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Old 07-19-2020, 12:09 PM
 
967 posts, read 942,392 times
Reputation: 460

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I think that we are in a major real estate bubble now.

An example:

https://www.trulia.com/p/ca/sacramen...4–2086005329

The above home sold for 483k less than a year ago and now is listing for almost 400k more now. How da heck does a home expect to increase by almosr 400k in less than a year? As much as I hate renting and want a home, I believe that only stupid idiots would buy now at these inflated prices. That is why I patiently wait and pray for crash to come next year or soon.
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Old 07-19-2020, 03:35 PM
 
1,785 posts, read 1,510,907 times
Reputation: 1720
Quote:
Originally Posted by mixxalot View Post
I think that we are in a major real estate bubble now.

An example:

https://www.trulia.com/p/ca/sacramen...4–2086005329

The above home sold for 483k less than a year ago and now is listing for almost 400k more now. How da heck does a home expect to increase by almosr 400k in less than a year? As much as I hate renting and want a home, I believe that only stupid idiots would buy now at these inflated prices. That is why I patiently wait and pray for crash to come next year or soon.


Take a look at the historic inflation rates in the US over the past 30 years. Look at how many months the inflation rate was above current mortgage rates. If the inflation rate is higher than your mortgage rate on a fixed rate mortgage, the bank is paying you to borrow money.

https://inflationdata.com/Inflation/...Inflation.aspx

The country has been borrowing money to pay for wars, health care and is now talking about discharging student loans and paying reparations to black people, plus all of the money spent on the last housing bailout plus all of the stimulus packages during covid. Right now debt as a share of GDP is the highest it has been in my life time and only was higher right after WW2.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Perhaps the Democrats when they take over will show a level of financial discipline that the Republicans never did while they were in power, by paying for all of their spending increases with tax increases. But if I was to bet, I think 1970's style inflation seems like the more likely outcome. There seem to be no credible deficit hawks in either party. Both parties seem pretty committed to spending like drunken soldiers. Tax increases aren't popular.

Some of the people advising Biden are supporters of Modern Monetary Policy.

https://theconversation.com/modern-m...problem-141495

https://en.wikipedia.org/wiki/Modern_Monetary_Theory#:

There are not many opportunities to borrow a lot of money at a rate pretty close to the long term inflation rate and your after tax cost of a mortgage likely is pretty close to it right now.

There are three ways to shrink the national debt, tax increases, spending cuts or inflation. Of the three which do you think is most likely? There are probably now more billionaires backing the Democrats then Republicans right now, (Bloomberg, Bezos, Buffet, Gates, Brin, Zuckerberg, Soros et all) so keeping taxes low on the plutocrats likely has widespread support in both parties. Almost all Senators and Congressman have two homes, one in their district and another in DC, so if taxes do go up homes likely will still have the strongest tax advantages just the same.
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Old 07-19-2020, 04:00 PM
 
967 posts, read 942,392 times
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Current inflation rate is only 0.6% so that would trump real estate loans at under 3% now

https://tradingeconomics.com/united-.../inflation-cpi
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Old 07-20-2020, 02:44 AM
 
1,785 posts, read 1,510,907 times
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Quote:
Originally Posted by mixxalot View Post
Current inflation rate is only 0.6% so that would trump real estate loans at under 3% now

https://tradingeconomics.com/united-.../inflation-cpi
But your loan is for the next 30 years, not the next 6 months. What is your after tax cost of borrowing? Odds are right now that is much lower than the historic long term US inflation rate (1913-2018). which is 3.15% Essentially you are borrowing money for free or even being paid slightly to borrow money. That is really rare.

https://inflationdata.com/Inflation/...Inflation.aspx

During periods of inflation people who own dollar denominated assets are hurt, but people who own dollar denominated liabilities and real assets profit from the inflation as the inflation increases the nominal value of their real asset and degrades the dollar denominated value of their debt.

Do you think either political party in the US has any desire to push an austerity agenda? The left wants free healthcare and free student loans and reparations for black people. The right wants to expand the military, and more tax cuts. Both parties give free stuff to the wealthy and well connected while calling it stimulus. Neither party is wants to pay for their agenda.

