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What if money is inflated so much that houses are fair value?


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Yes, i suspect the magnitude of the HPC can be hidden via inflation.

The problem will be getting wage inflation to keep up. Many of the starting salaries I've seen on offer since 2008 have barely kept up with inflation.

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2 hours ago, phantominvestor said:

Nasty thought:

What if inflation has happened so much that houses are actually the same price as they were always and money has simply been inflated that much that houses are the only true value of money?

 

The answer  to that is:

Money has not been inflated, what has been modified is the relative value of future money respect to current money. That is exactly what interest rates are.

If money was inflated, everything would rise, but when you modify the value of future money, only things that are long-term durables

 

The virus has precisely increased final interest rates by increasing the risk premium components on all loans (see most corporate  bonds in the UK, for a good example). That’s why house prices will fall, because there is a repraising of market interest rates. Banks are being forced to keep interest low, but they are counteracting by lending less (increasing interest rates by infinite to less desirable borrowers).

Edited by Burbujista
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17 hours ago, phantominvestor said:

Nasty thought:

What if inflation has happened so much that houses are actually the same price as they were always and money has simply been inflated that much that houses are the only true value of money?

 

But they're clearly not the same price, relative to earnings, as they were, say, 40 years ago when a single 3x salary mortgage could buy you a perfectly nice family home (we called them homes or houses back then rather than 'properties') in large swathes of the country.

So how does this hypothesis have any merit?

Edited by zilly
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If house prices remain unchanged while there is high inflation (both both wage and consumer prices but excluding housing) then after some time a 3x single salary mortgage would once again buy a perfectly nice family house.

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I think this topic has been misunderstood.

The idea is that inflation has eroded the real value of money so much that the only thing that has kept its true value is housing. It just goes to show how worthless money has become due to inflation.

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On 08/05/2020 at 18:29, phantominvestor said:

This idea that 25k is a good salary is bonkers. It's nothing.

Gross or net? £25k take home is ok, just under £2100 pcm. Two adults, £4.2k net income pcm is in the paying for everyone else not entiltled to any state help regions!

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On 08/05/2020 at 16:11, phantominvestor said:

Nasty thought:

What if inflation has happened so much that houses are actually the same price as they were always and money has simply been inflated that much that houses are the only true value of money?

 

That's essentially what TPTB have been working towards.  Rather than let house prices (and other assets) fall to fair value, they prefer to print money - which of course greatly benefits themselves and their associated financial system insiders - to actually make overpriced assets eventually become priced 'fairly'.

The trick is to do it slowly enough to avoid a collapse in public faith for the currency and trigger hyperinflation.

There is NO WAY that they can let house prices fall to sensible levels without a massive collapse in available credit and a massive recession - they simply must preserve prices to keep the mortage lending credit pump going.

If house prices ever do fall meaningfully, it's because they have lost control and the economy is utterly FUBAR.  Buying a house will be the least of your worries in that scenario.

 

 

 

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7 hours ago, phantominvestor said:

I think this topic has been misunderstood.

The idea is that inflation has eroded the real value of money so much that the only thing that has kept its true value is housing. It just goes to show how worthless money has become due to inflation.

I think your 100% correct

houses and other value stores have probably remained fairly stable value wise, but what we price those assets in has tanked in value

the basket of goods for inflation are a joke, especially in a world where things get cheaper to manufacture day by day, money should really buy more day by day, but it actually loses value, whereas houses go up in value.

its why you should never save for a house deposit in fiat savings, your running to stay still if your saving over a 10 year period.

i realised this a long time ago, saved in shares, gold, bitcoin, and kept my cash levels low, and found I could beat house price inflation on the most part and buy a nice house. 

There are people on here to who sold owned houses to rent, hoping that a huge crash would mean their cash pile would purchase a much bigger nicer house, and instead found that it now buys half the house they had. 

it’s brutal but it’s true. 

your thinking is 100% correct. 

Additionally using 3x wages as an excuse to call houses overpriced is coming at it from the wrong angle, in truth either your labour is worth a fraction of what it once was, or companies and making hay off your hard work, I think it’s mostly the former, and partly the latter. Either way, it’s no longer the land of milk and honey for wage earners. 

a house is still a house, sadly a wage is no longer a wage. 

it’s great that you have worked it out, now to come to terms with it, and plan accordingly. life is all risk but you can hedge against those risks.

buy a house but still have savings in gold, if house prices crash, so does sterling, and thus regardless of your lost wealth in housing, it’s more than made up for it in your gold savings, 
 

in reality it’s far more likely that actually your housing debt will be inflated away to nothing in short order!

the thing with inflation is nothing can happens for years, just a gradual steady bleed of value of fiat, but it can change quickly and inflation can come on in great lumps seemingly out of the blue, can change overnight even. 

if you take on say a 25 year mortgage, your more likely to see a big inflation event than a total loss of faith in the current system and houses loosing lots of value.

 

Edited by jiltedjen
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House prices haven't inflated to the same extent everywhere in the UK but everywhere in the UK uses the same currency, so there is no single level of nominal price inflation that could exactly cancel out HPI. If the general price level doubled and nominal house prices stayed the same that would just about cancel out average HPI nationally but London/SE would still be expensive relative to wages.

