Wednesday, December 30, 2009

Economic Collapse - Housing‏

I was wondering what you think will happen in the US regarding housing. I don't understand if we have hyperinflation how people will be able to afford their rent or mortgages. If prices for food and gas and clothing double or triple, and local / property taxes increase to enable the local government to stay in business, then I can't afford my mortgage. But if I lose my house, then how will I afford rent, when the costs for the owner of the apartment will be in the same shoes? I am thinking that the federal government will have to pass some law whereby instead of being evicted from our homes, the banks will be required to let us stay on as renters, with some sort of deal to make it affordable.... What insight can you share, as a landlord yourself?


Hi Mike,
I’m no landlord, I administer some property for my family but don’t own it myself, at least not exclusively. :-)
A number I would live by regarding prices is 50%. After the REAL price drops to ½ , investors usually start getting interested. That’s what happened in the 30’s and in most other crisis and economic collapse. Now, before you comment with a 80% price drop, read again. I’m talking about REALISTIC prices, not over inflated ones. Here in Spain, close to Barcelona for example, a good but small 2 room flat will cost 300.000 Euros . Now is that realistic? No, not in my opinion.

Why not? Because if you compare the property, its size and location to similar properties in similarly important cities, you notice the price is still inflated a lot. The real price would be around 200.000-250.000 USD, but not more. 50% of that is how far it would be likely to drop during a crisis.
A development in the middle of nowhere that starts turning into a ghost town? Well, my friend, maybe it was never worth the 300.000 USD you paid for it. Location, location, location.

Crisis+Bad enough location, it may not be worth nothing at all.
Mike, the answer to your questions is simple: You just turn poor. You end up in welfare, you end up living under a bridge for real. That’s poor around here.
There may be some new deals made b the government to help, but also understand there’s only so much they can do before they start making more damage than actually helping the economy. There WILL be more poor people because of the situations you describe.



Seth said...

Wanted to address the belief in hyper-inflation that most preppers seem to have. I think it's just as likely (more in the short/intermediate time frame) that we'll have deflation. It's not like the Fed is printing money and dumping it on the street. They loan it to the big commercial banks who try to loan it to the public. If the public doesn't want to borrow more money, inflation doesn't happen! And especially not hyper-flation. On the other hand, deflation has been happening already and appears to be accelerating. As more people/businesses default on their loans, asset prices will continue to drop. Consider also price wars that various retailers have engaged in this past year. If you are prepping for hyper inflation, you may want to consider diversifying away from such an exclusive viewpoint.

Anonymous said...

There are not enough bridges in America to house all the people who are in debt and could crash. What happens to all the houses and apts that people are kicked out of?

A collapse will be hell. Many Americans are not ready and are soft. Then there are the gangs.

Paraguay Insider said...

Hi Seth,

Inflation is not the increase in prices. The increase in prices is the EFFECT of inflation.

Inflation is an increase in money supply. Whenever the FED/EZB/goverment is "printing" money or doing "quantitative easening" (=the same, just funny new words) whenever total debt increases - there has been inflation. Note i wrote DEBT - not prices.

As an effect of your dollar having less value - prices increase.

Now do you think the total debt has been reduced the past year and we will thus have a deflation soon?
Or do you think the total debt has increased last year and thus we are heading into rising prices?

The answer is pretty clear, isn't it?