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…Most people are either priced out of the market or they are stuck where they are because they have low mortgage rates and won't be able to upgrade their housing without doubling their rates so they would effectively be priced into buying what they already have. That would be fine if they need to relocate but a lot of buyers stay put and either upgrade or downgrade based on where they are in their lives.
Also, with rents increasing, renting out an existing property to move instead of selling is a bit more alluring.
If the 40yr mortgage becomes mainstream….prices will go up again until they reach the price that people can afford for a monthly payment.
Also for those expecting a crash - we only have to look at the housing market and inflation in the 1970's.
Housing rose at an annual clip nationally of 9.9% with the median going from $23,000 to $55,000 despite inflation averaging 7.1% and peaking at 11% in 1979 which was also the average mortgage rate.
Specific to Hawaii and housing prices - this article in Honolulu magazine noted prices in the late 1970's were at an all time high.
According to the Multiple Listing Service figures for sales during the last half of 1977, the average cost of a single-family home on O‘ahu reached an all-time high of $100,000. This zoomed up from $85,612 a year ago.
The situation is even wilder on Maui, where single-family homes are averaging $104,600 and condos $109,353. At Wailea, people are standing in line in hopes of having their names drawn from a hat for the privilege of buying a one-bedroom condo for $150,000 (double what it was four years ago when it went on the market).
Crash is relative. If inflation keeps up at its current pace and housing doesn't rise with it, that's a relative decline in value.
While that would be true, it seems like an very unlikely scenario.
Housing represents about 43% of the CPI, and has been a huge contributor to overall inflation numbers.
If housing does not rise, it would be nearly impossible for inflation to keep up its current pace.
It may make up 43% of the CPI, but the CPI is calculated using "rent equivalency" instead of the actual inflated housing prices. They say that we have the highest inflation in 40+ years, but if they used the same metrics to measure it they did 40 years ago, the actual current inflation would be measured at almost 18%.
... They say that we have the highest inflation in 40+ years, but if they used the same metrics to measure it they did 40 years ago, the actual current inflation would be measured at almost 18%.
Source? If shadowstats, I've read that's been discredited due to bad math.
Shadowstats is a good source. It has nothing to do with math, it has to do with the actual price of items versus "substitutions". This web site explains pretty well:
"Originally, the CPI was determined by comparing the price of a fixed basket of goods and services spanning two different periods. In this case, the CPI was a cost of goods index (COGI). However, over time, the U.S. Congress embraced the view that the CPI should reflect changes in the cost to maintain a constant standard of living.1 Consequently, the CPI has evolved into a cost of living index (COLI).
Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket.2 The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI."
A few examples- Price of a new Ford F-150 goes up 15%. Inflation rate of a new vehicle is now zero % because a new law makes backup cameras and other safety features required. The new model is therefore 'worth more' than the old model so there is no inflation on a vehicle that has risen 15% in price, even though the cheaper alternative is not available.
Steak goes up 30%. A consumer has the choice of eating something cheaper, and likely will, so the inflation rate of food is only 2%.
I already discussed housing, how they use rent equivalency instead of the actual cost of housing.
But why would they do this? Because social security and government pensions get COLAs based on the BLS CPI rate. If they gave them based on the actual rate of inflation the fund would be insolvent. So they gamed the system, basically saying nobody needs to eat steak or drive new cars, they can have hamburger or a used car instead and their cost of living hasn't increased- look how low the inflation rate has been.
Shadowstats is a good source. It has nothing to do with math, it has to do with the actual price of items versus "substitutions". This web site explains pretty well:..
Yes, the CPI was changed and it does result in slightly lower inflation rates than pre 1980. The mistake made was taking the estimated 5.1% 30 year change 1980-2011 and apply it annually, rather than divide 5.1 by 30 years. That's quite a difference.
As a result, Shadowstats has the average rate of inflation at 9% over 1980-2011, and apparently are still applying this formula. That would yield a 6 fold price increase in an item from 1980 to 2011, which clearly didn't happen.
If you can find an example of an investment firm or prominent economist who buys into the Shadowstats figures, I'd like to see it.
From 2094-2014 shawdowstats pegged inflation at roughly 10% per year annually.
That would imply prices roughly tripled in that timeframe and that would be a hard no - and they lose all credibility
I'm not sure what time frame you are referencing but lots of things have tripled in price.
And one of the things often not taken into consideration is shrinkflation.
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