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This jibes with my experience of buying a house about 6 months ago. My reasoning was that we were experiencing rapid asset inflation fueled by low interest rat

This jibes with my experience of buying a house about 6 months ago. My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.

splistud 5y ago
People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).
- munk-a 5y ago
  I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy. The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
  - splistud 5y ago
    Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions: Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there). Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
- onlyrealcuzzo 5y ago
  The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.
johntiger1 5y ago
Why not invest in the market then?
- throw_nbvc1234 5y ago
  Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
- mywittyname 5y ago
  You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
  - shados 5y ago
    The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.

splistud 5y ago

People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).

munk-a 5y ago
I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy. The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
- splistud 5y ago
  Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions: Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there). Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
onlyrealcuzzo 5y ago
The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.

johntiger1 5y ago

Why not invest in the market then?

throw_nbvc1234 5y ago
Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
mywittyname 5y ago
You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
- shados 5y ago
  The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.