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There is going to be a big crash.  They have managed to prop it up since 2008 but they can't stop this  now. 

I'm just watching this lecture from 2009 by Peter Schiff. He predicted the dot com crash and the  financial crisis in 2008. A lot of what he says can be applied to the UK. The housing bubble here is about to burst big time. 

 

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This Schiff talk is really good. He is telling lots of anecdotes about the dot com crash and the real estate boom. A lot of it sounds familiar! 

Worth a watch if you have the time ?

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At [1:11] Schiff mentions Japan and its stock market and real estate bubble. He points out that real estate was still falling for 15-20 years with prices down 50-70%

Edited by Warlord
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Schiff's anecdotes are funny. He was renting in a nice building with various amenities for $4k/month yet he went to see the real estate agent who wanted to sell him the dump next door for a million with none of the amenities... He makes some valid points.

 

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On 09/05/2020 at 17:31, phantominvestor said:

I think this topic has been misunderstood.

The idea is that inflation has eroded the real value of money so much that the only thing that has kept its true value is housing. It just goes to show how worthless money has become due to inflation.

"Value" is 100%, entirely, absolutely subjective. "True value" does not exist.

The "value" tied up in real estate can only affect prices of anything else, if the holders of that capital can get someone else to give them the value in another medium (e.g. cash, gold, corn, a bundle of derivatives)

What kind of idiot, other than government, is going to enable that?

Similarly, look at this chart

http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/

Where is the value in those derivatives? Unless forced by a government, who is going to let themselves be the bagholder for that? Where is the other side of the balance sheet which can affect anything else? In truth, no one actually knows, but I suspect almost 100% of pensions are in there, which means everyone who doesn't starve to death is going to be working until they are dead.

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On 10/05/2020 at 00:39, jiltedjen said:

in reality it’s far more likely that actually your housing debt will be inflated away to nothing in short order!

Not on a variable rate mortgage.

Inflation naturally goes hand in hand with interest.

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12 hours ago, Dorkins said:

House prices haven't inflated to the same extent everywhere in the UK but everywhere in the UK uses the same currency, so there is no single level of nominal price inflation that could exactly cancel out HPI. If the general price level doubled and nominal house prices stayed the same that would just about cancel out average HPI nationally but London/SE would still be expensive relative to wages.

When people were paid in gold and silver, did they not have regional property price variation?

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1 hour ago, Locke said:

"Value" is 100%, entirely, absolutely subjective. "True value" does not exist.

The "value" tied up in real estate can only affect prices of anything else, if the holders of that capital can get someone else to give them the value in another medium (e.g. cash, gold, corn, a bundle of derivatives)

What kind of idiot, other than government, is going to enable that?

Similarly, look at this chart

http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/

Where is the value in those derivatives? Unless forced by a government, who is going to let themselves be the bagholder for that? Where is the other side of the balance sheet which can affect anything else? In truth, no one actually knows, but I suspect almost 100% of pensions are in there, which means everyone who doesn't starve to death is going to be working until they are dead.

Great chart - thanks. ☺️

I am loosely reminded of the classic dystopian SF novel The Game Players of Titan by Philip K Dick.

https://www.amazon.co.uk/Game-Players-Titan-Voyager-Classics/dp/0007115881/ref=sr_1_1?dchild=1&keywords=game+players+of+titan&qid=1589189983&sr=8-1

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2 hours ago, Locke said:

Inflation naturally goes hand in hand with interest.

Yes, but over the long run, and maybe not if there is a sustained policy of keeping interest rates down while pumping money into the economy.

Once question is whether the government would be willing to change the 2% inflation target (which I think is bad policy, but it would politically difficult to increase).

 

Edited by gp_
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not to mention the inflation figures are worthless to start with based on the basket of goods they use. 
it manipulated.

'lets target this figure that doesn't really mean anything as we can control how we choose to measure it'

doesn't even include house prices! 

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2 hours ago, gp_ said:

maybe not if there is a sustained policy of keeping interest rates down while pumping money into the economy.

The government cannot set the interest rate. All they can do is rob and destroy. Regardless the justifications given, taxation is theft.

1 hour ago, jiltedjen said:

not to mention the inflation figures are worthless to start with based on the basket of goods they use. 
it manipulated.

To both: imagine you are flying in a plane, which is society and the fuel is value generated from voluntary trade.

The government is a madman with an assault rifle who is poking holes in the fuel tanks to siphon them off (taxation, money printing [i.e. quantitative easing]) to anyone who supports him (billionaire class, left wingers, etc) for nonsense like welfare, crony capitalist big Ag farms and council owned shopping malls.

Meanwhile he has pinned the altimeter (CPI) and fuel gauge (GDP) and anyone who questions why it reads 30,000ft when you can look out the window and see the sea fast approaching (gold at £10k/oz) gets a crack over the skull (deplatforming).

 

Eventually, the plane is going to ditch and it doesn't matter how many more holes this guy shoots into the fuel tanks (at some point, it doesn't even matter if they get patched up later), where he has pinned the instruments or what the other passengers think; he is not going to be able to save the plane.

Edited by Locke
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  • 415 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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