The Broker's Record

Stagflate your way to Greater Home Equity

March 06, 2008

So here I am, working on some reports about the properties I’ve got listed, and to cut down the monotony, I browse news web sites from time to time, to keep up on what the corporate media would have me believe today. So, I load up CNN.com as I do to see what’s up with this crazy world of ours. It’s just gotten a little crazier.

[From CNNMoney.com - Home equity slips below 50% - Mar. 6, 2008]

Americans’ percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.

Isn’t that great? That’s great. I was having a conversation about this last weekend, about how the country is basically bankrupt. Well, of course, that might be kind of hyperbolic (although come on, hyperbole really is the spice of life, isn’t it? Or at least of glib conversations about the state of the US Economy). But it’s not looking good. That, and all this worrisome talk about stagflation.

Stagflation. Remember that? I don’t. Not really well. I’m 37, so in the 1970’s I was between 0 and 9 years old. I do have some recollections of the era. Polyester. Bell bottoms. Gas lines. Big collars. Disco. The sense of malaise. Sure, when I was 7, I didn’t know what malaise was, but I kind of got the vibe that things weren’t as groovy on Main Street as they were on the dance floor like in Saturday Night Fever.

But you know me, I’m always looking for the silver lining in those dark clouds lining up on the horizon. I have to. I’m a Realtor. My thinking is that now is the time to take out a huge amount of fixed-rate mortgage debt. I mean, if inflation kicks up (and it looks like it is), then what does that do to the real value of your debt? Why, it eats it right away. If you are paying 6% interest on your loan, and inflation is at 6% – why, that means you are getting your house interest free. And, rent and home prices should increase right along with inflation, making it a really good hedge against it.

So it could be that Stagflation is going to be the knight in shining armor riding right in to help all these homeowners with negative equity in their houses. Funny, that. Of course, it’ll probably wreak havoc with the rest of the economy and probably people will be squeezed even harder for food, utility, gas prices, etc. such that they’ll end up having trouble making their mortgage payments, even if they become increasingly, relatively speaking, affordable.

Posted by SantaCruzBroker at 1:41pm
No Comments »