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> For those who says that there are no signs of inflation, here are
> a few examples of how rampant inflation is in the housing market.
I feel I should point out that this is NOT an indicator of current or
incipient inflation. This is an indicator of steady, sustained
housing inflation over the last *decade*. Look at gas, food, medical
costs, etc. if you want a read on the CURRENT inflation picture.
> 4 BR/2 BA home in Dublin, CA sold for $225,000 in 1988,
> now sells for $649,000
> * an increase of $424,000 in 12 years, annual increase of $35,330.00
> or 15.7%
> * prices in this town have skyrocketed 188% in 12 years !!!
Let's not make this look any worse than it already is.
Yes, the prices have gone up 188% in 12 years. That is NOT equal to
a 15.7% increase each year. 15.7% per year would take a $225k house
to $1.3M in 12 years! $225k * 1.157^12 = $1.3M.
Remember, traders, Compounded Growth Is Your Friend. :-)
You don't divide by the number of years to get the annual rate, you
take the 12th root. 188% in 12 years is 9.23% per year. Still a
pretty impressive sustained growth rate, especially for a highly
leveraged investment like a house. If you put down 10% on that house
in 1988, you got a $424k return on your $22.5k investment. That's
about 27.7% per year. Of course, you also had to make house payments
&etc, but you'd have been paying rent if you hadn't.
Leveraged investments like that work great when the market is going
up, as any futures trader could tell you. Of course, any futures
trader could also tell you they're a b**** when the market goes down.
Especially since you can't bail from a house as quickly as from an
S&P position. :-)
> and the funny thing is, the banks are handing out $500,000
> mortgages here like candy, when this mania ends, it will make the
> S&L debacle pale in comparison.
The thing that really scares me is the number of **125%** loans that
banks are pushing. That's utterly irresponsible and borderline
criminal, IMO. It's like selling more heroin to a junkie. When
housing values start to drop, there are going to be some serious
"margin calls" out there.
Gary
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