Where will inflation stop?

Defining wealthy is hard, but people with discretionary spending ability. People who've got money in the bank. 

I just wonder what kind of signals the market has been sending over the last 4-8 years that suddenly housing prices are going through the roof. Yes, lowered interest rates are one thing, but is there some wider indication that we're getting locked into a certain land use future? Like, the cities we've got now will only grow bigger, but new cities will likely not appear? 

The coastal west is extremely popular, but in the grand scheme things, rather undeveloped. You could in theory have the entire coast of California be developed if you really wanted. I'm really surprised more states aren't eyeing "eff you" development plans like "hey we're going to build a new city in Nevada in Lamoille, deal with it." Add in high speed internet, cheap property, cheap taxes, a nice airport, and that area could support a decent population. 

It just seems like everybody wants to live in the same place, and employers are only happy to oblige. If you want a job, you live near a populated place, and lucky for you, someone already thought of that and bought up all the vacant land which they'll sell to you for far too much, and now you need a higher wage, which will get pushed out to the customers in the middle of no-where with no jobs, who then need more welfare assistance to pay for the things they merely need to survive. 

I'm still not entirely comfortable with the freedoms of land ownership. Too easy to be monopolistic. To easy to manipulate whole economies based on how much land (or housing) you own. It's no wonder that "company towns" were so popular in the past. You could control the cost of your product by paying your labor pennies because their housing was super cheap. I'm surprised Amazon and other big labor employers haven't gotten back into that. 
 

No surprises to anyone here, but our automotive charity is getting punished by the inflationary spike on used vehicles in the $5k to $10k range. As we budget for 2022, we are increasing all projected costs by 25% compared to last year. Our typical cost to procure a reliable sedan (e.g. a 2008 Camry, for example) has gone from $5000 to $7000 in 12 months. Plus, we're having to increase our shopping radius from 50 miles to 200 miles to capture Houston, Austin, Waco markets to try to find anything in our target. Our hope is still to purchase and donate approximately 1 vehicle per week, but these inflationary figures are likely to reduce that by a third. 

Parts for repairs are getting a bit more expensive, but the bigger issue with parts is availability. The number of parts on backorder for 10+ year old vehicles has skyrocketed, even for popular brands.  

All this to say, I keep reminding myself that for our automotive charity, this is simply a supply-chain problem to address. For the impoverished families we serve, this increase in the price of used reliable cars is catastrophic, especially since wages have not increased for most of them.

It's definitley a tragic situation in the making.

pheller said:

I just wonder what kind of signals the market has been sending over the last 4-8 years that suddenly housing prices are going through the roof.

I really think it's as simple as people who had equity in their homes, saw interest rates plummet and decided it was a good time to upgrade. 

And it's just cascaded down. I paid $156k for my house in OKC in Sept 2017. Earlier this year the estimated value was all the way up to $220k. It's come back down to around $205k. 

We thought about selling and upgrading, but selling high and buying high don't make a lot of sense.

In reply to pheller :

There have been a considerable amount of op-ed pieces written lately about company towns. Seeing the rise of corporations buying up houses at stupid prices so they can be landlords isn't helping diminish my fears of just such a thing happening again. There seems to be a push, mostly from fringe groups but I'm seeing more and more mainstream backing of trying to eliminate the idea of owning anything not just land and houses, and just renting everything. 

On the one hand, I find it absolutely appalling and terrifying, because our family of 4 is well below the poverty line, and that would only make it harder to get above it. On the other hand, if I had a couple million dollars I'd buy the whole town I live on the outskirts of just to say I own it, but also to keep rents affordable for the people that live there instead of letting it totally collapse or gentrify. 

Not company towns in the sense of corporate entity buying up property as an investment, but company towns in the sense of a labor heavy employer buying up a town in order to provide cheap housing to its employees. 

The opposite is happening. Investment firms are buying up lots of property, but those firms don't employ anyone. They are buying up property in areas with lots of jobs specifically so they can milk those employees of the good paying employers for everything they are worth. 

Example: Amazon announces it will move to distribution center to Littleville. Average pay in Littleville is currently $15/hr. Amazon will pay $20/hr. Rent is currently $1000. Hmm...not many rentals in Littleville. Lets buy up as much property as we can, especially residential property close to the new Amazon distribution center, then we'll rent for $1250. Free market, right? 

That's basically happening everywhere, with every major city. Here in Arizona, it's actually starting to irritate even conservative politicians as more of their constituents (mostly businesses) complain that they can't seem to get ahead of the cost of living. You want to build a new factory and hire a few thousand workers, great, but as soon as you do, real estate investors jump in and jack up the housing costs of your employees. Now you've gotta re-plan your salaries accordingly. 

Phoenix used to have one of the lowest costs of living the western USA, now it's starting to catch up with California. 

So it's not just "free money" of COVID unemployed that's creating inflation, is the inability of employers to pay higher wages without their local housing markets catching up to the wages, driving everything else up. 

Just to clarify:

Best way to beat inflation is to get locked into a low-interest loan, then pay it off with more valuable inflated money? 

