Hyper Inflationary Real Estate Deals?

By
Real Estate Agent with Century 21 Results Realty

While wandering through the blogosphere, I happened across a couple of post about inflation and the possibility of the US spiralling into a hyper-inflationary mode because of the massive debt, stagnant national economy and continued world economic issues. 

The theories have been around for a couple of years, and many of them point back to Germany (1923), Hungary (1946) or Argentina (1975-1991) as examples... and there are plenty of others

I am not one that wanders around expecting worst case outcomes for the United States.  There have been dire predictions before.  In fact, I think every few years we get a new round of dire predictions... 

  • Hyper-Inflation
  • Deflation
  • Global Warming
  • Global Cooling
  • Economic Calamity for Debt
  • Economic Calamity from Taxes

It is in the best interests of government to have a huge problem to solve every few years... it allows them to usurp power from a willing citizenry. 

Back to the point...  Hyper-Inflationary Real Estate Deals...

Imagine if you will, EVERYTHING going into bubble mode at once.  Not only every consumer item, but even wages.  In Hungary, at its peak, prices doubled every 15 hours.  Of course, wages don't react as fast, so it hurts.  It hurts everyone...  Except...

There are lots of examples of 50% and 100% annual inflation rates.  What would happen if you made twice as much money next year as this?  And twice as much the next year?  Of course, your daily expenses would climb right along (or in front of) the increase in pay... but any fixed rate debt wouldn't.  Homes, cars and fixed rate credit cards would suddenly become your friends. 

New debt wouldn't be so nice to acquire.  You can be sure that lenders would want to make sure any rates they offered outpaced the inflation... 

While it seems that it would be cool to have the price of a house or car go up faster than it could depreciate, the downside would be that buying a new one would be very difficult...  And that is often how the cycle ends.  Economic activity slows to a crawl. 

It could happen...  I probably won't.  But, if it did, sitting on a low-rate 30 year fixed mortgage would mitigate a little of the damage.

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Rainmaker
388,669
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana

Lane good points.  We don't know what will happen tomorrow much less than years from now.

May 10, 2010 04:03 PM #1
Rainmaker
508,962
C. Lloyd McKenzie
Albuquerque, NM
Living Albuquerque

Lane,

That's a very interesting scenario, and a nightmare for all of us.  Let's hope that those in charge take the initiative and address our economic issues appropriately.

May 10, 2010 04:28 PM #2
Rainmaker
1,237,546
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

The old SUPPLY and DEMAND comes into play and the longer the is little or NO "new construction", the FASTER the real estate market will recover * we have had 3 residential builders go out of business locally and while many jobs were lost, most can find new employment locally with large employers OR commercial builders which is BOOMING!

May 10, 2010 11:12 PM #3
Rainmaker
565,568
Mike Saunders
Lanier Partners - Athens, GA

Lane - fixed mortgages are definitely a good hedge against inflation, especially with the ability to refinance without penalty if rates go down. While I am not preaching doom and gloom, I think we may be a bit closer to your scenario than most think. Of course the only thing that might save us from it is the collapse of the Euro which we will certainly feel here.

May 11, 2010 02:46 AM #4
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Lane I think we will get hyper inflation, but when I think of hyper inflation I am thinking of like the 70's.  Now what will it do to housing prices?  Well the interest rates will also climb which might actually keep the housing prices down.

May 11, 2010 05:52 AM #5
Ambassador
273,238
Eleanor Thorne
Equity Resources - Cary, NC
Equity Resources 919-649-5058

The whole EU thing is interesting, because it puts the US Treasury in an unusual position.  Will WE take Greek Bonds (rated DD)??  It's definitely not boring!

May 11, 2010 07:14 AM #6
Ambassador
2,475,445
Steve Hoffacker
Steve Hoffacker LLC - West Palm Beach, FL
Certified Aging In Place Specialist-Instructor

Lane,

I think many in our government would love for this to happen - a new crisis and all for them to play with. :)

Steve

May 11, 2010 04:12 PM #7
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Steve Hoffacker
Steve Hoffacker LLC - West Palm Beach, FL
Certified Aging In Place Specialist-Instructor

Eleanor,

We are already financing the Greek debt therough the IMF - 17% of the trillion dollar gift is ours. :)

Steve

May 11, 2010 04:13 PM #8
Rainmaker
3,983,315
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Lane...just let the media discover this and all Hell could break loose because the general public are so much like puppets and listen to and hang on every word they say.

May 12, 2010 10:26 AM #9
Rainmaker
135,175
Steve Mattison
Canyon de Chelly National Mo, AZ
Vietnam Veteran

Now just cause that's the way it looks today, it doesn't mean...... does it:)   Having a good year yet Lane?

May 13, 2010 11:47 AM #10
Rainer
293,421
Melissa Anderson
Mortgage of Texas & Financial - San Antonio, TX

Lane- I appreciate the way you explained this in your blog.

May 15, 2010 11:22 AM #11
Ambassador
890,780
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Luckily, real estate is one of the few commodities that can keep up with hyper-inflation... 

Aug 07, 2010 05:38 PM #12
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