Banks hate inflation, since they are repaid under inflationary conditions with dollars that are worth less than what they loaned out initially. Under deflationary conditions, banks are repaid with ever more valuable dollars, and win big.

The government hates inflation, since it pushes up interest rates, which increases the cost of borrowing. If you haven’t noticed, the federal government is currently a HUGE borrower in both domestic and international markets to fund the current war, deficit, and accumulated national debt. And, most of it’s transfer payments- social security, etc. are tied to COLA’s, which increases the cost of these already marginally solvent programs.

If you recognize that both the banks and the government hate inflation, what makes anyone think they will allow it to really take hold? They will work hard to achieve flat to modest price growth, with the dream of deflation on the horizon. This will be easy to do, since in a recession- which we are in- prices, and hence inflation, tend to stay flat or fall. Rates will go down, perhaps much further. In Japan, they went to a fraction of 1%.

Finally, the main driver of inflation is wage growth. Wages increase when labor productivity increases, allowing worker to be paid more, or when labor shortages occur. Unemployment in currently increasing. That is anti-inflationary. And while American productivity has increased slightly over the past 5 years, it hasn’t been that great, and hasn’t led to large wage increases.

When you see wages increasing 5-10% a year, and all your friends are getting huge raises, and everyone has a great job, THEN you can talk about inflation fears.

What if it where to go down to $300K? We’ll see what the future holds Angie :-)

To properly diversify a portfolio.

It is a hedge against a true deflationary scenario across all asset classes. I can think of some scenarios where having some skin in that 3.7% return could be the difference between poor performing investments and complete financial destruction. Will it happen? Who knows. That’s why you diversify.

Firstly, it’s safe. Unless you believe in hoarding gold, of course. If so, nothing will be safe enough for you. But if you’re an investor with millions of dollars to take off the table and put somewhere, where are you going to put it? Countrywide CDs? As money comes out of stocks it has to go somewhere…

In addition, I’m thinking that the medium term expectations for inflation are that it will decrease. It may be high-ish right now, but as the economy tips into recession (if it’s not there already) the conversation will slowly move to *deflation* and not inflation.

Sure, the Fed is going to drop their rates and this is often inflationary, but they’re doing it because they believe that growth will slow dramatically. Ultimately, this is deflationary.

Start believing buddy, this is just the tip of the spear.

On the other hand, it is earnings week for stocks, so if things go poorly, it could just keep dropping. Intel’s bad news today will probably make it go down more tomorrow.

http://finance.yahoo.com/charts#chart1:symbol=^tnx

If someone is actively looking for a property, they can “lock and shop”. The rate is slightly higher though than the current rate of having a property associated with the lock.

True. The $64K question is, will that 1300sf place that’s going for $400K now ever really get down to $200K? I still think youse guys are dreaming.

I’ve been following a particular zip code I may be moving into closely since early November. Seen a lot of houses move off the MLS unsold and plenty of places that look to be foreclosures along with a couple of people that delisted and popped back up again. I see the most price dropping activity in the lower-end of the scale though. Hope it spreads into what regular folk would be interested in soon. For what it’s worth, I see late ‘05 price levels for smaller houses but the normal and large places still haven’t dropped as much.

if you expect helicopter Ben to force inflation or hyperinflation, a house loan may be a good bet. the home will lose real value, but possibly much less so than your payments on the loan for it.

if you think deflation is inevitable, then you haven’t read this analysis, including a paper written by helicopter Ben:

“We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” -Ben

http://seekingalpha.com/article/60261-all-signs-point-to-more-inflation

it points to a perfect storm situation for hyperinflation.

maybe now is a good time to buy, if you think your income is recession-proof.

On top of the new qualification requirements, 5% on a $300K loan is still a ton of money.

http://www.mortgage-x.com/trends.htm

So, if the current rates do not kickstart the housing market I don’t think anything will. My guess? It will not make a significant impact, affordability is still way,way,way out of line with fundamentals.

The kicker is that qualifying for financing will likely continue to get much harder, with tightening critieria. Further, increasing numbers of people may find it impossible to refinance as property prices continue to fall leaving them with negative equity.

So, yes, mortgage rates may be lower in Januay 2008 than they are today but you may not be able to qualify.

I put a lot into SRS and SKF against the sage advice of my broker. I didn’t short the banks because those people are such rotten a**holes I figured that they would just create more lucrative bank fees to fill the hole in their balance sheets.

My family just got out of a big legal battle with one of the banks. They tried to steal my 91 year old grandmothers money. They charged her huge fees on a small trust that was set up by my great grandfather to taker care of her in her retirement. They charged her eight or nine thousand a year to administer her account and then refused to transfer the account when we tried to move it saying we didn’t have the legal right. The bastards lost because we have lawyers in the family and now my grandma has her money. I’m betting this is a new bank strategy aimed at the elderly who are the least likely to fight back.

Yeah, I’ve made tons with SRS and short positions on WM, CFC, SBUX & C this year. Other folks I know are complaining about the market, but I’ve just got a big smile on my face. :-)

Wow real estate really is making someone rich.

This is an area in which I’ve been terribly wrong over the last year. I really never expected rates to go back down to these levels.

It’s always a good time to XXXX.

However, one can reasonably assume that if a) the fed rates will be cut, and b) the supply of transactions is decreasing, then mortgage rates will also fall.

The only “mortgage” that’s tied to the prime rate is the HELOC – Home Equity Line of Credit. A lot of people have these as their second mortgage.

“Prime” rates are not the same thing as “fixed rate mortgage rates for *prime* borrowers”…