Posted on 11/29/2006 6:44:22 PM PST by ex-Texan
If on the other hand you were taking advantage of investment potential and NEED to sell the house at a higher-than-payed-for price, then you're screwed and might just have well bought a buttload of penny stocks...
Absolutely!
A $100k 1-yr bond sells for $95k when rates are 5%. I buy it, the next day rates go to 1% and a $100k 1-yr bond is now worth $99k, which is what I sell my bond for, and I pocket a cool $4k. In one day I've picked up a 4% return, which translates to an annual rate of 166,504,861.4%. OK, after 8.5% inflation I'm only getting a 166,504,852.9% rate of return but hey, it's a living.
Aw hell, it ain't complicated at all.
People here talk about what "TRUE" inflation is, or what the Federal Reserve says it is, actually anybody can say inflation is whatever they want it to be because it all depends on what we're working with. Most of us think of inflation as why things cost more when we try to buy them. If the cost of everything we buy doubles, then our index (symbol, sign, indicator, mark, pointer) just went from 1 to 2. This 'index' is for prices of what we consume --our CPI.
|
the CPI is just plain irrelevant. Example: don't ever tell your boss that you want a raise because the CPI went up because he'll just say 'yeah, life is not fair'. Tell him that the ECI (Employment Cost Index) just went up and it'll be your turn to tell him that 'life is not fair'. |
The CPI can't be right or wrong because in a market economy prices are what they are --we just got to deal with it. OK, we can argue about who's buying what and when (more frequently asked questions about the CPI here) but it don't matter because sometimes the CPI is just plain irrelevant.
Fine, we got inflation for wages and for consumer prices. If we want inflation for everything --the entire economy -- we can do that too. The guys that measure the entire gdp (the BEA) have their own private index and they call it the Gross domestic product (GDP) price index and it's got prices of personal consumption expenditures (PCE), gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment and it's not to be confused with the gross domestic purchases price index in that it ignores price changes in imports of goods and services and includes price changes in exports of goods and services.
Now, isn't that simple?
No, no, no! It sells for $100k and rises to $104k.
In one day I've picked up a 4% return, which translates to an annual rate of 166,504,861.4%.
Your example is a 4.2% return, mine is a 4.0% return, 164,880,328.5% annual return, funny man!
Poor illiterate 0TGigi.
Unless it's a US savings bond and the nominal amount is at maturity-- I remember getting all turned around with this in Econ 1A, having to remember that bond values go up when interest rates go down.
Not exactly intuitive...
Well, that's what happens in investor driven markets. The markets get over heated, then crowded, and then investors can't find renters, then the prices correct themselves.
You make it sound so logical. Ex-Tex thinks it is the result of a conspiracy by home builders, realtors, lenders and an evil cabal of their enablers.
FWIW you have my vote.
Thank yoooooo. Thank you very much.
Martin, is this you?
GGG makes me miss DebtandDelusion and his darn asians.
You 'splained that perfectly. :) A lovely and clear and cogent tutorial on FR. Bravo, expat_panama!
Ta-dum. :)
2007 is going to be very very ugly for housing.
don't forget the pain of paying the hurricane insurance on a $400K home you cant sell for 4200K.
It will be for the stupid America-bashers that are selling --but those are the same idiots who were bad-mouthing the US last year about how housing costs were supposed to be out of the reach of the little guy.
For me it's going to be a terrific housing market-- I'll be buying back what I sold last year.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.