That means we are going to get inflation to pay for all of this free stuff. The fed can monetize the national debt, it just buys it from the Treasury department. That is mechanism for the inflation. Which is what we see happening here.

https://www.federalreserve.gov/monet...centtrends.htm

Last edited by shelato; 07-20-2020 at 02:54 AM..
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Old 07-20-2020, 01:40 PM
Status: "Looking to the East" (set 27 days ago)
 
Location: Sacramento CA
572 posts, read 124,339 times
Reputation: 1223
I agree that Sacramento housing is bubbly right now. Liquidity blows bubbles and fixed 30 years mortgages are down below 3%.

I would not buy a Sacramento house right now if I didn't have to. On the other hand, you can drive yourself insane playing the waiting game and trying to time the market, but if it were my hard earned dollars, I would not buy right now.

The 2008 housing collapse was probably generational, but it was fair warning for anybody buying homes during bubbly times. I wouldn't do it. I would wait for the inevitable correction IMHO. That could take 5 years or more. Nobody knows. And prices could go up another 50% meanwhile. Nobody knows.
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Old 07-20-2020, 10:47 PM
 
967 posts, read 942,392 times
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@Igor yeah I agree. For me, I need more living space and homes rent for more than what I would pay long term if I bought one. UNLESS they crashed 50% in price which is hard to say due to endless bailouts, unchecked immigration and so forth. Rents are not going to tank.
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Old 07-21-2020, 01:45 AM
 
1,785 posts, read 1,510,907 times
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Quote:
Originally Posted by mixxalot View Post
@Igor yeah I agree. For me, I need more living space and homes rent for more than what I would pay long term if I bought one. UNLESS they crashed 50% in price which is hard to say due to endless bailouts, unchecked immigration and so forth. Rents are not going to tank.
If you were to rent out the place you are thinking of buying, how much of the mortgage would the rent cover? Because I think rent covering the mortgage is pretty much the floor on housing prices falling.
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Old 07-21-2020, 08:41 AM
 
967 posts, read 942,392 times
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Rents in Fair Oaks, Carmichael and Arden-Arcade for a 3-4 bedroom with a pool or no pool are hovering around $2-3k a month based on the for rent ads on craigslist right now. Mortgage is pretty much the same amount now with super low rates. However, the down payment and repair costs add to home ownership and with the tax savings is a wash. Heck even apartments rent for close to that now even with Covid.
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Old 07-21-2020, 11:57 PM
 
1,785 posts, read 1,510,907 times
Reputation: 1720
Quote:
Originally Posted by mixxalot View Post
Rents in Fair Oaks, Carmichael and Arden-Arcade for a 3-4 bedroom with a pool or no pool are hovering around $2-3k a month based on the for rent ads on craigslist right now. Mortgage is pretty much the same amount now with super low rates. However, the down payment and repair costs add to home ownership and with the tax savings is a wash. Heck even apartments rent for close to that now even with Covid.
If rents are covering the mortgage, there are investors who will buy at that price point. If rents were falling, then I think housing prices will fall. But if rents aren't actually falling, I don't see housing prices dropping, much.

Now the question is with the unemployment rate as high as it is locally, will rents drop appreciably? I would watch what happens this fall if and when the eviction moratorium is lifted and once we have a better idea of how many if any additional stimulus programs we have and what if any they will provide in terms of rent subsidies.
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Old 07-22-2020, 12:40 AM
Status: "Looking to the East" (set 27 days ago)
 
Location: Sacramento CA
572 posts, read 124,339 times
Reputation: 1223
Quote:
Originally Posted by shelato View Post
If rents are covering the mortgage, there are investors who will buy at that price point. If rents were falling, then I think housing prices will fall. But if rents aren't actually falling, I don't see housing prices dropping, much.

Now the question is with the unemployment rate as high as it is locally, will rents drop appreciably? I would watch what happens this fall if and when the eviction moratorium is lifted and once we have a better idea of how many if any additional stimulus programs we have and what if any they will provide in terms of rent subsidies.
I keep trying to rep you but it won't let me. Oh well. Consider yourself repped.
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