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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (25947)	12/14/2004 10:57:04 AM
From: KyrosL	Read Replies (1) \| Respond to of 306849

Hi Mike. There are many counterexamples to your inflation list that show deflation rather than inflation. Here are some. In my area, Florida, property taxes are capped at or below inflation for those that stay put in their homes. My real estate taxes have hardly increased in the last decade or so, and will remain capped, since I have no intention of moving. California and some other states also severely restrict tax increases for existing homeowners. We live in an information society, and information and communication is very valuable for many people. The cost of information and communication over the last few years has crashed. I spend a lot of time communicating and getting informed, and I pay almost nothing for it. I would have spent a fortune doing the same only a few years back, and a couple of decades ago what I can do today for pennies would have required thousands of dollars, if it could be done at all. This morning I read in the WSJ that Google will be making available millions of books from a number of university libraries for online searching -- for free. Skype, allows you to phone around the world for 2 cents a minute -- or for nothing to other skype users. The examples are countless. Manufactured goods have been on a deflationary trend for some years now. Health care has increased a lot more than inflation, but so has life expectancy and quality of senior life. US life expectancy has increased by SIX years since 1973. There is no hedonic adjustment for health care (yet <g>) but I wonder how much value we can put on six extra years of life. My hunch is that it's worth a lot more than the extra (over CPI inflation) increases of health care, for the average person. Finally, although houses have increased much more than the inflation rate in the last few years, rents have not.

To: Mike Johnston who wrote (25947)	12/14/2004 6:30:11 PM
From: GraceZ	Read Replies (2) \| Respond to of 306849

Other friends of mine who live in NYC make similar observations. I was just up there this last weekend visiting a client and we talked a lot about the cost of living in NYC. She is grappling with living in relative poverty in NYC making 65k or moving to my area to live in relative prosperity on 50k. I made a similar decision years ago to move back home after a year in Northern California. I found that the compensation difference for my profession was not enough to pay for the difference in the cost of living which seemed to rise at a much faster rate than back home. I keep a tight budget. I have detailed annual household budget data that goes back to 1987, including grocery receipts. In the last 15 years our cost of living has lagged the CPI by 1% annually even while our standard of living has continually improved. Over a long period this is enough to make a significant difference in inflation perceptions and the way you feel about the future. I think this is why when you have people trying to discuss inflation on a board where people come from various geographic areas you get an enormous discrepancy between perceptions. In my area which has a Walmart Superstore, the grocery stores are in a race to the bottom. I still use a price list from 1990 in my photo biz, on the digital side I have to continually cut prices to remain competitive but this has been easy because the biz expanded so much and the software/hardware improvements have made that work so much less time consuming. We bought a new car for 3k less than I paid in 1989 for a comparable model three years ago. The same model would go for even less today. I still fly round trip to CA every year for $230. Gas has risen in my area but it is such a small part of my budget that it hasn't even begun to offset the savings that came from the refi on my home mortgage or the fall in my business overhead. The largest across the board increases were in insurance (turning 50 was expensive for health insurance). I raised my deductibles and knocked my insurance costs back to 1998. I was a little shocked at the price of a train ticket to NYC. There is a bus that is direct and costs a third as much so I'll probably take that the next time. We still take a 10 day vacation to a Caribbean island or Costa Rica for around 3k. I haven't raised the rents on my properties in five years, although I'm going to have to because the houses have appreciated so much the insurance and property taxes have risen after remaining stable for ten years. We can still go to the Chinese restaurant for $15-25. Back when I first graduated from college, I used to spend three days in NYC and three weeks in Maine during the summers. Both segments would cost about the same, in other words, three days in NYC were around the same price as three weeks on the Maine coast. I would not be surprised if the same discrepancy existed today. I'll sit down and do the detailed budget at the end of December but I can tell you there aren't going to be too many inflation surprises because we increased our savings significantly this year. Mostly what I see year to year are increases in one area offset by decreases in others with an overall increase that is predictable and smaller than the published inflation rate.