Reply to Do home prices go down during a stagflation?

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Reply to "Do home prices go down during a stagflation?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]No, they tend to plateau in nominal price and lose real value due to inflation. Repairs, maintenance, insurance all go up in price. So you’re paying more to maintain a real asset that is generally eroding in real value. [/quote]

This is a bit misleading. Correct about potentially plateauing in nominal price, so as an investment vehicle housing may underperform other asset classes, but [b]housing is first and foremost shelter. [/b]Whether prices fall or rise is more a function of supply and demand. While supply is increasing in many markets, it's still low by historical standards in part because of the lock-in effect of under 4% interest rates that people are loathe to give up, and insufficient building in the years after the 2008 financial crisis.

On the demand side, historically high prices coupled with higher (albeit in line with historical norms) interest rates has dampened demand. Mortgage interest rates are driven by rates on Treasuries, not the prime rate which the Fed sets. Demand for US debt (Treasuries) is down, which has pushed Treasury rates up.

Now, how all this combines in a stagflation scenario depends on which part the Fed is more concerned with: the stagnant growth or the inflation because the monetary policy prescriptions are diametrically opposed. If the Fed decides to lower interest rates through quantitative easing (buying US treasuries) mortgage rates could go down. I wouldn't bet on it though because US national debt is at an all time high. We're in for a rough ride a la the late 70s early 80s which truly sucked.

One final point. Inflation is sector specific, and services inflation has outpaced commodities and hard goods inflation for decades. Services inflation really only responds to increased supply (more competition) and it often takes longer to see the effects.[/quote]

This. I really wish our citizens understood and accepted this. It will prevent many from buying too much housing and sinking in capital that could be generating better profit elsewhere.

Folks buy the cheapest smallest house for your family in the best and safest neighborhood you can find.[/quote]

Why should I want my shelter, the place I spend a huge amount of time, to be the cheapest and smallest I can get away with? 
I don't think most people buy houses as investments: they buy them as places they want to spend time. They only think of them as investments when it's time to sell. [/quote]

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