hyper-inflation and real estate

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Insomnsv's picture
Insomnsv
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hyper-inflation and real estate

Chris M's recommended future actions as part of his "Crash Course" raises a couple questions:

(a) Is it likely for high-end real estate prices to escalate with widely anticipated (hyper)inflation even as low-end real estate goes into double dip (per latest Case-Shiller forecast)? 

(b) Why get out of mortgage debt? (During the Weimar Republic hyperinflationary years, mortgages were paid off quickly with worthless money and the underlying asset turned out to be great inflation protection)

Thanks in advance for anyone's thoughts on this...

RL

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John Adams
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Re: hyper-inflation and real estate

And if you are retired, living on a fixed income...  ?

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patrickhenry
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Re: hyper-inflation and real estate

Insomnsv wrote:

Chris M's recommended future actions as part of his "Crash Course" raises a couple questions:

(a) Is it likely for high-end real estate prices to escalate with widely anticipated (hyper)inflation even as low-end real estate goes into double dip (per latest Case-Shiller forecast)? 

(b) Why get out of mortgage debt? (During the Weimar Republic hyperinflationary years, mortgages were paid off quickly with worthless money and the underlying asset turned out to be great inflation protection)

Thanks in advance for anyone's thoughts on this...

RL

The second part of your question has been covered in this previous thread and elsewhere in forums...

http://www.peakprosperity.com/forum/what-happens-mortgages-during-high-i...

Johnny Oxygen's picture
Johnny Oxygen
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Re: hyper-inflation and real estate

From above mentioned link. The bold type is my emphasis:

cmartenson wrote:

This is a topic upon which I have written many words.

One thing I think we should all try and avoid as thinking about it as an "either/or" situation as in "will we have inflation or deflation?"  The answer, most likely, is "yes."

We will have inflation in some things, I am pretty sure in energy costs rising over time (and everything linked to them), even as some assets are deflating and others are inflating.

As astutely pointed out above, inflation only works to your favor if your income and/or assets are rising along side it, otherwise it's a killer.  Here's a handy way to look at it.

Inflation = 'good'

  • Income rising faster than inflation
  • You have large debts held at a fixed rate of interest that is below the rate of inflation

Inflation = 'bad'

  • Income rising slower than rate of inflation
  • You have large debts at a fixed rate above the rate of inflation

Inflation = 'disaster'

  • Your income shrinks or disappears
  • You have large debts at a floating rate of interest

Of course there are other combinations of these elements but I think the point has been made.  There are a wide variety of possible outcomes here.

For my money, I vastly prefer to not hold debt at this time because I am uncertain about my income stream, because I am uncertain about monetary and fiscal policy going forward, and because I do not trust the sanctity of contract law which my government has proven (again and again recently) means nothing if/when favored special interests ask for it to be suspended to "save the system" or whatever other hokey excuse is trotted out to justify a blatant theft. 

My confidence is very low in the system right now and trust is one of those things that takes a long, long time to rebuild.  This is one of the reasons I was so annoyed with the cavalier attitude of Paulson/Geithner/Bernenke et al. when they rode roughshod over the most primary and basic tenets of our legal and financial frameworks.  It's as if they had no appreciation for the importance of the appearance, if not the reality, of basic fairness and justice in our larger social contract.  Penny wise, pound foolish comes to mind.

I would add to this that if you had 90% of your mortgage paid then hyperinflation would most likely be a benefit in regards to your real estate investment. If on the other hand you only had 40% paid off you might find that every scrap of the worthless paper you could find would go toward food with none left over to pay a mortgage.

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patagonia_61
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Debt

I understand the inflation/currency/debt idiom.  That's one of the things the Fed is doing now, by devaluing the dollar.  Debt is cheaper with inflation.  My grandmother, who lived through the depression advised me in my youth that another one was most likely coming as she explained the significance of taking the dollar off the gold standard.  Land, if it is producing, or productive, was her advice for a good hedge against another financial meltdown.  My family owns 1200 acres of good farmland however, the house isn't big enough to sustain us all.  The land itself has no debt.  My dilemma is this:  Should we just move to the farm incurring debt to make living there sustainable?  We would have to enlarge and repair the existing house, acquire alternative energy sources, stock, and etcetera and being that it is in the country, with gas prices going up it would mean a more expensive commute to my job or should we move to a larger home in a slightly more urban setting and just stock dehydrated foods and generators for that situation.  I can't decide which move to make, and one or the other is eminent based on the fact that I'll be caring for an aging parent very, very soon.  The second choice would require an investment in this real estate bubble, and we only have enough cash on hand to make a 45% down payment on a 40 year old house that has been updated and kept up.  Any advice?

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holstein13
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 Patagonia, Why not buy one

Patagonia,

Why not buy one or more trailers or RVs and park them on the land in case of emergency?  If you have the resources, you could also install a pre-built home on the land.

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holstein13
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 Patagonia, Why not buy one

double post

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californiarenter
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Like

This story was good.

AnthonyDavis's picture
AnthonyDavis
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In the advance economy many

In the advance economy many people are unaware what is hyperinflation?They don’t take it more complicated. In inflationary environment the Real Estate price fall. So the real estate sellers are forced to reduce their prices in a hyperinflationary conditions.

devvie's picture
devvie
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Nobody can guarantee that the

Nobody can guarantee that the history is going to repeat itself, when it comes to real estate nothing is certain. I quit hoping that I'll live in a bigger home a long time ago, now all I hope for is being able to afford to pay my home warranty.

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