Inflation. Is it our friend or foe? Well, we all know that dollar won’t get what it used to. I bought a jumbo sized package of Wrigley’s gum the other day and paid $1.69. It doesn’t seem like that long ago when it was 79 cents. Everything goes up in price. The same can be said for home prices. That’s why 30-year loans are so attractive. You’re buying and locking at a time in space that typically over a 30 year period will see massive amounts of inflation, positively affecting price and value.
Looking at this economy and the money that is being thrown around or proposed to be thrown around, one thing is obvious. We’re going to be printing more money folks and lots of it. The most likely solution to this economic dilemma is good old fashioned spending. Lots of spending. What’s President elect Obama calling for? Survey says, “Spending!” These events will sooner rather than later lead to a classic case of stagflation, for all you economic minded folks out there. All that means is that we will have an ecomony that isn’t growing while prices are rising. Unemployment will rise as well for a time period as the economy searches for a bottom. This infusion of dollars into our economy will dillute our buying power, costing us more and more to buy the things we want and love. That’s the negative. The positive is that it’s going to add value to our appreciating assets at a larger than life rate. In perhaps one of the most historic times to buy a home from an inventory, price, and interest rate point of view, we have something else to consider now in short term inflation. It’s bound to happen. It’s simply a matter of how much inflation we’ll see. The likely response to the stagflation is to spend more and more and more to a point that we out run it and get over the hump. The cash will eventually lead to more than an artificial boost to our economy. Meanwhile, property owners will see their home values rise considerably. Unfortunately, so will interest rates. The government has demonstrated that it is prepared to do whatever it takes to boost our economy. So fire up that money press, Mr. U.S. Mint, and lock those floating interest rates and lines of credit!
If you are taking a significant hit right now on the sale of your home, don’t sell. Rent. Keep your home. We have told many clients this here recently. We’ve told clients for months now to buy investment property. Why not treat your primary residence as an investment property and buy your next home while the rates are ridiculously low, prices are painfully low, and inventory is incredibly high? Nothing pains us more than to give bad news, but we are not going to expect or coach you to list your house below what you paid for it, if we can help it at all. The rental market is great with plenty of folks looking for a deal to rent that depressed valued home that either they can’t afford right now or are too scared to buy. Despite low interest rates, the lenders are ruthless in making you stand on your head to qualify for loans. In addition, first time homebuyers have to put down a minimum of 3% on the purchase of a home, which is downright hard to come by for some aspiring homeowners. I might argue that if you don’t have 3% to put down on a house, perhaps you should not be thinking about buying a home, but that’s a totally different conversation. By renting, you may not be in a position to get your value back to where you need it to be in the time frame you want, but it can’t get much worse, right? Give it a couple of years and let inflation help you out. I’m not cashing in my IRA right now just because it lost 25% of its value over the last quarter. By the way, that’s a true story. Whew! I’m buying real estate from now on as opposed to the stock market. Call me crazy, but at least I can do something to the real property. Improve it, rent it, something besides pray it goes up in the stock market. Hang on folks. This year is going to be historic for the economy, and the housing market will lead the charge back. We’ll be here whenever you need us.
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