Real Estate During Inflation ––>Hyperinflation

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  • Wed, Nov 04, 2009 - 03:01pm

    #11
    Peak Prosperity Admin

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    Re: Real Estate During Inflation ––>Hyperinflation

30-year fixed used to be the only way you could get a mortgage in the U.S.  Then came the 5-year option-ARM, interest only nonsense.  Now it’s swinging back the other way, and 30-year fixed loans are becoming normal again.  Rates are still very low – around 5% for that 30-year fixed.

  • Wed, Nov 04, 2009 - 05:06pm

    #12
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    Re: Real Estate During Inflation ––>Hyperinflation

[quote=switters]

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.

[/quote]

It’s sound logic, as long as you can be assured the lending companies and the government stick to the rules of the game.  In a hyperinflationary environment, any lender who has a fair number of fixed-rate mortgages out there would be almost certain to go under.  Given the level of influence the large financial institutions have and the government’s focus on preserving the status quo to the exclusion of most other things, it might be prudent to expect an attempt to adjust all fixed-rate loans to the new hyper-inflationary environment.  Just something to keep in mind.

– Nickbert

  • Wed, Nov 04, 2009 - 05:20pm

    #13
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    Re: Real Estate During Inflation ––>Hyperinflation

Nickbert

I like the point your making.  If we get into severe  hyperinflation, there may not be  engough time for them to change the rules.  Just like landlords would lose out because the would not be able to adjust their  rents quickly enough, 

If however, we just have significant inflation or mild hyperinflation, maybe they will be able to slap you with rule changes. 

Brian

  • Wed, Nov 04, 2009 - 08:00pm

    #14
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    Re: Real Estate During Inflation ––>Hyperinflation

[quote=nickbert]

It’s sound logic, as long as you can be assured the lending companies and the government stick to the rules of the game.  In a hyperinflationary environment, any lender who has a fair number of fixed-rate mortgages out there would be almost certain to go under.  Given the level of influence the large financial institutions have and the government’s focus on preserving the status quo to the exclusion of most other things, it might be prudent to expect an attempt to adjust all fixed-rate loans to the new hyper-inflationary environment.  Just something to keep in mind.

– Nickbert

[/quote]

How could they do that?  The number of defaults it would cause would send the banks under anyways, and what’s more, it would impoverish voters and leave them out on the street. 

  • Wed, Nov 04, 2009 - 09:44pm

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    Re: Real Estate During Inflation ––>Hyperinflation

[quote=switters]

[quote=nickbert]

It’s sound logic, as long as you can be assured the lending companies and the government stick to the rules of the game.  In a hyperinflationary environment, any lender who has a fair number of fixed-rate mortgages out there would be almost certain to go under.  Given the level of influence the large financial institutions have and the government’s focus on preserving the status quo to the exclusion of most other things, it might be prudent to expect an attempt to adjust all fixed-rate loans to the new hyper-inflationary environment.  Just something to keep in mind.

– Nickbert

[/quote]

How could they do that?  The number of defaults it would cause would send the banks under anyways, and what’s more, it would impoverish voters and leave them out on the street. 

[/quote]

I don’t think it would actually save the financial system, or at least not for more than a short period of time.  It would just be one more poorly thought out and knee-jerk reaction to buy a little time and keep the game going a bit longer.  I’m just looking at how they’ve reacted in the past…. and almost without exception, as a group our elected officials have acted in favor of preserving the existing system at any cost regardless of how their constituents feel (the bailouts for example) and have consistently used short-term quick fixes that kick the can down the road (though result in greater misery later on).  IMO, from what I’ve seen thus far of our elected officials they give preserving the status quo a substantially higher priority than the welfare of the voters.  And as usual, they will try to confuse or spin the issue to either scare voters into going along or entice them with the promise of something for nothing.  Legislation for modifying fixed-rate loans in such a case wouldn’t be guaranteed to pass, but I see a high likelihood that an attempt would be made.

– Nickbert

  • Fri, Nov 13, 2009 - 01:22pm

    #16
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    Re: Real Estate During Inflation ––>Hyperinflation

“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.”

I have always heard the opposite, that when facing a potentially troubling future it is wise to either have your home debt free, or mortgaged to the hilt.  I would imagine that banks would prefer to foreclose on homes where they know they can get their money back (those with equity), rather than ones whose auction return will be less than the balance.