In reply to pheller :

I think you are mixing up correlation and causation a bit. In your example, a large new employer moves into town, and rents go up. They go from $1000 to $1250. Sure, that's supply and demand. You added demand without increasing supply. The investment company isn't the one that set that in motion- the investment company came in because that was already set in motion, by the increase in demand. For example- say you are a small time landlord, you have a single house to rent. How much do you rent it for? The answer is for as much as the market will bear. Too high, and it's vacant. Too low, you left money in the table. If you are renting a property for $1000 in a market where it would rent for $1250, you aren't doing it right. If the investment company can rent it for $1250, then the private owner could too. Because demand has gone up. The investment company didn't set the new rent, the market did. If there was no new Amazon DC and no new demand, an investment company could still buy up rental properties. But it wouldn't, because they don't invest where there is no growth- which is the whole point of investing.

There are companies investing in employee housing. It's becoming more common in the CA Bay Area with some of the large tech companies due to the need to workers and the high cost of living. 

If you really want to see who pulls the levers that affect demand, look to your state and local governments. They are the ones that decide what employers come to town, and how much housing is built. They are largely responsible for the balance. Just remember what is right for you might not be right for your neighbor. You might want to see stable rent, while he wants his house to appreciate before he sells it and retires. You are also affected by the decisions of other states, if your community becomes a more attractive place to live. People are leaving the high costs of California and driving up prices (demand) in other states. California is expensive because for years growth has outpaced supply. There are also lots of external factors driving the high costs in CA- in parts of CA it can cost more just to permit a house than it does to buy a house in many areas. Right now we also have material shortages and inflated costs, slowing construction and making it more expensive- driving up the value of existing housing. 

In reply to pheller :

Only if your income also inflates.

Now, if you were to buy an asset that is guaranteed to maintain or increase its adjusted value, like a bond or real estate, or a Porsche...

It's almost like dumping trillions of unearned dollars into the economy somehow devalued the currency...

In reply to Duke :

Money printer go brrrrr???

In reply to Fueled by Caffeine :

Yet-undiscovered tribes in the wilds of Borneo knew this would happen.

Why didn't every Harvard-educated economist who has been setting policy for the last 2 years?

pheller said:

So it's not just "free money" of COVID unemployed that's creating inflation, is the inability of employers to pay higher wages without their local housing markets catching up to the wages, driving everything else up. 

There is soooo much I could say in response to this single line.  But it's been made clear that this forum is not the place to do so.

BlueInGreen - Jon said:

I'm still wondering if prices will actually go down when things "stabilize" or if $9/lb for store brand bacon is just the new normal.

California's new bacon law will keep it there.

Duke said:

In reply to Fueled by Caffeine :

Yet-undiscovered tribes in the wilds of Borneo knew this would happen.

Why didn't every Harvard-educated economist who has been setting policy for the last 2 years?

 

Pretty sure they did know it would happen. The Fed implemented a major shift in policy summer of 2020 that would allow inflation to increase beyond the normal 2% target

It seems like this is more or less part of the plan. It's also important to remember that the inflation they're talking about is basically CPI, and not necessarily all products or services that are sold. Housing is not factored into CPI for example. It also cannot account for  things like shrinkflation (getting less product for the same amount of money) or skimpflation (getting worse service for the same amount of money). So consumers will pretty much always feel inflation to be more severe than what the FED reflects.

So Zillow panicked and dumped 7,000 houses back on the market. 

Now what? 

Duke said:

It's almost like dumping trillions of unearned dollars into the economy somehow devalued the currency...

Yep, been saying this for a while. Not sure why so many seem to think it happens over night. But going any further means patio time. 

Snowdoggie (Forum Supporter) said:

So Zillow panicked and dumped 7,000 houses back on the market. 

Now what? 

I don't think they're just dumping them back on the market where they'd be up for grabs. They're hoping to sell them as a package to an investment firm or company. They quit buying homes in Oct, and they're losing money on a lot of the homes that they've bought when selling on the open market.

So this latest purge is trying to avoid selling them on the market where they're likely to fetch less

STM317 said:

Snowdoggie (Forum Supporter) said:

So Zillow panicked and dumped 7,000 houses back on the market. 

Now what? 

I don't think they're just dumping them back on the market where they'd be up for grabs. They're hoping to sell them as a package to an investment firm or company. They quit buying homes in Oct, and they're losing money on a lot of the homes that they've bought when selling on the open market.

So this latest purge is trying to avoid selling them on the market where they're likely to fetch less

So what if other investment firms decide that single family homes are not such a hot investment?

There might be a bit of irrational exuberance in this market. 

In reply to Snowdoggie (Forum Supporter) :

Zillow didn't panic. They realized that they screwed up and worked to correct their error as quickly as possible. They were using computer algorithms to predict the values of homes after a flip, and they were wrong. They twisted the "buy" knob too far to the right, and not only overpaid for the houses they bought, but but ended up buying way more houses than they planned to. Couple that with the high rates of labor and materials, and they put themselves in a buy high sell low situation. It just shows that there is more to flipping a house than just buying and selling it. It's funny, because I had wondered how companies that offered to buy houses avoided overpaying. It's not easy to flip a house with boots on the ground, doing it from afar sounds risky. 

z31maniac said:

pheller said:

I just wonder what kind of signals the market has been sending over the last 4-8 years that suddenly housing prices are going through the roof.

