Inflation 2022 & 2023 discussion

[Edward64]

Stuff that I've noticed ...

Reg gas ranges from $4 to $4.10, up from $3.20'ish. Not too price sensitive as I work from home and wife only has a short drive to school.

Seems the fast food joints' specials have gone up $1 to $2.

My favorite Vietnamese pho place is $14 up from $12. Sushi chirashi that was once about $18-$19 are about $22.

Toyota Corolla barebones is $1,000 above MSRP (when got daughter a Corolla 3 years ago, bought it for about $2,500 under MSRP).

Checked Zillow today and house price has increased again. It feels its increasing at a faster clip in past 3-4 months than last year. I know to take it with a grain of salt but it is indicative of upward swing.

Biggest impact to us is not so much the day-to-day but the angst its causing in the markets and impact to our portfolio.

*****

Increasing rates should theoretically tame inflation. But Powell was wrong before on "transitory" inflation so I'm not having a lot of confidence that he'll get the "pace" of rate increase right. We also have Ukraine war hurt oil prices. And of course, Covid which is adversely impacting the supply chain (especially the stuff from China).

Basically prices will continue upward in the short term (6 months). Below pundit says this will cause a recession. I think I'm okay with that. Better recession than the 80's inflation.

U.S. economy will fall into a recession this summer, as inflation eats into consumer spending, former Fed official warns - MarketWatch

Higher inflation will force consumers to limit their spending by so much that the economy will slump into a recession by the July-September quarter, former Federal Reserve Governor Lawrence Lindsey said on Monday.

“I do think we’re going to have a recession, probably in the next quarter,” Lindsey said, in an interview on CNBC.

“Inflation is eating into consumer spending power, they’re going to have to cut back,” he said.

The former Fed governor also said the U.S. central bank was “nowhere close” on being able to control inflation.

[Edward64]

I do wonder if not passing the BBB was a good thing all things considered. The recent bipartisan additional $10B covid bill looks like the model to get things done. Not a big bang but split it out into smaller bills.

[GrantDawg]

That bipartisan bill is suddenly not so bipartisan. The GOP is not anything like that through till they get their pound of crazy in it.

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[Solecismic]

In 1996, a couple of years after moving out west and just having gotten married, I bought a small (1,580 sqft.) home in Redmond, Washington for $185k. A tri-level, no basement, laundry at the back of what was strangely a three-car garage. From the street, it looked like a gigantic garage defending a bungalow.

The neighborhood was only a few years old and had dozens of near-identical homes. I think there were two basic styles - a tri-level and a two-story square - and people could choose two- or three-car garages in front, one of a few basic trim colors that carried over to countertops and carpeting, and there was a skylight package.

The population was exploding around Microsoft and the other Seattle Eastside tech companies. I remember how hard it was to find anything and being a bit disappointed in the quality of the house, but it was nice to join what we call the rat race.

We sold the house in 2001 for a nice profit. From time to time, I look at estimates of what that house is worth.

But getting to the point of this item - inflation and other pressures on the economy are changing housing in many ways. Much of this is the realization that small single-family homes in growing areas are a wonderful opportunity at a corporate level.

All of a sudden that house (and everything else in the neighborhood) is valued at $1.1 million on Zillow - about a $500k increase in the last two years. There's no way it was possible given life, but it's a shame I couldn't have found a way to keep it.

[molson]

Just checked on my first house I bought in 2010 - 768 square feet near downtown Boise. $87,000. Zillow has it at $428k now. That's inflation, but also Boise becoming one of the hottest real estate markets in the country in the interim. I don't feel bad about selling it though. I bought a new house 5 years ago for under $200k that has had a similar increase on Zillow. My mortgage payment is still under $1,000, when that wouldn't get you a studio apartment here anymore.

I remember some housing v. renting debates, including here. At least in my town, I was lucky to be right. I know quite a few people who stuck with renting who have had to move. Rents are going up 2X and 3X overnight, or on lease renewal. I would have had to have figured out something myself. Timing and luck are everything.

