Inflation here? gas/grocery prices just continue to climb (3 Viewers)

[efil4stnias]

Well-known Wall Street Bear David Rosenberg?

I'm not saying he's wrong, there's a lot of evidence pointing that way, but David Rosenberg is still David Rosenberg. But again all I'm saying is look at the housing chart over the past 50 years. The times when the line turns downward don't last very long and they don't go that far down.

And the basics (the supply of houses versus the number of people wanting to buy houses) remain price-supportive to me. So some air gets let out for a bit. Seems reasonable but it's not going to last.

I agree in a sense that the downturns are short-lived, and i hope its a "stair-step" effect akin to gas prices ( where steps back arent as steep as jumps up and they settle, but always seem to settle at a number higher than the last cycle )

I just hope that the housing market follows that pattern so as not to wipe out equity in a short span for many. In turn, putting pressure on the overall market and valuations.

 

[efil4stnias]

so, are gas prices and inflation tied together, or are they 2 unrelated entities?

its "oil" and inflation. But yes, simply put there is a direct correlation between the two.

The relationship between oil prices and inflation - Economics Help

Oil prices have a significant effect on the consumer price index, though the correlation between oil prices and inflation is less direct than it used to be in the 1970s. St Louis Fed estimates a correlation of 0.27 between changes in the oil price and inflation. In other words, a…

www.economicshelp.org

 

[superchuck500]

I agree in a sense that the downturns are short-lived, and i hope its a "stair-step" effect akin to gas prices ( where steps back arent as steep as jumps up and they settle, but always seem to settle at a number higher than the last cycle )

I just hope that the housing market follows that pattern so as not to wipe out equity in a short span for many. In turn, putting pressure on the overall market and valuations.

It might but if that equity was the result of some unsustainable or irrational market behavior, was it real in the first place? Corrections are often healthy for the market longterm.

 

[B4YOU]

I don't think there's a dramatic correction coming. Increased rates and a possible recession will certainly let a lot of air out but it's still a supply-constrained market - and I don't think that's going to change much. Between 2000 and 2020, the population of the United States grew by 50 million people. So the underlying fundamentals continue to drive the market and that's why housing market corrections are historically shallow and short-lived.

United States Median House Prices 1975 to 2019 by Miron Lulic - Infogram

infogram.com

When you inflation adjusted house prices, you see how far out of normal prices have become. From 70s-00s a house has cost about 200k +/- 25k. We have moved to 400k as the average. We could lose 25% and still be 100k over historical averages.

 

[DaveXA]

United States Median House Prices 1975 to 2019 by Miron Lulic - Infogram

infogram.com

When you inflation adjusted house prices, you see how far out of normal prices have become. From 70s-00s a house has cost about 200k +/- 25k. We have moved to 400k as the average. We could lose 25% and still be 100k over historical averages.

When you factor in lower interest rates, that cushions the blow somewhat. The problem is that when the low interest gravy train runs out, the rapid price increases will very rapidly become unsustainable and we'll be in a pickle then. The fed doesn't have a lot of room to increase interest rates to cool the markets without outsized demand destruction of housing. Another 1-2% higher and you'll see demand drop dramatically. Borrowing $1 million at 3.5% for 30 years is miles different than 6%.

 

[Snakehead]

We are selling and buying right now in FL and it's crazy.

 

[bigdaddysaints]

My InLaws sold their house in BR less than a year ago, without even putting it on the market, just by word of mouth. They had it sold before they even got it appraised. They had already bought a new house about 8 years before, and their other 2 daughters were living in it. It had been completely redone on the inside about 5 years ago, so it was movie in ready. It was just over 30 days between the time they decided to sell to the closing. They saved a ton by not having to invlove a realtor.
My neighbor (a few houses down) sold their house about 8 months ago, an older couple bought it. I could tell they did some work on it. Last week a for sale sign popped up in their yard. by the end of the week, it was gone and they were moving out. It is crazy here in Ascension Parish and certain parts of EBR.

 

[superchuck500]

When you factor in lower interest rates, that cushions the blow somewhat. The problem is that when the low interest gravy train runs out, the rapid price increases will very rapidly become unsustainable and we'll be in a pickle then. The fed doesn't have a lot of room to increase interest rates to cool the markets without outsized demand destruction of housing. Another 1-2% higher and you'll see demand drop dramatically. Borrowing $1 million at 3.5% for 30 years is miles different than 6%.

Already starting to happen.

 

[superchuck500]

We bought a house last year, went under contract the first week of September, locked financing a few weeks later and closed on Nov. 1 with 2.25% loan. I think it's about 4.5% now . . . double.

But while we pretty much got about as low as you can get on the loan, we bought at a near record high on price. I'm not anticipating wanting or needing to sell it anytime over the next 10 to 12 years so I think the lower carrying cost is more important than worrying about the price we paid.

 

[bclemms]

its "oil" and inflation. But yes, simply put there is a direct correlation between the two.

The relationship between oil prices and inflation - Economics Help

Oil prices have a significant effect on the consumer price index, though the correlation between oil prices and inflation is less direct than it used to be in the 1970s. St Louis Fed estimates a correlation of 0.27 between changes in the oil price and inflation. In other words, a…

www.economicshelp.org

I would argue that the correlation while strong is far more indirect.

