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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Tommaso who wrote (4060)4/10/2004 10:14:24 AM
From: Wyätt Gwyön  Read Replies (2) of 116555
 
Notice the "if" at the beginning of my sentence

"If you think that the goverment has lost control" is rather vague, since there are many things the government can lose control of. presumably you mean if the government has lost control of inflation. if it has lost control of other things, like homeland security, then the best solution may be to leave the country (which is not consistent with buying a house in the US). but if the inflation cat is out of the bag, then you are simply implying that a house is the best inflation hedge ("then the best thing is still to get hold of a house using a 30-year mortgage").

which brings me back to my point: inflation is NOT a long-term predictor of housing prices; wage growth is. and wage growth right now is the most pathetic on record. EVER.

moreoever, the real interest rate on the 30yr, expressed as the nominal interest rate minus nominal wage growth, is extremely high right now. so a 30yr mortgage is a bet on wage growth which i see as unlikely. without wage growth, a 30yr mortgage locks in one of the worst real rates (as expressed above) in history.

i think of it like this: a house is a call on income growth; renting is a put. at this point, the put seems like the better bet to me.
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