Edit: There are many other consequences to this besides renters being screwed. It is really hard to hire new people for open professional positions. A place like Boise has always relied on hiring a lot of tech and white collar workers from out of state, who were drawn here by the lower cost of living. The salaries haven't increased much, but the cost of living has gone completely bonkers. People still assume that they can come to Boise and get a big house and a yard for cheap, and when they figure out that's no longer the case, there's much less reason to move here.

[Lathum]

Originally Posted by Solecismic

In 1996, a couple of years after moving out west and just having gotten married, I bought a small (1,580 sqft.) home in Redmond, Washington for $185k. A tri-level, no basement, laundry at the back of what was strangely a three-car garage. From the street, it looked like a gigantic garage defending a bungalow.

The neighborhood was only a few years old and had dozens of near-identical homes. I think there were two basic styles - a tri-level and a two-story square - and people could choose two- or three-car garages in front, one of a few basic trim colors that carried over to countertops and carpeting, and there was a skylight package.

The population was exploding around Microsoft and the other Seattle Eastside tech companies. I remember how hard it was to find anything and being a bit disappointed in the quality of the house, but it was nice to join what we call the rat race.

We sold the house in 2001 for a nice profit. From time to time, I look at estimates of what that house is worth.

But getting to the point of this item - inflation and other pressures on the economy are changing housing in many ways. Much of this is the realization that small single-family homes in growing areas are a wonderful opportunity at a corporate level.

All of a sudden that house (and everything else in the neighborhood) is valued at $1.1 million on Zillow - about a $500k increase in the last two years. There's no way it was possible given life, but it's a shame I couldn't have found a way to keep it.

When we moved to Seattle we bought a condo in Ballard. We eventually moved to Ohio and sold it so we could put 20% down on our house there. Not finding a way to make that work so we could keep the condo is the biggest financial regret of my life.

[QuikSand]

The effects of inflation are intensely personal, on a political level, and more emotional than practical. We respond to gas prices because by law they are advertised on gigantic signs. OMG it was 2.89 just a while ago, now it's 3.89 OM what are we to do? Cancel the trip to see grandmother!?!?!

Reality is: that 400m trip to grandmother in your avg car costs you 15 gallons of gas. You're going to cancel on grandma for $15? Really? ( I mean, I get there are people for whom $15 is a major matter, but it's not most of the people answering polls)


The major disconnect is that the economy is adding jobs (even if most Americans disagree with this unimpeachable fact), and that creates upward wage pressure overall..but if my wage has not increased, then I'm having more trouble paying for gas and whatnot than a year ago, so this sucks. Imperfect system.

[Solecismic]

Originally Posted by QuikSand

The major disconnect is that the economy is adding jobs (even if most Americans disagree with this unimpeachable fact), and that creates upward wage pressure overall..but if my wage has not increased, then I'm having more trouble paying for gas and whatnot than a year ago, so this sucks. Imperfect system.

That feels very partisan to me.

The economy is absolutely adding jobs at an incredible pace, but... numbers are still below the February 2020 peak. Getting much closer, though. We'll see if this becomes a recovery or if inflation drops demand enough to send us toward recession. I don't think we know yet.

I don't know where this gas price is the only thing comes from. Your example, yes, of course it's silly to cancel a trip over $15 in gas. But the inflation comes from energy costs, from the grocery store (smaller portions, higher prices) and it's showing no sign of letting up. If you're closer to the poverty line, this is a huge issue.

The price of gas is only one part, but it is an important one not just because of your own gas tank, but the cost to transport everything and the costs associated with housing and selling. Ultimately, manufacturing as well, since almost all plastics are oil or natural gas based and steel and cement require massive amounts of energy to make.

