How is Inflation Affecting Your Daily Expenses?

[russ_watters]

Low entry-level housing supply + 1st-time buyers priced out in bidding wars + eviction moratoriums expiring July 31st (possibly will get extended) = rents getting jacked up (on both apartments and buy-to-rent homes)?

That's interesting, but it isn't as clear-cut as they imply, because they are defining a "starter home" to be 1,400 square feet. But what if the size of a "starter home" is rising? Then the decrease in 1,400 square foot homes is not a measure of the change in "starter homes".

Median home size is up from 2,057 to 2,301 sf since 2000:
https://www.statista.com/statistics/456925/median-size-of-single-family-home-usa/

I'm in my first house, and it's 1,500 sf. Several of my friends went for smaller condos in the early 2000s, but I went bigger, later.

Anyway, I'm still concerned about inflation. Or more specifically I'm worried about that other shoe that is going to drop when the COVID stimulus and consumer protections end. Home prices in particular look like they are in a clear bubble right now, that could collapse when the eviction moratorium ends next week.

 

[kyphysics]

I'm in my first house, and it's 1,500 sf. Several of my friends went for smaller condos in the early 2000s, but I went bigger, later.

Anyway, I'm still concerned about inflation. Or more specifically I'm worried about that other shoe that is going to drop when the COVID stimulus and consumer protections end. Home prices in particular look like they are in a clear bubble right now, that could collapse when the eviction moratorium ends next week.

It's maybe subjective, but I feel 1,400+ sf is pretty big for a "starter" home.

So, what happens to the houses currently occupied by "unevictables" after eviction bans are up? If landlords sell, then those institutional all-cash, above-asking-price bidders might jump in over mom and pop retail buyers (as is often happening now). I don't see any reason why that'd change and first-time retail buyers still getting priced out (whether by wealthier retail/individual buyers or institutional ones). If those landlords rent out their newly freed up homes, I think they'd have pricing power with so many people having nowhere to go. We might see a lot of people co-habitating more than they'd like.

Home construction supply chain bottlenecks + labor shortages (which might alleviate after September's pandemic related UI expires) should keep new housing supply limited at least for a while.

I think rents go up. . .

 

[kyphysics]

 

[kyphysics]

The cure for high prices is high prices?

 

[russ_watters]

Oh, good, that may be the start of the correction I've been hoping for/expecting.

The cure for high prices is high prices?

Not sure what you mean by that/how it's connected to the graph. The cure for higher prices is lower demand.
[edit] Oh, you're probably reacting to the article's discussion of average prices rising. The timeframes are different: the new home sales is month-to-month while the price is year-over-year. The trends make total sense in relation to each other.

 

[kyphysics]

Not sure what you mean by that/how it's connected to the graph.

Yeah, that's what that common Wall Street quote means. As in, high prices cure themselves, because less people eventually can buy.

 

[kyphysics]

Rents, though, have their own momentum. . .

Randomly, I had a friend go to Panda Express and order their new Steak n Shrimp dish (not bad - I 've gotten it 2x since it came out a few months ago) and said it only came with 3 shrimps. She complained and the manager/employee said that is the limit now (before, you got 5 shrimps). NOTE: You pay $1.25 EXTRA for ALL dishes with shrimp in them.

3 shrimps...pretty pathetic

 

[kyphysics]

Rent, rent, rent...Oh, the horror!

 

[Leo Liu]

While I don't know anything about the inflation of CPI in 2021, according to the World Bank, the year-on-year relative growth of CPI of the following 5 countries but 1 actually declined in 2020.

However...
Inflation rates for both the US and China have been astonishing since the onset of the pandemic, as they are shown below. It is interesting to note that while the inflation rate of China reached its highest point in 2020, the data for the US topped in 2021. It is possibly because the federal government approved several stimulus package so that American people have more money to spend, whereas in China most people did't get any helpful financial aid and the government tried to stabilize the prices of commodities.

 

[Leo Liu]

View attachment 285863
Nothing to see here.

Why did people buy/swap more houses during the pandemic? Was it because they had spare time to visit the houses for sale in person, as many of them are working from home; or was it because they realized the importance of a sweet and comfy home at which they were trapped?

 

[kyphysics]

Why did people buy/swap more houses during the pandemic? Was it because they had spare time to visit the houses for sale in person, as many of them are working from home; or was it because they realized the importance of a sweet and comfy home at which they were trapped?

Lots of reasons, Leo Liu, but a few were:
a.) Urban exodus in fear of COVID + work-from-home arrangements that allowed people to work remotely and away from more expensive urban housing areas into cheaper suburban communities (lower cost-of-living all-around oftentimes - from housing to food and other services). You saw a ton of wealthier urban residents flee NY and CA and buy up houses in Florida, Texas, and Arizona, for example.
b.) Average everyday people taking advantage of low interest rates initially to buy a home (and even if the overall home price was higher, the financing may have still led to a similar monthly payment given lower rates).
c.) The buy-to-rent craze from big U.S. institutional players (Blackstone, Black Rock, Brookfield Asset Management, etc.) to foreign buyers (China's wealthy have been doing this for the past decade), all the way pension fund investors and mom and pop/smaller house flippers and landlords.

