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Old 08-08-2012, 04:50 PM
 
Location: San Diego California
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Quote:
Originally Posted by mathjak107 View Post
I disagree, the fed can not increase demand for loans . Thats the problem. They can offer loans at rates as low as they want and it may not help,like now.

In fact inflation in the 70's was awful for taking loans. 18% morgages and 16% prime rates brought lending to a trickle.


what may work is a period of low inflation and prosperity allowing folks to say buy a home. then inflation rises all owing cheaper dollars to pay that loan. then stops, prosperity comes again and lower inflation lets new buyers in and the cycle repeats.

just plain old rising inflation is horrible ,real estate sucked during the 70's and 80's. stocks sucked during the high inflation days.

it wasnt until inflation dropped that assets rose again.
Yes they can, they do it all the time. They did it in the early 90's and again after the market crash in 2001. It is just that there are other factors involved currently that are keeping demand low. Before you can have demand for loans, there needs to be a reason to buy. People need to feel confident that inflation will continue. It takes a few years for the fear of deflation to subside.
As far as the 70's and 80's, they have to be broken down into different segments as the economy changed considerably during the two decades. The beginning of the 70's was a period of moderate inflation and lower real estate appreciation, the late 70's was a period of high inflation and high real estate appreciation. The early 80's saw a recession and artificially high interest rates in order to fight inflation and property prices declined with the recession. The late 80's saw another jump in real estate along with moderate inflation. The late 80's saw another recession and real estate prices declined. High inflation works in favor of real estate appreciation due to leverage, it is recession caused deflation that kills real estate markets.
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Old 08-08-2012, 05:21 PM
 
85,472 posts, read 82,956,884 times
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so are you saying when the house is paid off and leverage isnt a factor real estate is not a good choice?



real estate and stocks got reputations as being investments of choice for inflationary times because we always cycled back to lower inflation and thats when they did their climb.

inflation sucked the life out of stocks and real estate while it was happening.

workers were always behind the curve trying to earn enough to keep up. no one could afford mortgages and buisness week ran its famous death of equities issue as stocks were beaten down so long by inflation..

you need nice normal buisness cycles that cover all parts of the business cycle for a healthy economy.
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Old 08-09-2012, 08:14 AM
 
Location: San Diego California
6,797 posts, read 6,628,173 times
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Quote:
Originally Posted by mathjak107 View Post
so are you saying when the house is paid off and leverage isnt a factor real estate is not a good choice?



real estate and stocks got reputations as being investments of choice for inflationary times because we always cycled back to lower inflation and thats when they did their climb.

inflation sucked the life out of stocks and real estate while it was happening.

workers were always behind the curve trying to earn enough to keep up. no one could afford mortgages and buisness week ran its famous death of equities issue as stocks were beaten down so long by inflation..

you need nice normal buisness cycles that cover all parts of the business cycle for a healthy economy.
I did not say that. What I did say is that using leverage during a time of inflation multiplies your returns.
Stocks and real estate do not usually respond in the same way to inflation, as inflation does not usually translate into higher profits for companies and corporations. And no inflation does not always suck the life out of real estate for the reasons I have just stated. The late 70’s are a perfect example, and the latest housing bubble is another.
And yes, it would be nice to have normal un-manipulated business cycles, but as with real estate in the past 40 years, they become predictable and then the common man has the opportunity to prosper.
The system is not designed to allow the average person to prosper. It is designed to force the average worker to need to work his entire life just to survive. If people were allowed to prosper from their own labor, then they would soon no longer need to work and the elite would lose their labor force. Thus you see the huge disparity in wealth you see today despite the gains in productivity over the last 50 years.
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Old 08-09-2012, 08:28 AM
 
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jimhcom is right. For a long time now Russia has high inflation (6%+), and it is almost infinitely more profitable to buy rather than rent. Even in areas where only inflationary growth is expected. Though, inflation makes it harder to afford mortgage, because at first your payments are not nice.

Even rented out mortgage free apartments in Vladivostok (rent and home prices are raised by inflation only) currently net 12%+ - that's 6%+ more than inflation. Not too bad for a low risk investment, nicely protected from hyper inflation.
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Old 08-09-2012, 09:26 AM
 
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6% inflation is a far cry from the double digits we had during the time frame im referring to. the only reason real estate came back was rates and inflation went back down....

What we had in the 70"s and 80" were home prices rising with the cost of commodities and expenses to build those homes which sucked along the exisiting homes but there were few buyers at those levels . mortgages were at 18% and the cost of living was going higher and higher so you had very few who could buy.

what made the inflation work well for the real estate is when it cycled around and inflation fell the homes held most of that rise they had.


if it wasnt for the fact inflation fell and didnt go higher and higher into hyper inflation things would have more than not played out very differently.

Last edited by mathjak107; 08-09-2012 at 10:30 AM..
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Old 08-09-2012, 10:33 AM
 
Location: San Diego California
6,797 posts, read 6,628,173 times
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Quote:
Originally Posted by mathjak107 View Post
6% inflation is a far cry from the double digits we had during the time frame im referring to. the only reason real estate came back was rates and inflation went back down....

What we had in the 70"s and 80" were home prices rising with the cost of commodities and expenses to build those homes which sucked along exisiting homes but few buyers. mortgages were at 18% and the cost of living was going higher and higher so you had very few who could buy.
The interest rates you are talking about were artificial rates imposed by the Fed (Volker) to stifle the economy and to bring down inflation. Prior to those artificial rates, real estate was booming because of the double digit inflation and the fact that investors were eager to use those borrowed dollars to purchase assets that would be paid back with inflation adjusted dollars with less value. This was working in the favor of investors and to the detriment of lenders.
When you can leverage an investment 80% and repay it with cash that is losing 8% of its value every year it is a very profitable situation. Your asset is appreciating on its total value, while the cash you are using to pay it off is losing half its purchasing power every 4 or 5 years. Now add in your depreciation and mortgage interest tax deductions and it becomes a deal too sweet to pass up.
In addition in the 70's, unlike today, we had wage inflation going along with regular inflation to ensure people would have the ability to pay more for assets going forward.
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Old 08-09-2012, 10:35 AM
 
Location: The Triad (NC)
31,345 posts, read 69,561,491 times
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Quote:
Originally Posted by mathjak107 View Post
What we had in the 70"s and 80" were home prices rising with the cost of commodities and expenses...
And demand. An entire generation of post war boomers with enough education and job skills
and deposit cash needed to buy the "picket fence" ideal they spent their lives expecting to find.
Quote:
...mortgages were at 18% and the cost of living was going higher
CD rates (at the savings and loan) were at 18% too though.
Oh yeah... the savings and loan operators...

Quote:
In an effort to take advantage of the real estate boom (outstanding U.S. mortgage loans: 1976 $700 billion; 1980 $1.2 trillion)and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to ventures which many S&Ls were not qualified to assess, especially regarding commercial real estate. L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, stated, "The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending."
Sound familiar?
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