gzz Comments on Rich's new article

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Submitted by gzz on October 18, 2021 - 1:17pm

Asking rents rose by 9% in our July-July period, which is a lot, but is dwarfed by the 20% rise in home prices. In San Diego, asking rents rose 12% against the 28% increase in home prices

Some reasons for this that don't imply prices are overshooting rents:

1. Rents are stickier than residential prices. Both are on the sticky side, with mortgage appraisels an example of a price-only factor.

But rents are literally 100% sticky for a lot of people because they are fixed by contract, as in 12 month leases. Some also have built in annual increases, which are certainly not going to be in the 28% YoY range.

2. Rent increases are legally limited. In San Diego the restriction isn't too intense, I believe 60 days notice for an increase of more than 10%. Nonetheless, the restriction exists.

3. The eviction moratorium shifted the legal landscape against landlords. Landlording involves a small risk that a tenant will become a costly disaster who stops paying rent, trashes the place, and fights eviction.

4. Low stakes. Raising rent can always be put off till next year at fairly low cost. $1200 less rent over a year on a property that appreciated by $300,000? Who cares! Taking lower than market rent can and often is a combo business decision, lifestyle decision, and small act of charity and goodwill in a way that selling for 10% under market in a hot market never will be.

Of course these factors primarily apply to current tenants, and can be worked around by looking at asking rents for vacant units. But they still matter: if rents are below their "economic value" set by supply, demand, and the alternative of buying, current tenants will sit tight and not enter the market for vacant units.

Shorter version of my thesis is that a large number of sticky price factors, not just the four above, mean that rents simply never make the dramatic moves price do. The corollary of this is that prices could go flat for 3 years, but rents would likely keep rising at a moderately fast clip until they more or less match the price increase.

The best evidence of my thesis that rents are temporally below market clearing prices is that there is a shortage of them. And it certainly seems that way, my co-worker who recent moved talked about tons of people showing up to rental open houses and offering more than list price. Published vacancy rates are very low too. A gigantic LA complex I am familiar with from work is exactly 1% vacant despite raising asking rents by about 60% over the past 8 years.

Submitted by gzz on October 29, 2021 - 12:06pm.

Restaurants are more expensive? You mean like inflation?

Yes, inflation! And no needed hedonic adjustment, similar but the opposite of phones, TVs, cars, etc. Prices at restaurants are going up while quality is going down.

But it is also an example of transitory inflation caused by one-time factors. The industry had a double supply shock.

First, the "900 a week in unemployment to people who were making $500 a week working" federal policy hit the labor supply of restaurants really hard.

Second, COVID caused a lot of restaurants that were marginal to shutdown permanently. While some might reopen, others had owners just retire, while others changed industries. Reopening during a severe labor shortage and shifting COVID regulations is a lot harder than just having an existing business on autopilot.

Submitted by sdrealtor on October 29, 2021 - 2:25pm.

I bought a TV recently. It was quite expensive. Far more than I ever paid before. Sure you can get a cheap one several generations of technology older but current technology tv's have gone up a lot. I also looked at the car I drive last night. I got a new one in December with one week delivery. Now I'd have to wait until June or buy a used one for more than I paid ten months ago. Or I order today, wait until June to get it and pay 9.3% more for the exact same vehicle without 1 year free use of the superchargers.

I've got a 3 year old iPhone but I know a current replacement of new release will be substantially more than I paid for a new one 3 years ago.

You keep discounting inflation but never post a real actual current example of you going out and actually buying something. That leads me to think your very frugal and dont spend much else you would experience much more of it

And the inflationary is not transitory now. If things go back down substantially we can say yes it was but for now its inflation. Only in the future can you make that claim. If prices dont pullback it wont have been transitory now wouldnt it

Submitted by teaboy on October 29, 2021 - 2:37pm.

sdrealtor wrote:
And the inflationary is not transitory now. If things go back down substantially we can say yes it was but for now its inflation. Only in the future can you make that claim. If prices dont pullback it wont have been transitory now wouldnt it

“Transitory” inflation could mean one of three scenarios:
1.Prices rise and plunge.
2.Prices rise and stay where they are.
3.Prices rise and continue to rise, but more slowly.

https://www.globest.com/2021/08/25/when-...

