Thank god the homeowners are protected from this. I was worried the >100% increase in home value they have seen in the last 5 years might be pulled back a little.

Speaking as a homeowner, an increase in home value does nothing for me.

I plan on living in this house until I croak. If I do happen to move for whatever reason, the increased value doesn't help since likely, ALL houses have gone up. My $300K house being worth $600K doesn't really help when the house I'll need to buy is also now $600K.

If you don't have descendants/heirs, an increase allows you to withdraw a massive amount of equity. If you do have heirs, a value increase will do tons for them (further increase inequality in the next generation) if it does nothing for you.

If you plan to live in the home until you die, an increase in home value can be tapped via a reverse mortgage to pay for in home caregivers if you are sick near the end of your life.

Additional equity in a home is useful for a lot more than buying another home, which (assuming all homes inflate equally), you are correct that it is of not much value for.

I’m trying to find a way out/ hedge our economy (Canada, similar to U.S. except we can’t print money to get out of it). I have a sinking feeling that either the idiots over leveraging themselves on bubble priced homes will get bailed out or the idiot banks who facilitate them will get bailed out… probably both. Which ironically makes me the idiot for not participating in the idiocy.

Maybe I’m just getting old, but when I look around at our economy, housing, the crypto fascination, etc. it all looks like scams, hype, and fomo to me.

When the big bailouts happen, I’m gonzo. Just don’t know where to yet. Maybe I’ll live on a sailboat to try and minimize the impact of the insanity.

>I have a sinking feeling that either the idiots over leveraging themselves on bubble priced homes will get bailed out or the idiot banks who facilitate them will get bailed out… probably both. Which ironically makes me the idiot for not participating in the idiocy.

This is the case for all forms of money making in the last couple years. It's quite depressing that actually being protective, smart and risk adverse to this idiocy is the worst situation to be in.

It's like everyone is playing with fake money and you're standing there saying it's not real, but they keep finding new ways to convince themselves it is. Meanwhile your real money is getting old and dusty.

As one of those people that bought a bubble priced house (rental stock in the town I live in just doesn’t exist for the type of place I wanted) I’m pretty impressed with how much Canada can bury its head in the sand about the problem. I think in 4-5 years when all these mortgages get refinanced at (presumably) higher rates some weird shit is going to happen.

The root issue as far as I can tell is supply is incredibly poorly managed. When I was living in Vancouver, there was a lot next to us that was waiting for permission for 2 years to build a low rise, mixed use building in an area already zoned for it. Don’t get me started on “historic” homes in dense areas.

They are stress tested to up to 5.5% interest, so it will take huge moves to cause insolvency. This isn't like the US subprime issue, these borrowers can afford the higher rates.

Right, but don’t ignore the knock on effects of housing payments sucking up more cash, reducing consumer spending. And it won’t be fun refinancing at a higher rate and finding out your house is worth less than when you bought it.

I don’t think our government will let interest rates go up. It should have happened a decade ago, but they kept lowering them instead (and watched the bubble grow). It’s political suicide at this point to do it in any meaningful amount.

> these borrowers can afford the higher rates.

Not at all what I’ve been reading. We have a record high 2.5 trillion in mortgage debt, and a lot of that debt (especially in the last year) is high risk.

Both banks and credit unions are required to perform the stress test. The biggest source of fraud is likely loans from parents marked as gifts, but it doesn't change the borrowers have to show evidence they can handle 5% interest rates on the mortgage portion.

How is that a silver lining, isn't that the worst part of the problem?

In a more ideal world, we want mortgages to get more expensive (so that housing itself would get cheaper).

Someone who owns their home by taking out a mortgage (in some sense) loves inflation because they're paying back their loan of, say 2010 dollars in 2020 dollars. Whether the interest rate on the mortgage (the cost of the mortgage) is high or low doesn't matter when it comes to this effect.

They only love it if they get raises.

Purely from the perspective of their mortgage it is at worst neutral. Sure it sucks that other goods will be increasing in cost relative to the mortgage but even if you got no raises at all over the lifetime of your mortgage and during that period there was positive inflation you are in real terms not paying any more on your mortgage than you were when you got it.

* Assuming a fixed interest rate of course. Don't put that evil on anyone.

Yes.

I am a homeowner and don't want my home value to double when real income has barely moved in the same period. That's not sustainable.

Even if I could sell without repurchasing, to pocket the cash, there's another generation behind me that's going to need a place to live.

You can't just have entire generations of homeless people without it affecting society.

