Effects of inflation on Villa Rosa, (sorry Prof)

awgee_IHB

awgee_IHB

New member
My take is that our economy is about to be engaged by severe price inflation caused by severe monetary inflation that has so far been channeled into different asset classes rather than consumer prices. As the latest asset bubbles deflate, consumer prices will finally reflect real monetary inflation. Presently this is reflected in an astounding jump in commodity prices which will continue. As consumers find they need to spend more for basic necessities, they will have less to spend on anything other than basic housing. Real estate prices will continue to fall, and housing will become less and less affordable because we will have to spend more of our income on non-descretionary goods.<p>


A house in Irvine will "cost" 2/3 less in 2012 than 2006 irregardless of the price. If Mr. Buyer can afford a $1,000,000 house today, he will be able to afford a $300,000 house in 2012. And it does not matter if in dollar terms that house is $300,000, $1,000,000, or $2,000,000. One must understand the difference between cost and price. In the long term, affordability drives the housing market.
 
There is a psychological benefit to inflation: people don't see it. If we had no inflation, house prices would drop 50% in nominal terms. If we add in 20% inflation, we only need a 30% drop in nominal prices to get us to the same point. People will not feel so bad, and they may not default in as large of numbers if the latter scenario takes place. IMO, this is where we are heading.





If someone where ambitious, I would like to see the relative worth of today's housing (20% off peak in nominal terms) reflected in gallons of gas or ounces of gold. For instance, if in 2006 gas was $2 per gallon, and houses were $700,000, then houses were trading at 350,000 gallons of gas. Now that gas in nearing $4 per gallon, and the same house is going for $550,000, the new "value" of that house is 137,500 gallons of gas. The nominal price of the house has only dropped 20%, but the value of the house when converted to gasoline has dropped more than 50%. That is inflation...
 
<p>Hmm, gas in Las Vegas was 99 cents a gallon in 1997. It's now $3.15 in Seattle which means my house converts to 112698 gallons of gas at current prices, but the value adusted for inflation is 358586 gallons of gas... or $111,500 in 1997 dollars ...depending on which way to want to run the numbers. That's roughly half of what we paid for it 3 years ago, and less than one-third of the owner's current asking price 5 doors down the street. In plain language, that's 300% inflation across 11 years.</p>

<p>Someone check my math, current comps $355k, original purchase price $235k.</p>
 
Anyone have an update on Villa Rosa - and more importantly, whether the inflation we are all dealing with has had an impact on the pricing? Last time I checked, they had sold three of the homes on (busy) Winding way. It seems that 30-year interest rates have increased a bit since Jan-Feb... and Gas/Food has undeniably increased... so their "should" be a commensurate decrease in home pricing... because of pressure on financials in general...or is the amount of builder profit shrinking under the effects of inflation too... reducing the builders ability to reduce? leading us all back to when TIC will give concessions? Seems to me, TIC is among the best of the fence sitters. Anyone know if the Lennar home office is feeling the pain?
 
Great Topic!



How true is this... When the prices of commodities rise (inflation), so does your house, or your improvements. When the cost of steel, oil, wood, dry wall, does up so does the value of your house. During the bubble, both the price of your land and improvements went up, but independently. However as the down turn continues only the value of your land drops; I believe the value of your improvements will continue to rise. What is the average price of construction again.. $60-$80/sq feet? We can already see some of those prices by Lake Perris and the I.E. It is another good way to tell if a certain neighborhood has hit bottom. When the price per sq feet is close to construction price then it can't possibly go any lower.
 
I wish you were right, but alas, you are not.



Something is worth what somebody else is willing to pay (absent some

sort of force). There have always been info on whether you get money back

on home improvements. Kitchens, almost always yes, bathrooms nearly as good

as kitchens. Other stuff, less and less. Pools you supposedly only get 50 cents

on the dollar back.



Out there in Lala Land, oops, Southern California, it would be hard to think

that prices would go lower than the cost of construction, if it's 85 bucks

a square foot. Other places, easier

to believe. I would say right now in Cape Coral-Ft Meyers Fla, prices are considerably

below the cost of contruction.



There is nothing conceptually wrong with thinking that under certain

circumstances the whole would be worth considerably less than the sum

of the parts.
 
At least in the case of agriculturual property, it often happens that the pricing is less than the replacement costs. Oranges in the early/mid 1980's come to mind.



The opposite is often true. I can remember vividly looking at winegrapes in Paso Robles area in the late 1990's and seeing prices for in production grapes at about $15K an acre. You could buy ground and plant your own for about $8K an acre at the same time!



Problem was in both cases you couldn't make a profit in oranges in 1984 or winegrapes in 1999 regardless of the cost of production.
 
[quote author="no_vaseline" date=1215322049]At least in the case of agriculturual property, it often happens that the pricing is less than the replacement costs. Oranges in the early/mid 1980's come to mind.



The opposite is often true. I can remember vividly looking at winegrapes in Paso Robles area in the late 1990's and seeing prices for in production grapes at about $15K an acre. You could buy ground and plant your own for about $8K an acre at the same time!



Problem was in both cases you couldn't make a profit in oranges in 1984 or winegrapes in 1999 regardless of the cost of production.</blockquote>


If you buy and plant, doesn't it take about 7 years before you get decent crops for wine grapes?
 
[quote author="No_Such_Reality" date=1215322617][quote author="no_vaseline" date=1215322049]At least in the case of agriculturual property, it often happens that the pricing is less than the replacement costs. Oranges in the early/mid 1980's come to mind.



The opposite is often true. I can remember vividly looking at winegrapes in Paso Robles area in the late 1990's and seeing prices for in production grapes at about $15K an acre. You could buy ground and plant your own for about $8K an acre at the same time!



Problem was in both cases you couldn't make a profit in oranges in 1984 or winegrapes in 1999 regardless of the cost of production.</blockquote>


If you buy and plant, doesn't it take about 7 years before you get decent crops for wine grapes?</blockquote>


No. You can do it in 3, 4 max.



My post should of read "regardless of fixed costs." The cost of production exceeded the revenue stream from the production in both cases.
 
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