Submitted by an on October 29, 2021 - 3:00pm.

teaboy wrote:
sdrealtor wrote:
And the inflationary is not transitory now. If things go back down substantially we can say yes it was but for now its inflation. Only in the future can you make that claim. If prices dont pullback it wont have been transitory now wouldnt it

“Transitory” inflation could mean one of three scenarios:
1.Prices rise and plunge.
2.Prices rise and stay where they are.
3.Prices rise and continue to rise, but more slowly.

https://www.globest.com/2021/08/25/when-transitory-inflation-really-means-dont-worry/#:~:text=Inflation%20has%20wreaked%20havoc%20on,apartment%20materials%20are%20no%20different.&text=%E2%80%9CTransitory%E2%80%9D%20inflation%20could%20mean%20one,to%20rise%2C%20but%20more%20slowly


That literally explain the last century. So, I guess inflation over the last century is just transitory. Nothing to see here. lol

Submitted by sdrealtor on October 29, 2021 - 3:32pm.

teaboy wrote:
sdrealtor wrote:
And the inflationary is not transitory now. If things go back down substantially we can say yes it was but for now its inflation. Only in the future can you make that claim. If prices dont pullback it wont have been transitory now wouldnt it

“Transitory” inflation could mean one of three scenarios:
1.Prices rise and plunge.
2.Prices rise and stay where they are.
3.Prices rise and continue to rise, but more slowly.

https://www.globest.com/2021/08/25/when-transitory-inflation-really-means-dont-worry/#:~:text=Inflation%20has%20wreaked%20havoc%20on,apartment%20materials%20are%20no%20different.&text=%E2%80%9CTransitory%E2%80%9D%20inflation%20could%20mean%20one,to%20rise%2C%20but%20more%20slowly

I agree but I was using gzz"s def

Submitted by scaredyclassic on October 29, 2021 - 3:58pm.

Ego inflation is on the rise.

Submitted by gzz on October 30, 2021 - 4:02pm.

SDR, I am on the frugal side overall but last month I purchased a 33k new CUV at msrp and 3 new iphone 13 promaxes for me, my partner, and my longest serving/suffering employee. That’s $1180 a pop with tax x 3.

My prior phone was the regular 11. 2 years ago it was 699 before tax, now Apple is selling the 11 new for $499. It is irrelevant that it is now an “old model” as price decreases is literally what deflation is.

The old car and phone were fine, I just wanted the best camera for my coming son and a car with the latest safety features. The pretax 1099 price point of the 13 promax is the same as Apple’s past few flagships, despite a ton of upgrades. We’ll also probably get one if those $1000 fancy strollers, ideally used, and then about $1500 for a postpartum doula.

Submitted by gzz on October 30, 2021 - 4:03pm.

Transitory whenever I have seen it means a return to pretrend inflation of about 2%.

Submitted by sdrealtor on October 30, 2021 - 5:10pm.

Buying an iPhone 11 today is like buying spoiled milk. It’s depreciation not deflation now that it’s not the newest technology. When comparing phone prices you should be comparing the difference between buying top of line them and now. There was no $1200 phone then. The bar to current technology is higher cost now

Submitted by scaredyclassic on October 30, 2021 - 6:50pm.

sdrealtor wrote:
Buying an iPhone 11 today is like buying spoiled milk. It’s depreciation not deflation now that it’s not the newest technology. When comparing phone prices you should be comparing the difference between buying top of line them and now. There was no $1200 phone then. The bar to current technology is higher cost now

One man's spoiled milk is another man's yogurt.

Submitted by gzz on November 2, 2021 - 3:27pm.

Depreciation and deflation have actual definitions in economics, and not the way you use the words. The decrease in the market price of a new product over time is the latter, not the former.

Submitted by gzz on November 2, 2021 - 3:29pm.

One man's spoiled milk is another man's yogurt.

Mom has my old 11, and she likes it a lot. She was holding onto her 8 because she liked the fingerprint ID.

Submitted by sdrealtor on November 3, 2021 - 10:06am.

gzz wrote:
Depreciation and deflation have actual definitions in economics, and not the way you use the words. The decrease in the market price of a new product over time is the latter, not the former.

