I agree that this is an excellent article, especially as it reveals the ideological differences among economists who comment on inflation. I would only add a few points. The first is that most economists would agree that the discipline does not have and never had a well-developed understanding of the causes of inflation. It certainly cannot be accurately modelled or predicted. This may have something to do with the role of expectations; we just cannot read human minds. The second is that the role of energy prices in causing inflation is changing. Fifty years ago, energy generally and oil in particular had mush larger shares to the costs of living in North America and Europe. Energy is still important but not central and it affects the price of goods far more than services. Finally, much as I agree that governments have made an immense policy error in prioritizing GHG emissions reduction, we need to recognize that the main present and long-term economic effects of these policies is to accelerate the transfer of industrial activity from the OECD countries to the non-OECD ones, and especially to Asia.
Housing prices continue to be low vs demand. How do you reconcile housing prices to collapse or do you mean it will soften. Can you define in % what collapse or soften mean. Thanks very insightful article
I expect to see double digit interest rates within the next year or two. At those rates, a monthly payment on a $1 million mortgage will rise from ~$6,000 to just under $10,000 and prices should fall by 30% or more. Since many people will lose their homes (as they did in the late 1970's when rates ran as high as 20%) the price decline will overshoot and price drops of 40% to 50% in some markets may be evident.
Construction costs are about $250 a square foot and home prices historically trended at cost plus 10% plus serviced land cost so for a 2,000 square foot home a price of $600,000 is indicated. Today, in most regions, a 2,000 square foot home is priced at well over $1 million.
Thanks Michael. Trying to advise my daughter/son in law who are planning to buy in Irvine, CA. Their target price is $1.4-1.5M. $0.4M down so looking at $1M mortgage. They can be approved for 30yr fixed at +6%
So they are at crossroads. Buy or rent for few years. They have been saving for many years and have good jobs.
No. I will keep my holdings which are largely companies with little debt and robust economics and I have a cash balance. I don't try to time markets and simply buy good companies at bargain prices and keep them.
I agree that this is an excellent article, especially as it reveals the ideological differences among economists who comment on inflation. I would only add a few points. The first is that most economists would agree that the discipline does not have and never had a well-developed understanding of the causes of inflation. It certainly cannot be accurately modelled or predicted. This may have something to do with the role of expectations; we just cannot read human minds. The second is that the role of energy prices in causing inflation is changing. Fifty years ago, energy generally and oil in particular had mush larger shares to the costs of living in North America and Europe. Energy is still important but not central and it affects the price of goods far more than services. Finally, much as I agree that governments have made an immense policy error in prioritizing GHG emissions reduction, we need to recognize that the main present and long-term economic effects of these policies is to accelerate the transfer of industrial activity from the OECD countries to the non-OECD ones, and especially to Asia.
Housing prices continue to be low vs demand. How do you reconcile housing prices to collapse or do you mean it will soften. Can you define in % what collapse or soften mean. Thanks very insightful article
I expect to see double digit interest rates within the next year or two. At those rates, a monthly payment on a $1 million mortgage will rise from ~$6,000 to just under $10,000 and prices should fall by 30% or more. Since many people will lose their homes (as they did in the late 1970's when rates ran as high as 20%) the price decline will overshoot and price drops of 40% to 50% in some markets may be evident.
Construction costs are about $250 a square foot and home prices historically trended at cost plus 10% plus serviced land cost so for a 2,000 square foot home a price of $600,000 is indicated. Today, in most regions, a 2,000 square foot home is priced at well over $1 million.
Thanks Michael. Trying to advise my daughter/son in law who are planning to buy in Irvine, CA. Their target price is $1.4-1.5M. $0.4M down so looking at $1M mortgage. They can be approved for 30yr fixed at +6%
So they are at crossroads. Buy or rent for few years. They have been saving for many years and have good jobs.
Wow! You see right into the center of things. I'm so glad that you are monitoring these subjects. I just wish you were on the show.
No. I will keep my holdings which are largely companies with little debt and robust economics and I have a cash balance. I don't try to time markets and simply buy good companies at bargain prices and keep them.