Seattle Bubble Forum Archive

Real estate can also be a hedge against inflation. One alternative to the housing bubble is that inflation is much higher than reported and the market is responding accordingly.

If the dollar does lose 90% of its value over the next ten years, then that $600k loan becomes a $60k loan in today's dollars.

Mexico occassionally devalues its currency. Rumors are that the officials in the know take out huge loans in Mexican Pesos, convert the loan to USD, then pay the loan back after the devaluation.

This is true but I highly doubt it's going to take 10 years. When this unwinds, it'll probably happen quickly.

Instead of doing something dumb like getting a home loan, invest in PM's, then convert them back into dollars after the crash and buy real estate for LESS than pennies on the dollar.

Cash is likely to be king, but not so much if you had it in the stock market or in a bank. if you didn't have your money in dollars (you had it in gold or maybe some offshore mining companies) you should be very rich. Who knows what will happen.

Alan,

Your scenario of housing being a hedge against inflation needs some modification.

Yes, if the US peso loses 90%, you will be paying back the bank at 10 cents on the dollar.

Question: Will your earnings keep pace with inflation, or will you be earning 10 cents on the dollar?

If your earnings don't track inflation (as they now are not), but internationally traded commodities do, you will have less money left over to devote to housing. While this is no big deal to your situation, if you ever try to sell, your buyer will find that he doesn't have the money to devote to PITI, and you can lose both ways on real estate.