[Mota]

I feel we're getting hammered from every direction though, it's not just gas. I was looking at buying a new amp for my music room. The amp that was selling for $1,499 last spring is now $1,999. Well then I go to the grocery store and everything is either much more expensive than it was last year, or in smaller packaging. I go to fill up the car after being told to start coming back to the office, and that's more too. And I'm supposed to feel grateful because I got a small raise at work, but it doesn't even match all the cost increases that I have to deal with.
And then forget about buying a house! I'm fine because I only have 5 years left on my mortgage, but what the hell are our kids going to do?

[Mota]

Originally Posted by Solecismic

That feels very partisan to me.

The economy is absolutely adding jobs at an incredible pace, but... numbers are still below the February 2020 peak. Getting much closer, though. We'll see if this becomes a recovery or if inflation drops demand enough to send us toward recession. I don't think we know yet.

I don't know where this gas price is the only thing comes from. Your example, yes, of course it's silly to cancel a trip over $15 in gas. But the inflation comes from energy costs, from the grocery store (smaller portions, higher prices) and it's showing no sign of letting up. If you're closer to the poverty line, this is a huge issue.

The price of gas is only one part, but it is an important one not just because of your own gas tank, but the cost to transport everything and the costs associated with housing and selling. Ultimately, manufacturing as well, since almost all plastics are oil or natural gas based and steel and cement require massive amounts of energy to make.

I work in a manufacturing business, and our pricing for any raw materials is dramatically higher than a year ago. Transportation is also much higher. So yes, pricing to the end users is also going to increase.

[Edward64]

FWIW we went to Costco tonight. Also filled up with Costco Premium at $3.90 which is lower than what I saw unleaded at Shell for about $4 this past weekend. Unsure what the Shell premium was but assume about $4.50+. So this is a pretty big delta.

Kinda weird but not complaining, guess gas prices haven't quite found "equilibrium" yet. Unfortunately we go to Costco about once a month. If they were just closer it would be perfect.

[Vegas Vic]

Jimmy Carter's legacy of 14% inflation might not be within range, but Kiplinger thinks it might top out at about 10%.

[NobodyHere]

Gas has gone slightly down for me. I filled up yesterday and it was $3.99/gal. That's down from my previous fill up which was $4.10/gal.

[lungs]

My last fill was $1.82/gallon. I knew I was saving up seven years of Piggly Wiggly points for something.

[Ksyrup]

We've been at $3.99 for several weeks. A few places in the busiest parts of Lexington have been slightly over $4, but where I live, we haven't gone over $3.99. It dropped yesterday - to $3.98. Progress!

[QuikSand]

I isolate gas prices because they have a massively outsized effect on how people feel about prices/inflation. And the way people feel matters quite a lot in all things related to the current state of the economy. Individuals' decisions whether to buy something of consequence are substantially based on feel, and often businesses' decisions whether to expand/invest are as well.

I think the challenge that a job growth mostly just getting back toward former full employment is something less than an ordinary economic expansion is very fair. But the U6 measure suggests we're all but back to what the real "job" economy might bear at this point. Perhaps the recovery period of this whatever-letter-disruption is over, and from here it's back to fairer comparisons.

[Brian Swartz]

Originally Posted by Mota

And then forget about buying a house! I'm fine because I only have 5 years left on my mortgage, but what the hell are our kids going to do?

Reach a new equilibrium eventually, most likely. We'll get past this period of relatively minor hardship as long as it doesn't drag on for decades of inflation.

I'm a lot more concerned about what happens when oil prices go nuts permanently. We're not there yet, it may be another half-generation or so away, but when it hits these will be the good-old days.

[miami_fan]

Originally Posted by Mota

I feel we're getting hammered from every direction though, it's not just gas. I was looking at buying a new amp for my music room. The amp that was selling for $1,499 last spring is now $1,999. Well then I go to the grocery store and everything is either much more expensive than it was last year, or in smaller packaging. I go to fill up the car after being told to start coming back to the office, and that's more too. And I'm supposed to feel grateful because I got a small raise at work, but it doesn't even match all the cost increases that I have to deal with.
And then forget about buying a house! I'm fine because I only have 5 years left on my mortgage, but what the hell are our kids going to do?

