens if / when they start selling off mortgages? It would crush the securitization market, which will be under enough pressure anyway, as interest rates must rise and investors rotate away from fixed income to equity. I suppose it probably won't happen - the mortgages probably just sit on the Fed's balance sheet and they are amortized away over 30 years.
I guess one bullish argument to real estate is that the Fed has an ownership interest in getting real estate prices back up, I mean, they hold ~50% of the market on their balance sheet.
but the real inflationary thing is none of that: it is the stealth bailout of financial derivatives, nominal 1 quadrillion (1000 trillion, or 1 million billion) owned by just 4 (5 with hsbc) banks: JPM 50 % (jpm is the fed) then citi, boa,gs.
that alone gauarantees QE to gazillion dollars. ther's no way around it unless the fed does a Moubarak (which he didn't do apparently).
inflation tax is the real killer, unless u have fixed debt.
"Check www.danielamerman.com and sign up for the minicourse (free) or google daniel amerman 3 little pigs story. "
Yes, brilliant, take the advice off the site of the guy trying to sell you a course on how do buy real estate.
Brilliant.
> I'm not a broker, but an investor.don't listen to tenants for investment advice
Yes, instead listen to shills like this.
Brilliant.
Yes, instead listen t
yes, all tenants are stooooopid.