How long will that shield hold? There are strong generational, economic, and social divides In who owns homes and who benefits from rising prices.

If only retirees, and highly paid professionals are shielded from housing increases I’d expect all other prices to become correlated with housing as workers demand commensurate wage increases or start refusing to work for negative earnings.

I assume you mean that while homeowners are protected from rising rents, they're soon going to be paying out the nose for other goods, as the prices of goods & services produced by renters rise to match the new cost of living?

That's already happening. IMHO you have the causality backwards - prices started rising in 2020, and then some workers have captured some of that surplus by switching jobs, and now landlords are trying to capture the workers' surplus by raising rents. Rents follow wages, which follow profits, which follow prices, and then prices follow rents & wages again in the wage/price spiral. Homeowners have an advantage because their biggest cost of living is fixed, while rents generally rise to capture all available wage surplus.

The folks who really get screwed are the ones with fixed incomes but variable expenses, either a renting retiree or someone who plans to stay at the same employer for a lifetime. You should be aggressively changing jobs and going where the money is to capture some of the large amounts of money that are floating around. People who do that usually do better than average.

The landlord incurs an opportunity cost for not selling their property either as a condo conversion or single family depending on the local market. The property price at sale is directly influenced by prevailing interest rates. The landlord will then charge rents in line with some return horizon that ensures its worth their time to not just sell and take the cash.

It is hard to break that shield. House payments stay the same with inflation. So if you were paying $1000/month and inflation doubles the price of everything you still pay $1000/month. Your income is likely to double in this situation, and while everything else goes up in price you still have that extra $1000/month in your pocket ($500 after accounting for inflation). Or you can do a cash our refinance to get a lot more cash and bring your payments up to $2000/month.

Note that while this is happening bad things happen. It often is the case that you have to live on less real purchases for a few months until your wages go up. However as a homeowner the mortgage not changing means it only takes one or two rounds to get ahead of this forever (that is before you never revert to worse than when you bought the house - you can go backward in purchasing power but not that much), while as a renter your rent will increase yearly and that is often a big hit against your wages that won't increase at the same time (and often not at the same rate - it will balance out in 5 year but that is a long time to live)

Don't read the above as a rant against renting. There are other pros of renting. You need to make the right decision for your personal situation.

Renters headed about 36% of the nation’s 122.8 million households in 2019, the last year for which the Census Bureau has reliable estimates. Because certain demographics – young people, racial and ethnic minorities, and those with lower incomes – are more likely to rent, those groups likely will be disproportionately affected when evictions resume[0].

I suspect what ProfessorLayton means is that they specifically own a house and so sucks for the rest of us.

0: https://www.pewresearch.org/fact-tank/2021/08/02/as-national...

My comment was not intended to be read as "FU, got mine". I was only pointing out that most households in the U.S. are somewhat shielded from these high inflation numbers, especially since shelter is typically the biggest expense.

I vehemently agree that those who don't own appreciating assets are worse off, which is why I said it "sucks", because it does. But it isn't most households.

Lastly, young people in particular are also less likely vote at all, let alone for their own interests. Before the pandemic, the housing shortage was entirely artificial, and the main reason housing keeps skyrocketing is political. There just isn't enough supply to keep up with demand, yet people without homes don't show up at their local council meetings demanding more housing supply the same way NIMBY homeowners show up demanding less.

Unless you're selling your house to downsize or leave the country, raising home prices isn't a good thing. You have to live somewhere. Higher home values means higher property taxes (in many cases, almost paying for your whole house again, and now at inflated rates).

Raising home prices have much worse effect of kicking away the ladders for the new generation to own their own home, while doing nothing for those who already have a home to live in and desire to keep doing so (other than possibly raising their property taxes).

Fiend of mine bought a luxury home for 500K a few years ago in Phoenix he was paying 7,000 in property taxes annually Now that these 4 bedroom shacks go for 500,000 I can't wait to see what happens when their their property taxes double.

What is likely to happen in America is that all states adopt some form of California's Prop 13, capping taxes for existing homeowners and crippling future generations

About 2/3 of people own a home, which is a lot, but I'm not sure I'd call it "most people". And for the 1/3 that do not own a home, often already at a disadvantage in ability to build wealth, they will continue to fall further and further behind as rents rise and their wages lose value. It's a bad situation.

Is the figure that 2/3 of homes are owner-occupied? 2/3 of households own at least one home?

edit: 89% of US homes are occupied. Of these, 58% are owner occupied. https://www.census.gov/housing/hvs/files/currenthvspress.pdf

And less than half of millenials (many of us are in our 30s) own a home:

https://newsilver.com/the-lender/millennial-home-buying-stat...

https://www.forbes.com/sites/eriksherman/2021/10/27/the-futu...

