Real Estate During Inflation ––>Hyperinflation

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  • Tue, Mar 31, 2009 - 04:16pm

    #1
    ltlredwagon

    ltlredwagon

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    Real Estate During Inflation ––>Hyperinflation

Do we have recent historical data (Argentina, Brazil, etc.) on what happens in the real estate market – personal homes, residential income properties, commercial – as a country moves towards or achieves hyperinflation?  I’m looking for hard data on what actually happened – values, liquidity, mortgages, foreclosures.  I would like to learn from those who went through it, whether they did well, "survived" or suffered, and what they learned, what they would have done differently.  Can anyone refer me to sources of information?

  • Tue, Mar 31, 2009 - 05:13pm

    #2
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

I second the request (sorry , I wish I had answers for you ).  The only thing I have to add is in a story about Argentina where the author mentioned that his sisters mortgage was less then the money it cost her to travel to the bank to pay her mortgage.  I don’t know how mortgages work in Argentina but I’m assuming it was at a fixed rate of interest and monthly payment.  The only thing that might change is taxes.  The other thing I want to add is that my mortgage contract states payment to be made in" US dollars".  In my mind I had planned on paying "in US dollars" no matter what our currency is because this is what I am contracted for. 

 I would love to hear any educated thoughts on this and or sources of info.

Thanks for bringing this up ltlredwagon.Laughing

 

  • Tue, Mar 31, 2009 - 06:25pm

    #3
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

This question was addressed briefly on the Financial Sense podcast in response to a listener question, I think on the program of the 21st.  I recall that they stated gold would probably appreciate faster than real estate.  One issue is that rents get locked in for the period of lease so it’s hard to raise rents fast enough to keep up with inflation; therefore, commercial property at least will not increase its income generation fast enough to keep up with inflation and property values would be affected by that.  A personal home you might look at differently, I don’t know.  The impact of inflation in general would seem to depend on how much your wages increase relative to the price of goods and services, though fixed rate debt would not change in theory.

  • Mon, Apr 13, 2009 - 05:31pm

    #4
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

No hard data?   Yikes!   

Okay, I know there are a lot of very bright, experienced people on this forum.  Maybe we ought to open up this thread to any ideas that forward the discussion.  Mr. X owns a $1 million apartment building/home/commercial building, free and clear.  Should he get a $250 – 500,000 loan and buy gold/silver?  Something else?

  • Tue, Sep 08, 2009 - 12:18pm

    #5
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

I guess you’re looking for a financial services market research firm. They may charge but unfortunately, i can’t think of a name right now. I will post it up here as soon as i can recall. or maybe you can just Google it.

  • Fri, Sep 11, 2009 - 03:00pm

    #6
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

Hey, I found something that might be of use to you.

Check out this list of websites that you can use to find data related to financial statistics:

http://www.abag.ca.gov/abag/overview/datacenter/popdemo/datamine.htm

  • Fri, Sep 11, 2009 - 09:43pm

    #7
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

I imagine, that when there is hyperinflation in a society, everything tends to get disorganized. Paying one’s mortgage is of no immediate concern. Feeling the urge of rapidly changing circumstances, one would make sure that adequate food and water is available. Hyperinflation has always been a temporary circumstance in any country’s life.

I also think, that during a hyperinflationary period community will grow more important. So changes in real estate values will be about location (location, location), that reflects how much of a community there is in the immediate area. Along with other sustainability, like arable land, water, etc. How it is the easiest for me to think about this, is that during a severe challenge, like hyperinflation would be, society tends to get simplified and, along with that, localized. So what would I be thinking about in a simpler society. The timeframe of my thinking and plans would shrink, I would focus on simpler things, more immediate concerns.

Like thinking, I need eggs today. But eggs are unaffordable, because my last salary (If I still have one) has been over a week and a half ago, and got diminished in value since. So is there someone who I can trade something I have, for eggs. And when I have my next salary, maybe I pay my taxes or mortgage, if nothing more urgent happens, like running out of cooking oil, or breaking the handle of a hand-tool, I use now every day (hoe?)…

  • Tue, Nov 03, 2009 - 09:09am

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    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

This debate is a little off target: – It’s the interest that’ll get ya.

In a hyper-inflation scenario, your house value will be irrelevant as there will be nobody to buy your $10 000 000 000 000 house (ignore the real estate agents). Free-hold owners will have somewhere to live, large mortgage holders will be kicked out because they can’t afford the adjusted interest rates and banks will be keen to liquidate assets (as everyone tries to withdraw their savings).

A more immediate and realistic threat is plain old inflation, and that means increased interest rates. I am old enough to remember my parents paying mortgage interest rates (in NZ) of around 20% in the ’70’s but that was on a small mortgage ($50 000) not the half-million dollar loans people take on these days. (go to a mortgage calculator put in 20% interest and see what you’re in for)

BTW: that’s the risk the guy above takes on getting a “mortgage on gold”: Unless he makes a quick buck on panic price spikes, gold will match inflation, but interest on the mortgage will be set higher. Can’t make the payments? bank takes your assets. 

Lose the debt gang, pay off as much of your mortgage as possible or downsize your home. When things go bad those with low equity (80-100% mortgages) will be targeted by the banks first, and those with low debt will be spared.

My question is: Does this mean people who have not yet brought a family home stay out of the property market and take their chances on renting? Keen to hear other thoughts on this!

  • Tue, Nov 03, 2009 - 03:04pm

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    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

[quote=Thechaz]

My question is: Does this mean people who have not yet brought a family home stay out of the property market and take their chances on renting? Keen to hear other thoughts on this!

[/quote]

If you get a traditional 30-year fixed mortgage your rates aren’t going to go up.  That’s why, if you’re expecting inflation, it makes a lot of sense to buy now – especially if you can get an FHA assumable mortgage.  If you buy a house now and lock in a mortgage at 5%, and then need to sell in 10 years when rates are at 20%, you’ll be able to sell your home for higher than market value because of the low interest rate the buyer would assume on your mortgage.

However – and this is a big however – there’s a very real possibility that property taxes could go through the roof as municipalities start to go bankrupt.  Property and sales taxes are really the only way local municipalities can raise money.  Sure, some states have a Prop 13 that prevents raising property taxes by more than a certain amount each year, but that could be repealed (although I don’t imagine many would vote for it to be).

IMO, it’s not interest rates we have to worry about (assuming you get a fixed rate mortgage now).  It’s property taxes.

  • Wed, Nov 04, 2009 - 10:02am

    #10
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

Wow Switters, 30 year fixed rate mortgages don’t exist in NZ – the longest I have seen is 7 years and it is currently running at 9.1% (1 year fixed is 5.5% so what does that tell you!) plus our prices are even more inflated than yours! 

How can a lender survive lending below inflation? Our banks never let that happen 🙁

 

 

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