Are kids in their 20's looking to buy houses these days? My oldest son has zero interests in owning a house and everything that comes with it at this point.

[GrantDawg]

Originally Posted by miami_fan

Are kids in their 20's looking to buy houses these days? My oldest son has zero interests in owning a house and everything that comes with it at this point.

My daughter very much is, and is heart-broken that a house she could have afforded 2 years ago now is way out of her price range. And I am getting heartbroken because it is looking more and more like she and her soon to be husband will be moving in HERE in November after the wedding. I do not want.

[stevew]

It is what it is mostly, but I do feel like I got substantial sticker shock when I was looking to buy a tow trailer. The garbage quality ones are now over 1000$ and it seems like anything approaching decent quality is 1600 or more. I don't need something that expensive and I suppose I'll try to find a used one. But it would be a nice something to have when I want to go pick up mulch or wood. Wood is also bordering on outrageous again.

[BYU 14]

Originally Posted by miami_fan

Are kids in their 20's looking to buy houses these days? My oldest son has zero interests in owning a house and everything that comes with it at this point.

Only one of my 5 kids own right now, though another did own and sold and is renting my ex wife's place and holding the profit as he waits for the market to slide a bit. A third is in the Navy, so he stays in base housing or rents and the other two are still growing their careers and have no interest in buying now.

Edit - All my kids save one, are now in their 30's

[cuervo72]

I mean, we bought our second house when I was 27. Townhouse was at 25. But we weren't competing against large real estate/rental companies and there was a building boom at the time.

[NobodyHere]

I was just listening to my coworker complain about house shopping.

I bought my condo 2 1/2 years ago. During the shopping process I placed 3 initial offers, all about $5k less than the asking price. One got narrowly outbid. One was accepted but I pulled out after the housing inspection. The last one was accepted. Overall I thought it was a fairly painless process.

But now my coworker is saying that she is placing offers at multiple places well above the asking price and still getting outbid/denied. I don't think Toledo Ohio has seen any rapid growth in the last couple years. So why is the housing market all crazy?

[Solecismic]

Originally Posted by NobodyHere

I was just listening to my coworker complain about house shopping.

I bought my condo 2 1/2 years ago. During the shopping process I placed 3 initial offers, all about $5k less than the asking price. One got narrowly outbid. One was accepted but I pulled out after the housing inspection. The last one was accepted. Overall I thought it was a fairly painless process.

But now my coworker is saying that she is placing offers at multiple places well above the asking price and still getting outbid/denied. I don't think Toledo Ohio has seen any rapid growth in the last couple years. So why is the housing market all crazy?

The long answer:

Housing Supply - Realtor.com Economic Research

The short answer:

Demand is higher than supply, combined with the realization that interest rates will not be historically low much longer.

[sterlingice]

And a ton of corporate buyers trying to get in on the "investment" and few laws restricting it

SI

[BYU 14]

Originally Posted by sterlingice

And a ton of corporate buyers trying to get in on the "investment" and few laws restricting it

SI

This is the big driver, there is a corporate entity in Arizona that owns 8500 houses they have flipped to rental properties and finally the state Government is looking to address it.

[RainMaker]

Originally Posted by sterlingice

And a ton of corporate buyers trying to get in on the "investment" and few laws restricting it

That's the biggest issue. And now that we know that the government will never allow banks or financial institutions to fail from those investments, it's as safe as they come. Plus it's one of the best ways for foreigners to launder money.

If the government truly cared about housing costs, they would tax rental and unused properties at significantly higher rates than they currently do. And actually treat money laundering as a crime.

[BYU 14]

From my post below here is a snapshot of the greater Phoenix area.