Oil prices are driven by only two factors. Supply and demand and then speculation.

When inflation is running hot it means the economy is usually running hot right up until the point that inflation slows the economy. Like the old saying goes, the cure for high gas prices is high gas prices. When the economy is running hot it creates a ton of demand for oil. When the economy cools the supply catches up to and passes demand. When demand is high and supply is low it creates high prices and vice versa.

Now, OPEC tries to control the prices by controlling the supply and they are really successful at doing it. If the US tries to increase oil supply by pumping more, the OPEC countries crash the price and puts a lot of US oil on the sidelines due to cost restrictions. Saudi will always be able to pull oil out of the ground a lot cheaper than we can. This is a good thing at first but once OPEC gets enough US oil on the sidelines then it gives them a monopoly of sorts. That means they can limit the supply into increasing demand and allow oil prices to soar. This is where we are now with a lag from when oil prices were crashed before and during covid.

The next big factor is speculation. If investors think the economy is going to run hot and oil is going to run into supply problems then they are going to buy oil today with the expectation it will go up. When you have a lot of people buying oil with that expectation the prices rise.

Right now you have a whole bunch of investors that are using oil as a flight to safety from the rest of the equity markets since energy is still rallying. However, there is a lot more oil coming on line over the next 12-18 months and if we see a downturn in the economy at the same time supplies increase then that is going to be a bubble that pops and those same speculators are going to be betting the price of oil down.

I do think that this is going to unravel like an old Weezer song. It's going to start with the junk that people wanted when the economy was on fire but is now the stuff nobody needs. Particularly stuff around home and garden, seasonal goods, clothes, etc. I think the subscription based business models are also a bubble about to pop. When people have less expendable income they are going to look at the 37 subscriptions to streaming services, games, apps, etc that they have and realize they can cut a few hundred bucks a month. Then after what is going to be the hottest travel season in history we'll see it start to work through the service sector which has been on fire. Poor restaurants wont catch a break. As soon as they finally start to see the recovery from covid, they get hit with inflating food and employee costs then likely a recession on the backside of that.

Once all that get going then it's going to cause layoffs which will then turn to people waiting extra cycles to buy new phones, tablets, electronics. All this right about the time the silicon sector finally starts catching up then you'll see the whole tech sector slump. More layoffs and then at that point the housing is going to really start to suffer.

Somewhere in this cycle of prices coming down due to excess supply there is going to be a window where the US consumer could buy the economy out of a death spiral to recession. It's going to be really fast and with continued strain on the food and oil sectors it's going to be a big ask but it's hard to bet against an American with a credit card.

The FED could also reverse policy and start to ease rates but if they do that then it's just going to blow the air right back into the bubble. Honestly, we really need to take our medicine as soon as possible. Even if it means a few years of much tougher conditions. If not, we are going to really struggle with debt, inflation and stagflation the next go around and that is if we avoid it now.

 

[BooBirdSaint]

Went to the movies with my son this past weekend. 2 small cokes and 2 small popcorns, $31!!! Nope. Sorry not doing that again, ever.

 

[superchuck500]

Oil prices are driven by only two factors. Supply and demand and then speculation.

 

[B4YOU]

Already starting to happen.

Real estate data is always 60 days behind what’s happening on the street when factoring in 30-60 day closes and everyone looking to buy a house taking a 60-day rate lock.

Realtors are talking about houses getting 50 walk-ins for a showing in January and only 5-10 in April.

We have reached the point where the monthly costs due to higher rates will price out people until rates or prices drop. I don’t think we see big price drops.

Telework is going to change the market. Before the pandemic 3% of people teleworked and during that number hit 59%. Jobs are less of a push factor for buying/selling.

The reason HD and Lowes made bank these last few years because families are investing in their home. No one is going to lower prices because of temporary high rates after a 20-50k improvement.

I think the housing market is about to seize. We will likely see 50-75 basis point rate hikes until inflation cools. The stock market drop means smaller down payments. Buyers won’t have the rate/cash for low monthly payments. Sellers won’t want to drop prices and lock in a loss or buy at double the rates after refinancing in 2020-21.

 

[bclemms]

That's like calling an Oreo cookies and cream. It's one damn thing damnit.

 

[B4YOU]

When you factor in lower interest rates, that cushions the blow somewhat. The problem is that when the low interest gravy train runs out, the rapid price increases will very rapidly become unsustainable and we'll be in a pickle then. The fed doesn't have a lot of room to increase interest rates to cool the markets without outsized demand destruction of housing. Another 1-2% higher and you'll see demand drop dramatically. Borrowing $1 million at 3.5% for 30 years is miles different than 6%.

A 450k loan with 4K property tax, 500 insurance, and PMI at 5.5% is $3100/mo vs 3.25 is $2500/mo. That’s $600 more on housing.

The average American household is spending $300 more than last year due to inflation per Moody’s.

Inflation is costing U.S. households nearly $300 more a month. Here’s how to adjust your budget

As prices continue to rise, you'll likely have to make adjustments to your lifestyle and budget. Here's what the experts say to do.

www.cnbc.com

Rates plus inflation would mean anyone buying a home should expect $900 more per month in expenses than a year ago. These combined factors are going grind the market to a halt.