The problem is that prices are so high now that "regular" (particularly, first-time) buyers are priced out. Landlords know this (and certainly the big institutional buy-to-rent players know it) and can raise rents as eviction bans expire today in the U.S. People still need a place to live, so I expect rents to rise.

 

[kyphysics]

https://www.yahoo.com/news/restaurants-may-not-survive-renewed-112839796.html

In Seattle, Steve Hooper of Ethan Stowell Restaurants (How to Cook a Wolf, Anchovies & Olives, Tavolata) said seafood prices are "through the roof," with lobster up 50 percent, and other supply-chain snags are impacting business: He ordered stools for a new restaurant in March; they haven't arrived and the opening is delayed.

Jasmine Donovan, president of Dick's Drive-In Restaurants in Seattle, said she can't buy mustard right now. Or salt. Or berry topping for sundaes: "And everything costs more, if we're lucky enough to be able to buy it." Trey Lamont, the owner Jerk Shack in Seattle, said chicken prices have more than doubled and he can't get Hennessy or other cognacs.

All of these headaches are accentuated by the growing threat of the delta variant and renewed discussions about masking. The Washington Hospitality Association in Washington State calculated that the average restaurant lost $20,000 per month last year. This means the average owner is in debt by more than $100,000, and often that debt is personally guaranteed with their home or car.

Restaurant owners really feeling it with inflation (on top of so many other issues)!

 

[kyphysics]

However...
Inflation rates for both the US and China have been astonishing since the onset of the pandemic, as they are shown below. It is interesting to note that while the inflation rate of China reached its highest point in 2020, the data for the US topped in 2021. It is possibly because the federal government approved several stimulus package so that American people have more money to spend, whereas in China most people did't get any helpful financial aid and the government tried to stabilize the prices of commodities.

That's a reasonable argument.

China definitely didn't blow out their deficits the way the U.S. did and part of that had to do with better containing the virus and people cooperating on things like social distancing, masking wearing, and the like. When we were getting a summer 2020 virus wave (July/August) last year, there were pictures (granted, it's hard to tell how accurate of a reflection they are of reality in China, given possible propagandistic media) of CEOs and business executives in China having meetings without masks, concert-goers partying, and people at water parks - all without masks. China's control of COVID and return to normal/growth has been smoother than the U.S.

But, additionally, China's used this period to deleverage their corporate debt markets (ongoing right now), so there are some deflationary pressures keeping inflation in check, even as growth renormalizes. This is contrasted with the U.S., where the corporate bond market was bailed out by the Federal Reserve. 20% of S&P 500 companies are "zombies" - so overly indebted that they have to issue new debt just to pay the interest on existing debt. When those zombie companies deleverage (be it 2022...2023 or whenever), there could be some deflationary pressures in the U.S. too. Deleveraging usually leads to slowed hiring (or outright layoffs) and cuts in R&D and other investments/capex to repay debt.

For the moment, we're seeing inflationary pressures not seen in the 2008-2009 GFC. That's partially due to the addition of fiscal stimulus we didn't get in 08-09 (where it was mostly monetary - low interest rates + QE). We had $8.8 trillion in stimulus ($5 trillion fiscal and $3.8 monetary) in 2020-2021. a good portion of which got into the hands of every day consumers vs. getting trapped in financial asset markets (like 08-09's recessionary response).

Money velocity (turnover) is higher when it is in Main Street's hands vs. that of the wealthy usually, as everyday people need that money to spend on necessities. Whereas, the wealthy already have money to buy what they like and giving them more money doesn't necessarily produce the same velocity. E.g., If Joe spends $5 tipping a cab driver, then that cab driver might spend that $5 on a hot dog for lunch. The hot dog stand owner may take that $5 and spend it on a pair of socks he needs. In that example, you have a velocity of 3. Each dollar put into the system produced a turnover of 3 transactions. Giving that same $5 to Bill Gates, Warren Buffet, Jack Ma, Pansy Ho, etc. may have a turnover (velocity) of 0.

Having said that, money velocity is still not that high (and survey data has also shown that people plan to spend only about 25-30% of their stimulus money and use the rest to pay down debt and save/invest), so that, alone, is not all that is causing inflationary pressures. We have various bottlenecks in the economy caused by supply chain issues and labor shortages that are also contributing to rising prices.

It remains to be seen if these get resolved going into next year. For the time being, it's pretty brutal for those who are renters and have lower incomes not well-suited to absorb inflationary pressures.