Zipcodes with the highest concentrations of investor-owned homes include:

Mesa – 85209 with 3,251 investor properties
El Mirage – 85335 with 2,155 properties
Scottsdale – 85260 with 1,596 properties
Mesa – 85202 with 1,438 properties
Buckeye – 85326 with 1,223 properties
Phoenix – 85015 with 1,194 properties
The largest single owner of investor properties is a company called Invitation Homes, which began buying houses in the Phoenix market in 2012. As of this quarter, the company owns 8,744 homes here.

And more

AZ Family Investigates examined data from the Maricopa County Assessor’s Office, which contained information on every residential property in the county. We found hundreds of investors have bought tens of thousands of properties. The 700 largest investors own more than 71,000 residential properties.

[bob]

Originally Posted by RainMaker

Plus it's one of the best ways for foreigners to launder money.

Please explain

[GrantDawg]

Have some money to launder, Bob? There is a guy I'm the Ozarks that specializes in it.

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[bob]

I’m just saying I don’t understand

[GrantDawg]

A quick Google will give you the answers. Real Estate is one of the most common ways to launder money.

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[RainMaker]

Originally Posted by bob

Please explain

There's very little oversight in real estate and you don't have to go through the traditional financial channels. You can hide ownership through foreign companies and trusts. And most importantly, you can pay in cash.

Since real estate has become a safe investment (in the long run) and is a high ticket item, it's a perfect place to stash your money. Bank accounts and the stock market have oversight and draws attention. Owning millions million in real estate in different states through a number of shell companies and trusts is hard to detect.

Washing the money is the other side of it. So lets say you buy a $5 million building in cash. You can then use other dirty cash to put another $5 million in upgrades. The general contractor and electrician doesn't care where that money came from and no one is looking into it. Sell that building for $10 million in a few years and you've just cleaned $10 million.

Then you have renting as a tool. Take a 50 unit building and rent it out. Every dime coming through from tenants is clean. And if you have a few empty units in the building, who cares? Just say they are being rented and the tenant pays cash.

It's so popular that it's probably the reason we'll never go after the Russian oligarchs no matter what they do in Ukraine. It would crash the Manhattan (and other wealthy areas) real estate market overnight. Heck, our last President made his fortune as a laundromat for money launderers. Cleaning dirty foreign money is an American pastime.

[RainMaker]

If anyone is interested in the topic, I highly recommend Red Notice by Bill Browder. I believe it was a best seller and chronicles his business dealings in Russia. He has another book coming out next week that goes even deeper into the money laundering.

The Magnitsky Act was named after his attorney who was murdered in prison.

[Vegas Vic]

Originally Posted by bob

Please explain

This educational video might help:

[miami_fan]

Price of Paradise: Reasons for high housing vacancies in Florida

[cuervo72]

Canada bans foreign homebuyers for two years in effort to cool market | Canada | The Guardian

[BYU 14]

Originally Posted by cuervo72

Canada bans foreign homebuyers for two years in effort to cool market | Canada | The Guardian

This is needed here, not only for foreign investors, but the mega-million investment corps buying houses for rental property.

[Ksyrup]

I just got a letter in the mail this afternoon from a realtor who has a buyer wanting a house in our neighborhood. I assume we all got one. I suppose they are looking for someone about to put their house on the market trying to get a jump on the competition.

If I had a place to go, I'd consider doing that, but basically looking to extract a premium for giving them what is essentially a right of first offer.

[flere-imsaho]

Originally Posted by cuervo72

Canada bans foreign homebuyers for two years in effort to cool market | Canada | The Guardian

Originally Posted by BYU 14

This is needed here, not only for foreign investors, but the mega-million investment corps buying houses for rental property.

As I think Rainmaker pointed out earlier (in this thread or another), given the ease with which real estate investment can be used to launder money, it's an area that really need scrutiny in multiple countries, even before you want to argue about the social pluses or minuses.

I'd support legislation limiting the number of residential units a single entity (person, corporation) can own, with some sort of loophole for clearly-defined hardship cases (like you have to buy your folks' house so they can afford health care). Markets have gotten way, way, way out of hand.