I really think it's as simple as people who had equity in their homes, saw interest rates plummet and decided it was a good time to upgrade. 

And it's just cascaded down. I paid $156k for my house in OKC in Sept 2017. Earlier this year the estimated value was all the way up to $220k. It's come back down to around $205k. 

We thought about selling and upgrading, but selling high and buying high don't make a lot of sense.

I think there's another factor to that- there was a pretty sudden shortage of new homes being built- between people being forced to stay home, then lumber shortage/mass inflation, and now the slow worker recovery- I would really wonder if new home building has caught up with demand.

Regardless of housing, our population is growing, and if housing starts don't keep up, then there will suddenly be inflation for existing homes.

One more thing to add- I'm betting that a lot of investment people also saw the above a year ago, and snapped up property where they could.  For the top of the economy, this pandemic hasn't meant all that much- so they had plenty of opportunity to buy stuff.

In reply to alfadriver :

We've haven't really built enough homes to meet demand for a few decades now. 

Now that we are both permanent work from home, a larger house would be nice, but prices are too insane right now. But I don't want to be house poor. 

alfadriver said:

Regardless of housing, our population is growing, and if housing starts don't keep up, then there will suddenly be inflation for existing homes.

This has already happened.

I agree with your other points.

There may be a shortage of housing but there is also a limit to what people are able to pay. Blow past that limit and you paid to much for something you will have to sell at a loss, thus the Zillow panic. Because of the cost of land and materials plus scarce labor, builders are building luxury houses and apartments at the top of the market.

There are lots of empty luxury housing units in China.

With the stimulus payments going away and student loan payments coming back soon there will be less froth in the economy. Add more expensive gasoline and just about more expensive everything and spending is going to slow down. You also have a lot of burned out people, angry people and people who question materialism and the good old protestent work ethic. More women will stay home to take care of kids. More young people will flat out give up on the American Dream and live a life of rented rooms, multiple roommates, endless computer games and internet play then shun marriage, children and creating families. The economy of the future could be more like the movie Nomadland where working class people move from state to state in RVs, working in an Amazon warehouse when they are needed then then skittering off to Slab City when they aren't. People who can telecommute to professional jobs will find cheaper houses to live in all over the country while expensive luxury houses sit empty, banks go broke and the pre-existing housing market settles down.

alfadriver said:

z31maniac said:

pheller said:

I just wonder what kind of signals the market has been sending over the last 4-8 years that suddenly housing prices are going through the roof.

I really think it's as simple as people who had equity in their homes, saw interest rates plummet and decided it was a good time to upgrade. 

And it's just cascaded down. I paid $156k for my house in OKC in Sept 2017. Earlier this year the estimated value was all the way up to $220k. It's come back down to around $205k. 

We thought about selling and upgrading, but selling high and buying high don't make a lot of sense.

I think there's another factor to that- there was a pretty sudden shortage of new homes being built- between people being forced to stay home, then lumber shortage/mass inflation, and now the slow worker recovery- I would really wonder if new home building has caught up with demand.

Regardless of housing, our population is growing, and if housing starts don't keep up, then there will suddenly be inflation for existing homes.

One more thing to add- I'm betting that a lot of investment people also saw the above a year ago, and snapped up property where they could.  For the top of the economy, this pandemic hasn't meant all that much- so they had plenty of opportunity to buy stuff.

It's not just population increases, it's population shifts.

In the 50's and 60's we had urban flight. People moved into the suburbs. 

In the 70's and 80's, we had metro expansion. You wanted a good job? You moved to a large metro area, usually in the suburbs. 

In the 90's and 00's, we had the west coast boom. SD, LA, Bay Area, Silicone Valley, Portland, Seattle. 

Now we're seeing a huge migration of people into the west as a whole. Not just coastal areas, but Phoenix, Tucson, Prescott, Salt Lake, Boise, Denver, ABQ, Sacramento, Reno, Palm Springs, Las Vegas. Nearly every city west of Denver has seen population increases in the double digits percentages year over year for the last 10 years.

The problem with this westward movement is that despite the fact that we've got lots of land out here, very little of it is private, and the stuff that is private was formerly owned by ranches and large land holders. There just isn't this plot by plot sale of land. 

Everyone is a transplant. 

 You've got all these people moving to town, but no homes. You bring in construction trades, and they've got no homes either, so now your construction trades are competing in the same market as everyone else, so the construction guys need good pay. That raises wages, increasing costs to build.

Maybe Snowdoggie is onto something - maybe there will be a huge shift in employment policies that allow more people to "retreat" to areas of lower cost of living, but I really doubt they'll buy houses there. They'll probably just live with elderly family in the huge homes of the Midwest and mid-Atlantic. 

In reply to pheller :

I see your point about the growth of the western cities. As I look at the list you compiled, I also wonder where they're going to get their water.