 

[kaiatiuw]

Those are some drastic increases in rent.
Yesterday, a close friend of mine had shown me her increase letter (attached). Nothing drastic, although nobody wants an increase, I get it. This one 100% real, southern California, one bedroom apartment in Costa Mesa.

 

[kyphysics]

Housing inflation is considered one of the "stickiest." Leases can be 1-2 years on apartments.

This is going to be interesting . . .One thing I'm reminded of is the "domino inflation effect" that can occur. Some of the 1970's inflation is said to have been a result of this. You can have just one area of the economy showing persistent inflation and that leads to higher prices elsewhere and then somewhere else - and so on and so forth.

Sometimes people have to raise prices, because they simply have to be profitable/need to survive. Will we get a vicious cycle?

 

[kaiatiuw]

I think so. Once the injection has been made, the vicious circle has no where else to go but to do what it does.
Inflation is the only way out for us. Debts do not get re-adjusted to inflation, and only some costs get adjusted and even then only to the so-called "official inflation", thus overall, the inflation is hugely beneficial to the borrowers, and the number one of them is the state itself.
I think that following the state in it's footsteps should be an important prerogative to an aspiring survivor.

 

[kyphysics]

This can't be good, right?

 

[kaiatiuw]

Twitter blocks the posts from showing up here. But, I went there and read it anyway. Thank you,yes, interesting.

Danielle DiMartino tweets: "There are “800,000 net new single-family homes a year. In that context, 64,000 build-to-rent units is ~8% of annual net new supply & that share could double by 2024.” Living the American Dream (well, at least the haves who don’t get sentenced to serfdom)."
Picture caption: Wall street squeezing out the first time buyers.

No, that is all good, I think. That is all business. Business means "to provide the customers with what they demand at the cost lower than if they did it themselves". By definition. So, I think that tweet is completely wrong.

If we disassemble the situation, we do not see how the first time buyers are "squeezed". If they really have the demand, then more will be built no matter if some of the new construction is purposed for rent.

Moreover, these "build-to-rent" houses increase the overall construction goods and services demand, thus lowering the prices thru the economies of scale. This is exactly why some things that everyone buys cost so much less than the things only a few people like to buy.

But, there must be no restrictions to the growth of the supply. And here we come to the third point:
To squeeze someone out you need to stop the supply from increasing, and only the governments can do that. To the extent that there are any less homes built than absolutely physically possible, it is the government that is squeezing the new home buyers because they:
- always keep the construction costs higher thru their bureaucracy,
- always keep the construction supply lower thru their regulations,
- always support the housing markets as we saw in 2008 wiping out any opportunity for the new buyers, and doing so just to save those existing home owners who miscalculated thru their own fault and should have been bankrupted by the crisis.

But, everyone knows that and I am preaching to the choir here.

Isn't Danielle some sort of self-proclaimed "pro-capitalist" speaker? I thought so. If true, then isn't it funny that she would tweet something so ridiculously incorrect. Ah, just found it. Guess what ? Danielle is a former FED advisor. Ha-ha-ha.

So, the fox is worrying about the chicken coop?

 

[kyphysics]

The housing market is so hot, a burnt-out Bay Area home is drawing cash bids above $850,000​

https://www.yahoo.com/finance/m/646eccf1-528b-39ea-85ae-d63084fad363/the-housing-market-is-so-hot-.html

 

[kyphysics]

I keep saying this, but I love that Costco has $5 rotisserie chickens still. It's a money loser for them that helps lure in customers (like their famous hotdogs). I buy two chickens every trip (cut the meat up and freeze it).

Costco gas $2.76 (elsewhere about $3.00). Inflation is everywhere, but pockets of savings/deals still exist.

 

[kyphysics]

China to US (West Coast) shipping costs are up 10x since pre-COVID.

 

[kyphysics]

https://www.bloomberg.com/news/feat...orcing-families-to-scrimp-at-the-dinner-table

Soaring Cost of Food Is Forcing Families to Scrimp at the Dinner Table

Inflation is slamming the freezer shut and leading households around the world to make sacrifices.

Whether at supermarkets, corner stores, or open-air markets, prices for food have been surging in much of the world, forcing families to make tough decisions about their diets. Meat is often the first to go, ceding space to less expensive proteins such as dairy, eggs, or beans. In some households, a glass of milk has become a luxury reserved only for children; fresh fruit, once deemed a necessity, is now a treat.

Food prices in July were up 31% from same time last year.

Central banks often disregard food and fuel inflation when setting policy because they’re the most volatile categories in the typical basket of consumer goods and services. “However, when ordinary people think about inflation, they don’t want to exclude food and fuels,” says Shang-Jin Wei, a professor of finance and economics at Columbia Business School. Given the rise in inflation that average consumers are experiencing, “I’m predicting we are underestimating the chance that central banks will take more drastic measures than central banks themselves are predicting.”

