hyperinflation and prices of real estate

[Seraphim]

You totally missed the point. I'll explain one last time:

The author cbc quoted said that hyperinflation allowed people to pay off their mortgages, but that rents were frozen.

Ok. So let's think about that. Rents are frozen, meaning they aren't going anywhere, but hyperinflation (decrease in currency values) allows landlords to pay off their property quickly.

If rents are frozen, clearly, landlords aren't paying off homes from rental income. So what income are they using to pay off their rental homes? Obviously this income is rising during this period of hyperinflation, since landlords are paying off their houses sooooo much quicker post-inflation.

We could assume they're earning an income elsewhere, in which case tenant incomes should be rising, at least to some degree. Or we could make the assumption that they're selling other assets that are rising in terms of currency to pay off their property, in which case you'd expect that tenants would sell assets to afford their rent, as well.

The logic in the quoted text isn't there. If incomes are rising sufficiently for leveraged real estate investors to pay off homes, why aren't they rising for tenants?

I don't know why I'm even arguing this any more. A quick Google search reveals the quote was taken from a sketchy looking gold dealer website with zero sources. I guess it doesn't have to make sense if it moves product.

I get what you're saying.

One thing I can think of is that as the currency hyper inflates, gold and silver skyrocket. If you had the forsight to purchase silver/gold when they were affordable (and bought a substancial amount), one could sell SOME gold/silver for a whole lot of paper and then use that paper to pay off the mortgage and still have some gold/silver left over to use as trade for food.

Ditto for many commodities.

 

[TheOraclePaul]

You totally missed the point. I'll explain one last time:

The author cbc quoted said that hyperinflation allowed people to pay off their mortgages, but that rents were frozen.

Ok. So let's think about that. Rents are frozen, meaning they aren't going anywhere, but hyperinflation (decrease in currency values) allows landlords to pay off their property quickly.

If rents are frozen, clearly, landlords aren't paying off homes from rental income. So what income are they using to pay off their rental homes? Obviously this income is rising during this period of hyperinflation, since landlords are paying off their houses sooooo much quicker post-inflation.

We could assume they're earning an income elsewhere, in which case tenant incomes should be rising, at least to some degree. Or we could make the assumption that they're selling other assets that are rising in terms of currency to pay off their property, in which case you'd expect that tenants would sell assets to afford their rent, as well.

The logic in the quoted text isn't there. If incomes are rising sufficiently for leveraged real estate investors to pay off homes, why aren't they rising for tenants?

I don't know why I'm even arguing this any more. A quick Google search reveals the quote was taken from a sketchy looking gold dealer website with zero sources. I guess it doesn't have to make sense if it moves product.

I'm sort of confused by your sudden animosity towards my post. If you read my post in its entirety, you would see that we are both in agreement. Also, I don't appreciate you saying I took this quote off a gold dealer website - I wrote it entirely by myself. I happen to understand economics quite well and just threw it together on the spot.

We are in agreement that you can't pay off your mortgage in a hyperinflationary scenario unless you have some form of income that is rising to meet the increase in payments. If rents are fixed, you can't meet the increases. If your salary isn't rising, again you can't meet the increases. If you have a store of some asset or own property (example: a farm, a mine, etc.) that is keeping pace with inflation, then you will have an easier time paying off the mortgage. Also, if the mortgage was 'fixed-rate', then you should have an easy time paying off the mortgage, because by the time rent controls are put in place, inflation would have eaten away quite a bit of what you owed on the house.

 

[Jordan]

We are in agreement that you can't pay off your mortgage in a hyperinflationary scenario unless you have some form of income that is rising to meet the increase in payments. If rents are fixed, you can't meet the increases. If your salary isn't rising, again you can't meet the increases. If you have a store of some asset or own property (example: a farm, a mine, etc.) that is keeping pace with inflation, then you will have an easier time paying off the mortgage. Also, if the mortgage was 'fixed-rate', then you should have an easy time paying off the mortgage, because by the time rent controls are put in place, inflation would have eaten away quite a bit of what you owed on the house.

I meant that Cbc's cut and paste job was from a gold dealer, not yours, my apologies. That was what I was mostly replying to.

On second look, yeah, mostly in agreement. Maybe I shouldn't come here past midnight as I tend to get a little grumpy.

 

[LibForestPaul]

So values kept going down and stayed down. That I understand.

In simplistic terms what I am trying to understand is this: If there is a currency crises in the US, and a home is valued today at 100k, and that value remains the same throughtout the crisis but the dollar is devalued 4-1, will it take 400k to buy the same house?

The value hasn't gone up just the # of dollars it's worth. Is that a correct thinking?

If so, prices can rise even though values may fall if it is an asset not in demand.

Cost of home = personal income/ (taxes + principal + interest)

To own a home, one has to weight ones personal income vs the taxes, principal and interest the home costs. If the economy goes south, and even severe (not hyper) double digit inflation hits, with increase taxes (as states require more money) as unemployment creeps up, yeah, the principal (value of the home) will need to go done in order to attract buyers (market). i.e. pi goes down, taxes go up interest goes up, only thing that is variable is what sellers (unemployed ) will sell their homes for, which must go down.

 

[Jordan]

Meh, throw it in your "non-inflation hedged" portfolio allotment and call it done. Real estate, IMO, is still one of the best ways to grow wealth.

Off Topic: This forum needs a real estate subforum for discussion of specific real estate investing, deal structuring and income tax strategy. A whole book could be written on structuring a real estate deal as an LLP with a 1% shell GP, 99% LP and the benefits of pass through earnings for avoding FICA taxes. But due to the way this forum is set up (too much activity, too much OH SHIT SKY IS FALLING!), topics like that will just get ignored.

 

[Seraphim]

Meh, throw it in your "non-inflation hedged" portfolio allotment and call it done. Real estate, IMO, is still one of the best ways to grow wealth.

Off Topic: This forum needs a real estate subforum for discussion of specific real estate investing, deal structuring and income tax strategy. A whole book could be written on structuring a real estate deal as an LLP with a 1% shell GP, 99% LP and the benefits of pass through earnings for avoding FICA taxes. But due to the way this forum is set up (too much activity, too much OH SHIT SKY IS FALLING!), topics like that will just get ignored.

I concur. There should be a real estate forum.