Housing: a horrible investment until we get inflation

Well, it's been more than a year since I put on the Zimbabwe Ben trade, buying a house I knew was overpriced in order to take advantage of the Federal Reserve's destruction of the dollar.

How's that working out? I'm spending roughly double the rental value on mortgage, property taxes, insurance, and maintenance. The house has lost another 5% - 10% in value, judging by recent comps. Transaction costs are around 2% on the buy side and at least 5% on the sell side. Zimbabwe Ben has managed to drive up the price of everything -- stocks, oil, food, gold -- except houses. Who would have thought that buying a house so long after the housing crash would still be such a bad trade?

I'm still confident that controlled demolition of the dollar is the only way forward with the government deficit spending 10% of GDP every year, and the economy still far too dependent on huge fiscal and monetary stimulus. There's no way that's going to be paid back in today's dollars. But waiting for dollar destruction is costly for those who bought too early, and didn't pay enough attention to valuation.

UPDATE: Maybe I spoke too soon.


Charlie McDanger said...

Inflation will also limit the ability of everyone not in the ownership/ruling class to save and invest in real property.

Two dollars more for a loaf of bread is two dollars less to prop up the housing market.

I'm convinced that ten years from now, 250k will still buy a mansion in Vegas.

Charlie McDanger said...

Also note that while inflation means lots of dollars sloshing around, you're counting on the American working class to have some of them. I don't see why they will.

Americans are weak, fat, and dependent, their rulers corrupt.

The only way houses will be worth anything is if the Chinese take a liking to them.

Shane Atwell said...

That last sentence is the key. When housing starts rising again it'll be because the bankers and chinese don't have anywhere else to put their dollars. Real estate, like stocks, doesn't do great in a currency collapse, but it does a lot better than the currency! If we ever buy it'll be to diversify out of precious metals.

Jr Deputy Accountant said...

Can I securitize my own fat American ass and sell it to the bankers?

SarahB said...

Just based on the average price of homes in your neck of the woods, you'll be the last one to see the effects of inflation on your home just based on average incomes. But those of us in the 2-350K range are seeing values go up...especially with the surprising drop in interest rates. Thanks to all the tinkering in the market, all these trends are taking ages longer than they should. Keep the faith.

wcv said...

I completely agree, Sarah.

Price/rent and price/income are the most important factors. If you pay a reasonable price, you'll do OK.

Anonymous said...

Excessive credit gets destroyed in Bankruptcy court. The Bankruptcy choo-choo is getting up a head of steam and pulling out of the station. The stupidity of California mortgage lending practices are going to seem like the utter nonsense that they are for years to come.

Your Pal
Casey Jones

Anonymous said...

W.C. the positives have turned out to be things that are hard to value. For me, hunting behind my own dog again was a big plus. Training a puppy was rewarding. I don't know what will happen over time but the thing that may have made this worth while was meeting a nice neighbor lady down the street with her own dog and her own place and sense of things... Kenny Bing's thorny, black lump of coal that passes for a heart goes piddy pat when I'm around her.... feeling a little "floaty" today if you catch my drift. In addition to the "thumpety thump" in my chest, the girl knows how to rock me. Don't know if Ben's graphs and charts know how to place a value on that or not.

W.C. Varones said...

Well, I'm certainly glad all that good lovin' isn't slowing down your blogging.

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