Real Estate During Inflation ––>Hyperinflation

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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?

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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

 

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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.

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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?

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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.

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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

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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?)...

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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!

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Re: Real Estate During Inflation ––>Hyperinflation
Thechaz wrote:

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!

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.

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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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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.

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Re: Real Estate During Inflation ––>Hyperinflation
switters wrote:

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.

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

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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

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Re: Real Estate During Inflation ––>Hyperinflation
nickbert wrote:

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

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. 

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Re: Real Estate During Inflation ––>Hyperinflation
switters wrote:
nickbert wrote:

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

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. 

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

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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.

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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.

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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.

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Re: Real Estate During Inflation ––>Hyperinflation
Thechaz wrote:

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

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.

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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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Re: Real Estate During Inflation ––>Hyperinflation
Tycer wrote:

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.

Surely you mean that we will not be allowed to keep them from stealing from us.  Laughing

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Re: Real Estate During Inflation ––>Hyperinflation

Interesting to read that the normal house loan in US is on 30 year fix rate.

In Sweden (and similar in all of Europe) the typical house loan is on a much shorter timespan.
The most commonly used house load today is on just 3 months, so in the event of high inflation or hyper inflation the burden will quickly be passed on to the normal house owner.

The longest period banks normally lend out is 10 years.

Here is a quick list of todays interest rates so you get a feeling:
3 months 2.06%
1 year 2.22%
3 years 3.29%
5 years 3.97%
10 years 4.53%

If you made the choice today with theese numbers, what timespan would you lock your mortgage on?

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Re: Real Estate During Inflation ––>Hyperinflation
Thechaz wrote:

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 :(

The government is behind 90% of mortgages now. The two government-backed corps (Fannie Mae and Freddie Mac) and the Federal Housing Administration purchase mortgage-backed securities from all the banks so the banks don't have to hold the loans.

The Fed has made interest rates near zero for banks and also purchased $1.5 trillion in mortgage-backed securities. Therefore, there is a major government subsidy (funny how many real estate agents are against welfare for the poor).

Poet

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Re: Real Estate During Inflation ––>Hyperinflation

I live in Australia where hyper inflation has already occurred without a crash.Houses are so expensive that first home buyers are completely locked out the market (most expensive in the world) and living costs have skyrocketed. We are supposed to be in a financial  boom, thanks to China, but most people are struggling to meet costs even though our unemployment is apparently low (I could dispute this).

Anyway, our situation is that we have saved a considerable amount of cash which we have in the bank. We want to buy a home to live in (we currently rent) but we have been waiting for the real estate bubble to pop. From the current slow down, it looks like it might be just starting.

We are worried that the banks could collapse before we buy a property. If we buy now, we will pay far too much. Any ideas how to protect our hard earned savings while we wait?

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Re: Real Estate During Inflation ––>Hyperinflation
davinci7 wrote:

Anyway, our situation is that we have saved a considerable amount of cash which we have in the bank. We want to buy a home to live in (we currently rent) but we have been waiting for the real estate bubble to pop. From the current slow down, it looks like it might be just starting.

We are worried that the banks could collapse before we buy a property. If we buy now, we will pay far too much. Any ideas how to protect our hard earned savings while we wait?

You could convert your cash into PMs with a GoldMoney account. IMO it is very safe and very easy to get back into currency. Goldmoney.com

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real estate during hyperinflation

I got a few thoughts and assuming a few scenario:

1. During hyperinflation, the whole society will be too chaotic, even for ppl who are not paying the mortgate, the bank will not chase them away since they do not have the manpower to do it when most of the mortgages are defaulting. ppl can stay in their house without moving out

2. since the mortgage sum is fixed, I assume most ppl can easily pay off the money, right? maybe it equals to the price of a basket of eggs?

3. there wont be much buyer on the market, its no way to judge real estate prices

4. so nobody can sell, everybody stay where they are, no rent is paid becoz ppl use to money to buy food.....

5. well, as mortgage sum become so little, interest rate doesn't really matter anymore

Well, this sounds like a war scenario, a complete system collapse, what we really should worry is the process in between, is that right? so when the whole thing calm down, will real estate owners be winners?

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property market

I additional the appeal (sorry , I ambition I had answers for you ). The alone affair I accept to add is in a adventure about Argentina area the columnist mentioned that his sisters mortgage was beneath again the money it amount her to biking to the coffer to pay her mortgage. I don't perceive how mortgages plan in Argentina but I'm bold it was at a anchored amount of absorption and account payment. The alone affair that ability change is taxes. estate agents W1 :: london apartments

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mimicc wrote: I got a few
mimicc wrote:

I got a few thoughts and assuming a few scenario:

1. During hyperinflation, the whole society will be too chaotic, even for ppl who are not paying the mortgate, the bank will not chase them away since they do not have the manpower to do it when most of the mortgages are defaulting. ppl can stay in their house without moving out

2. since the mortgage sum is fixed, I assume most ppl can easily pay off the money, right? maybe it equals to the price of a basket of eggs?

3. there wont be much buyer on the market, its no way to judge real estate prices

4. so nobody can sell, everybody stay where they are, no rent is paid becoz ppl use to money to buy food.....

5. well, as mortgage sum become so little, interest rate doesn't really matter anymore

Well, this sounds like a war scenario, a complete system collapse, what we really should worry is the process in between, is that right? so when the whole thing calm down, will real estate owners be winners?

As long as you can pay the taxes to the man you title.   

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mimicc wrote: I got a few
mimicc wrote:

I got a few thoughts and assuming a few scenario:

1. During hyperinflation, the whole society will be too chaotic, even for ppl who are not paying the mortgate, the bank will not chase them away since they do not have the manpower to do it when most of the mortgages are defaulting. ppl can stay in their house without moving out

2. since the mortgage sum is fixed, I assume most ppl can easily pay off the money, right? maybe it equals to the price of a basket of eggs?

3. there wont be much buyer on the market, its no way to judge real estate prices

4. so nobody can sell, everybody stay where they are, no rent is paid becoz ppl use to money to buy food.....

5. well, as mortgage sum become so little, interest rate doesn't really matter anymore

Well, this sounds like a war scenario, a complete system collapse, what we really should worry is the process in between, is that right? so when the whole thing calm down, will real estate owners be winners?

As long as you can pay the taxes to the man you have title.   

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