2/3rds of US persons? Or households? A cursory search leads me to believe the latter.

Not everyone lives in a house, friend. But you're correct, the burden of inflation rests more on the poor.

The poor and creditors. The poor, because they have less discretionary income and it isn't inflating to cover their inflating necessary expenditures. The creditors, because their assets are depreciating. The debtors in the middle see their debt, the creditors' asset, deflating.

I'm not worried about my bank, my credit card company, or my personal loan company - something tells me they'll come out of this OK, if history is any indication. If they don't, I'll be taken down many moons before them.

wages counts in inflation. The poor may be better off or not based on what is stickier.

We all know labor is weak, so we start expecting wages to rise last, but that is not what happened this time, for there was a genuine tightening of the labor market.

> own their home

For some definition of "own".

Most do have some amount of equity in their home and have a big fat mortgage to repay.

I am sorry, but that's not exactly "ownership" in my book.

As to your second point (inflation up => cost of mortgage down), only true if wages go up, which, unless I am mistaken ...

Even if you bring a wheelbarrow of C-notes to the closing to pay for your house, you still never own a house the way you own a ham sandwich. If you fail to pay your property taxes, the government can kick you out and auction your house to repay itself.

> If you fail to pay your property taxes, the government can kick you out

Yes, agreed. You are merely renting land from the govt.

That is not the case everywhere, btw, IIRC.

Ireland (I believe, to be verified) and China don't have things like property taxes.

At least the vast majority of those mortgages are fixed rate so that the monthly payment doesn't vary. Renting means your monthly payments can continually rise - those with mortgages are shielded from that.

This isn’t what most people would term a “silver lining.” Inflation is a giant and nearly impossible-to-manage wealth transfer that afflicts everyone productive.

> The silver lining here is that most households in the U.S. own their home, so they're either shielded from a significant portion of inflation

Unless something has changed since the recent reports of the inflation surge on the non-energy side, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)

"""The pandemic has seen extraordinary growth in home values... Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation.""" - The U.S. White House

It's not that housing prices aren't up, it's that CPI can't (yet) capture the change.

> The silver lining here is that most households in the U.S. own their home, so they're either shielded from a significant portion of inflation

Unless something has changed since the recent reports of the inflation surge, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)

Not even everyone else: bottom 40% wages also went up big time.

Everyone is ahead but small bussiness owners without bubble-worthy assets who just relied on too-cheap labor to make a profit.

It’s technically “most” but still just under 2 in 3.

Owning your own home doesn't shield you from rent increases, because you're still paying rent, since as a owner you're not getting paid the rent thay you would otherwise receive had you rented your property out. This means you are paying that rent out of your own pocket. This may sound like creative accounting to some, but it's not. The cost is very real, despite not being observable in terms of cash flows.

> Owning your own home doesn't shield you from rent increases, because you're still paying rent,

Yes it does shield you fron rent increases. Specifically because by owning a home you have also purchased an income producing asset that perfectly hedges your rent increase. For every dollar that rent goes up and you have to pay more, you also get an additional dollar in income from that increased rent. Ie shielding you from the affect of any increase.

It's the same thing as buying a stock, and then shorting that same stock (or buying a put). Yes the stock may go down, but for every bit it does, your other investment up down meaning you are now shielded from (or hedged against) any changes in stock price.

This makes no sense. Owning a home is not paying rent. Paying a mortgage comes with the expectation of accruing equity in the home. Renting does not. You’re comparing renting with being a landlord.

This makes no sense. If you are living in the house you own, you can't simultaneously rent it out. Any rent you might theoretically receive would be essentially canceled out by needing to rent another place to live in.

This is completely backwards! Yes, you get value from owning a house, and you can measure that in dollar terms by looking at comparable rents, but this isn't a cost; it's more like a dividend.

Shelter is a necessity. If you rented out your primary residence, you would then need to rent yourself, so if rent goes up everywhere then increase in rent prices is a wash.

Good point, yeah, I hadn't thought this through.

Nope.

Inflation is the best thing that can happen to you if you owe highly leveraged debt on appreciating assets. The more debt the better.

Your debt payments stay stable, the asset price goes up, your wages go up, and within a few years the payments are negligible compared to your salary.

Compare this to a renter - your rental payments go up, your wages go up.

This is another reason why it is destructive to run society on a usurious financial system.