  • Thu, Dec 03, 2009 - 05:32pm

    #17
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    Re: Real Estate During Inflation ––>Hyperinflation

Can you imagine if the dollar ceased to be legal tender? A mortgage payable in dollars would be unable to be repaid. This might force people into the lease for deeds program. Scarey thought.

Here in the UK, my main source of income is rent from a number of two bedroom ground floor flats a few miles from my home here in Reading. These were bought with cash. Borrowing to let is no longer profitable in most of the UK. They are let on six month tenancies, so I suppose in hyper inflation I could raise the rent every six months. I may not be able to though, as there are a large number of vacant flats, which mean I have not been able to raise rents since 2000.

I guess bricks and mortar always have some value. Whether you can realise the value is another matter.

  • Mon, Apr 19, 2010 - 04:44pm

    #18
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    Re: Real Estate During Inflation ––>Hyperinflation

From my experience in a country after an economic collapse and high inflation:

Everybody became much poorer in a matter of months. Many didn’t know how that happened. Many of those who knew couldn’t do anything about it. I am talking about normal people not those above the law and speculators.

You could leave your life savings in a bank that would buy you a condo before the collapse and in a couple of years you could buy a TV set.

You could leave your savings in a bank, it collapsed, and by the time you got your guaranteed deposit back, the purchase power was significantly reduced – deposits are guaranteed but interest is not and it takes months or years to get the money back.

You could invest your money in mutual funds or other financial “products” and one day they imploded and you got almost nothing if that.

Homes were priced in relation to US dollar – at that time a stable currency. Now maybe in gold. I don’t see any stable currency left. Prices never went down in the local currency. Prices in US dollars fell when incomes bottomed. Prices went up in US dollars when real economy, incomes and foreign investment started to grow. A country with social turmoil is not very attractive for investment so this came after a few years.

Even though personal income never dropped in the local currency, in about two years it was about one half of the previous levels compared to the dollar. Trust me, it felt much lower than that. As a consequence, people had less and less disposable income to none.

Wages always lagged behind inflation even though eventually (maybe) they caught on with the official inflation rate.

Interest rates for savings were updated a few months after the official inflation rate was published. Interest rates for loans much faster.

Also, less and less people could afford a loan and very few were able to qualify for one. Middle class income was not enough for that. As a result there weren’t many buyers.  

I don’t think that the banks will change existing contracts. They didn’t do it then and those who had 30 years fixed mortgage did well. If people cannot trust contracts anymore then how are they suppose to have confidence in the system?

At the end of the day people who had their houses paid for or had a locked in mortgage did very well. I see now that in US things are a little different. There are too many people who don’t pay their mortgage anymore and banks can’t do much about it. I guess if you have little equity in your house and you are not among the firsts to be foreclosed you can pray for a financial collapse to keep the house, but that would be a gamble. To be honest, I would prefer to live in a world that doesn’t collapse than to live in a house that I cannot pay for.

Renting is a good idea financially (for a while) if mobility and easy downsizing is important for you or have a plan B – to live with some relatives in the worst case scenario. Rental units will be either poorly maintained, or too expensive for a shrinking income. Also, you can’t do much to lower your bills in a rental unit even if you want to. I don’t think there is a general rule though. It depends too much of the location and the persons involved but, if you plan to buy a house later you might have to buy it with cash.

Hope it helps.

  • Tue, Jun 08, 2010 - 08:53am

    #19
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    Re: Real Estate During Inflation ––>Hyperinflation

[quote=Thechaz]

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

[/quote] Just got a 30 fixed at 4.75% in January. The loan was written by my local bank who sold to USBank before the closing date who sold it to our government (Fannie Mae) before our first payment. The federal government passed legislation on December 24th that Fannie Mae could have all the money she wanted and would never fail. Brilliant.

  • Tue, Jun 08, 2010 - 09:05am

    #20
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    Re: Real Estate During Inflation ––>Hyperinflation

To the OP, there’s no recent history where the world reserve currency goes hyper. I think those with a fixed rate mortgage and a chunk of gold who are quick enough to exchange the gold for cash before a dollar re-set or price-fix on gold will make out well. Keep in mind that foreclosed land on all recent loans will be owned by the federal government. Methinks they will move pretty quick to insure that we, the people, are not allowed to capitalize on our gold investments and steal that land from them.

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