An iPhone 11 is not a new product. It's a clearance item on the clothes rack with the rest of the men's medium and small sizes. The iPhone 13 is a new product

Submitted by an on November 3, 2021 - 2:50pm.

sdrealtor wrote:
gzz wrote:
Depreciation and deflation have actual definitions in economics, and not the way you use the words. The decrease in the market price of a new product over time is the latter, not the former.

An iPhone 11 is not a new product. It's a clearance item on the clothes rack with the rest of the men's medium and small sizes. The iPhone 13 is a new product


Nordstrom Rack vs Nordstrom, Off 5th vs Saks, etc.

Submitted by sdrealtor on November 3, 2021 - 3:20pm.

A drop in price due to functional obsolescence is very a very different thing than my Happy Meal going up in price

Submitted by phaster on November 7, 2021 - 3:17pm.

scaredyclassic wrote:
Ego inflation is on the rise.

so do you think the rise in "ego" is sustainable,... or do you think there is an "ego" bubble?

Submitted by carlsbadworker on November 7, 2021 - 7:24pm.

phaster wrote:
scaredyclassic wrote:
Ego inflation is on the rise.

so do you think the rise in "ego" is sustainable,... or do you think there is an "ego" bubble?

Doesn't the ego bubble go with the financial bubble?

Submitted by scaredyclassic on November 8, 2021 - 11:02pm.

carlsbadworker wrote:
phaster wrote:
scaredyclassic wrote:
Ego inflation is on the rise.

so do you think the rise in "ego" is sustainable,... or do you think there is an "ego" bubble?

Doesn't the ego bubble go with the financial bubble?

I don't know. Some believe there is plenty of room to run, that we can all be egomaniacs and that the ego economy can sustain loads more attention and hubris. But I'm not convinced. I believe we are reaching peak ego.

Prudent emotional advisors recommend a diversified portfolio filled with not just ego, but also a sizeable percentage of shame, despair, awe, fear and joy.

Right now I'm pretty conservative at 60 perc. Self, 40 perc. Others. As I age, I expect to move most of my psychic portfolio to others.

Submitted by barnaby33 on November 8, 2021 - 11:40am.

The old model where inflation and nominal interest rates moved closely in tandem was based on a world where the marginal and median dollar saved was from middle class families. That world is dead, replaced by our current world of extreme inequality and elite domination. And while a middle class family may decide to spend more if inflation is high and return on their bank account balances is low, the wealthy just don't work that way.

Wow that is a bigly complicated explanation. I prefer the much simpler version. Interest rates are low because money is in great supply without as much demand. As long as the FED keeps printing bonars and Congress keeps spending them; as long as foreigners keep accepting them at a premium then interest rates will stay low.

Submitted by sdrealtor on November 8, 2021 - 12:04pm.

You seem to be enjoying spreading them around the world as of late

Submitted by barnaby33 on November 8, 2021 - 12:49pm.

The few that I have left!

Submitted by scaredyclassic on November 8, 2021 - 1:36pm.

barnaby33 wrote:
The few that I have left!

then you are getting wealthier, because the fewer dollars you have, the more they will be worth to you. congratulations!

Submitted by DaCounselor on November 9, 2021 - 11:55am.

carlsbadworker wrote:
phaster wrote:
scaredyclassic wrote:
Ego inflation is on the rise.

so do you think the rise in "ego" is sustainable,... or do you think there is an "ego" bubble?

Doesn't the ego bubble go with the financial bubble?

The first time I fully appreciated the Ego Bubble was when I listened to endless Investing Genius commentary at my local gym during the dot.com insanity. I had no idea I had been in the company of so many geniuses until they dazzled me with stories of their investing acumen. About a year later, the conversations avoided investing entirely, and it was back to which brand of protein shake was best. Same thing during the RE bubble about 5 years later.

When Ego Bubbles burst, I call it The Great Humbling. I suspect we're in for another such event but I have no idea when.

Submitted by scaredyclassic on November 9, 2021 - 4:55pm.

ego volatility also seems to be at an all time low. Usually, I think I'm an idiot in the afternoon, pretty smart mid morning. Now i think Im a dumbass all day long.

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