Originally Posted by Ksyrup

I just got a letter in the mail this afternoon from a realtor who has a buyer wanting a house in our neighborhood. I assume we all got one. I suppose they are looking for someone about to put their house on the market trying to get a jump on the competition.

In our neighborhood I'd say about 90% of the homes are sold pre-market. I happen to know three local realtors really well and it's clear that if you want to buy here, you have to have a local realtor who can get wind of "private sales" as early as possible, otherwise you have no chance.

[RainMaker]

Worth mentioning that the Federal Reserve had been purchasing up to $40 billion A MONTH in mortgages last year. Haven't checked the numbers lately to see how much they have been the last couple of months. But that's one way to inflate housing prices.

They say it was to keep interest rates stable, which may be true, but it also has side effects.

[BYU 14]

Originally Posted by flere-imsaho

As I think Rainmaker pointed out earlier (in this thread or another), given the ease with which real estate investment can be used to launder money, it's an area that really need scrutiny in multiple countries, even before you want to argue about the social pluses or minuses.

I'd support legislation limiting the number of residential units a single entity (person, corporation) can own, with some sort of loophole for clearly-defined hardship cases (like you have to buy your folks' house so they can afford health care). Markets have gotten way, way, way out of hand.


.

100% agree

[miami_fan]

Insurance agents: Why rates for Florida homeowners are soaring in 2022 | Jax Daily Record | Jacksonville Daily Record - Jacksonville, Florida

The insurance premiums on our rental properties in Florida went up about $400 in total this year. The one for our homestead actually went down about $50.

A while back I mentioned my shock at the cost of having a roof replaced. During the pandemic it felt like every week another house in our subdivision was getting their roof replaced. It has kept going to where I am sure myself and about four of my neighbors have the only houses that have not had a roof replacement in the last two years. Most people said they only paid the deductible. I am not saying everyone was committing fraud but it looks like the insurance companies are getting their money back with interest.

The point the article makes about the roofing companies being storm chasers is very true. I have had at least 15 offers of free roof inspections by various roofing companies in the last year alone.

[Flasch186]

And sometimes when they get in the roof they cause damage themselves in order to get the deal

When the insurance company says no you’re stuck with a now damaged roof

If you were dumb enough to sign an AOB then your really screwed


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[sterlingice]

Was thinking about this thread and meat prices a couple of days ago.

Beef prices seem much higher (50%ish) but pork still seems pretty normal to me and chicken might be a little higher but, again, mostly within norms. Shrimp is lower than normal by a decent bit (like frequently on sale and 20%+ lower than normal) - I don't understand that at all. Crab legs have been insanely high for months, like twice as much as normal (which is a shame as I love them and I haven't had any of late).

But I feel like you can go "inflation" to say it's higher across the board, but you could also tell me there are individual actions accounting for it like did some beef processing plants close but pork and chicken didn't, meanwhile shrimp are having a bumper crop but crab have been overfished of late?

SI

[RainMaker]

It's just demand. People are making more money, have more in savings, and can now purchase higher-priced meat.

Inflation is a nice catch-all but sometimes a market just goes up because the demand is higher than the supply at the moment.

[Edward64]

Regular unleaded is back down to about $3.80 from $4 around here.

In other news, zillow says my house has appreciated thousands of dollars in the past month. We are just about to hit our 2nd "we'll sell the house and live in an apartment" target in the past year.

[Ksyrup]

I keep checking our house on Zillow every month or more when someone posts about it here, and every time it's gone up. This time 3.2% in the past 30 days. I call BS.

[Kodos]

Ours went up 4.9% in the last month. (And it probably doesn't know that we just renovated the original 1960s-era kitchen and added on an office for my wife.)

[Ksyrup]

Yeah, mine shows our house as 3 bedroom 2.5 bath and 2700 sq. ft. but it's actually 4/3.5 with a fully finished basement that adds about 1500 sq. ft. of living space, plus a covered deck that we added to the house a year ago.