 

[kyphysics]

View attachment 287492

The housing market is so hot, a burnt-out Bay Area home is drawing cash bids above $850,000​

https://www.yahoo.com/finance/m/646eccf1-528b-39ea-85ae-d63084fad363/the-housing-market-is-so-hot-.html

https://www.cnbc.com/2021/08/19/this-fire-charred-silicon-valley-home-just-sold-for-1-million.html

SOLD: $1 MILLION
Hell, there was even a bidding war over this piece of trash!

 

[Bystander]

bidding war over this piece of trash!

The lot, tear it down and rebuild...it's the property, not the house itself.

 

[kyphysics]

The lot, tear it down and rebuild...it's the property, not the house itself.

Nah. It was definitely for the avante garde climate change victim art house. It's the new thing nowadays. Gotta get with the times, Bystander. Your house may be worth more burnt down.

Warren Buffett has some advice for inflation protection:
https://www.cnbc.com/2021/08/19/warren-buffett-inflation-best-businesses.html

At the 2015 annual Berkshire Hathaway shareholder meeting, Buffett was asked which of his company’s holdings were best poised to thrive during a period of high inflation. Buffett’s response: The best business to own is one that doesn’t require continuous reinvestment because it becomes more and more expensive as the value of a dollar drops.

“The best businesses during inflation are the businesses that you buy once and then you don’t have to keep making capital investments subsequently,” Buffett said, adding that “any business with heavy capital investment tends to be a poor business to be in in inflation and often it’s a poor business to be in generally.”

Businesses like utilities or railroads “keep eating up more and more money” and aren’t as profitable, he explained. He prefers to own companies that people have a connection to.

Instead, “a brand is a wonderful thing to own during inflation,” Buffett said. For him, that includes brands like See’s Candy, which he’s owned since 1972.

 

[kyphysics]

Rents are rising most for those who sign new leases. But even people renewing them are getting sticker shock. Carmen Santiago, a dental assistant who was paying $1,479 a month for a two-bedroom apartment in Tampa, gave notice to her landlord in March after the rent jumped by $300.

The mother of two then racked up more than $1,000 on non-refundable application fees that she handed to about 10 landlords, sometimes getting in line without even seeing the properties first. A couple days before her lease expired in June, Santiago took a last-ditch drive. She visited five apartment complexes, all filled. The sixth, a vast complex with 22 buildings, had one unit available.

The two-bedroom cost more than $1,900 a month, including a mandatory cable bill -- more than Santiago would have paid if she renewed her old lease. She could hardly afford it but took it before it was gone.

 

[russ_watters]

China to US (West Coast) shipping costs are up 10x since pre-COVID.

Interesting. The pandemic is teaching us a lot about elasticity/flexibility.

Still, while a lot of this stuff shows up on the CPI, I don't think it is really accurate to call it "inflation" if it's still transient pandemic effects. We'll find out next year which/to what extent they are transient vs persistent.

SOLD: $1 MILLION
Hell, there was even a bidding war over this piece of trash!

Looks like some pretty solid kiln-hardened framing to me. Also I see savings in reduced demolition for the renovation.

 

[gmax137]

Looks like some pretty solid kiln-hardened framing to me. Also I see savings in reduced demolition for the renovation.

I just did a real estate search for Walnut Creek. It showed two listings under one million (one looks like a lot and the other is at $999,999). There are 14 listed under $1.25 million. There are 41 listings altogether. So $1 million really is the bottom of that market. Amazing to anyone not from Cali.

 

[kyphysics]

https://www.wsj.com/articles/renters-prepare-for-eviction-after-supreme-court-ruling-11630102006
Seems like rents could surge now that the Supreme Court has overturned the national eviction ban.

Millions of renters are at risk of being evicted and the states and cities charged with providing emergency rental aid are unlikely to reach many in time, after the U.S. Supreme Court struck down a national ban on most evictions Thursday night.

Landlords, with the exception of those in a handful of states and cities that have their own restrictions, will be able to go to court and obtain evictions for unpaid rent.

In most courts, eviction cases that have been delayed by judges for many months and can now begin to go forward again. In others, evictions that were approved and in the hands of marshals and sheriffs are ready to be executed. In states including Texas, some judges were allowing evictions to go forward, despite the ban.

Landlords could be playing "catch up" too, in order to make up for lost payments/profit.

 

[russ_watters]

Seems like rents could surge now that the Supreme Court has overturned the national eviction ban.

Landlords could be playing "catch up" too, in order to make up for lost payments/profit.

I think you have it backwards; it wasn't a rent increase moratorium. Since people weren't paying and they couldn't be evicted, occupancy rates were high and will drop when evictions start up again. Lower occupancy would push prices back down.