My wife Jo and I recently sold our home in AZ and bought in The Villages, Florida. Well-meaning family and friends questioned our wisdom on two fronts, age and economics. I want to address both today.

In a short period of time, housing prices have skyrocketed while mortgage rates have risen. Will prices soon come crashing down? While no one suggested that, at 85 I might wait a couple years, losing money is a real possibility.

Others subtly questioned moving “at my age.” Having dealt with cancer, the Florida experience may not be long term. Perhaps….

Housing

For years, I’ve felt the public has been deliberately misled by the banks and the government. Time to get things out in the open….

The underlying cause of the 2008 mortgage collapse and “Too big to fail” bank bailouts was lenders making ridiculous loans to high-risk borrowers, and then passing the risk on to others; investors and the government (taxpayers). Congress, passing legislation against the will of the majority of Americans, bailed out the banks with our tax dollars.

Historic low interest rates followed, causing mortgage rates to drop.
 

It took a few years to get through a recession, but then housing prices really took off.
 

In eight years, the price of the average home jumped from $259,700 to $384,600, a 48% increase.

But Wait – There’s More!

Along came Covid in 2020. Mortgage rates were already low (3.62%), but the Fed/government happily flooded banks with more fake money, cutting interest rates below the inflation rate, reaching a low of 2.68% in December 2020.

Predictably, inflation skyrocketed, rising from 1.23% to over 8% in two years. Housing prices jumped even more! The average price rose from $384,000 to a high of $525,100 in less than two years, a 37% increase! In less than a decade the sales price of the average home doubled.

Unable to ignore the political fallout of high inflation, the Fed had little choice but to raise interest rates; mortgage rates quickly followed. Housing prices remained high, while an entire generation of young people are (understandably) complaining about being unable to afford a home.

The Dirty Little Secret No One Talks About!

The politically biased media screams about the “Affordability Crisis,” blaming both high prices and mortgage rates. President Trump demands the Fed lower rates to lower rates to stimulate the economy.

If only it were so easy – it’s a catch-22. Drop rates, inflation rises, housing prices soar. Increased interest rates help tame inflation; however, home prices don’t drop as rapidly as they rose. Many buyers are priced out of the market; they simply can’t afford the monthly payments.

Wolf Street weighs in:

“Mortgage Rates Are Not Too High. What’s too High Are Home Prices that Exploded by 40-70% in 2 Years, Creating the ‘Affordability Crisis’

Lower mortgage rates are the problem, not the solution to the affordability crisis. Low mortgage rates have caused the affordability crisis. If mortgage rates were forced back below 4%, with inflation as high as it is, it would cause home prices to rise even further and faster, and make the affordability crisis even worse.

Every adult in the room knows this. But it’s politically incorrect to say it out loud because somehow the industry dogma has to be maintained that home prices can never decline, even after they’d exploded by such crazy amounts.

The solution of the affordability crisis is many years of rising wages and falling home prices that over time would unwind the crazy home price explosion that started in mid-2020.

Mortgage rates that are higher than CPI inflation by a historically normal spread — so currently at around 6.3% — would allow declining market prices and rising wages to find each other over the years, thereby solving the affordability crisis and bringing a modicum of sanity and health back to the housing market.”

The Mises Organization, in a very powerful article, The Road to De-Civilization: Inflation and the Moral Erosion of Society, explains the charade; the Wolf Street solution is addressing the symptom, not the real cause of the inflation problem:

“The Nature of Inflation

Inflation,…is not a general rise in prices but an artificial expansion of the money supply. Everything else flows from that root cause. Prices do not rise uniformly, nor do they rise spontaneously. There are supply and demand reasons why prices can rise. However, prices largely rise at present because additional monetary units are injected into the economy, altering the structure of production and distorting economic calculation from the ground up.

Quoting Ludwig von Mises:

…. Inflation, as this term…especially in…the United States, means increasing the quantity of money and bank notes in circulation. …. But people today use the term ‘inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise.

…. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil.”

Politicos love to blame their opponents when prices rise and people face hardships. They can tweak interest rates, provide all kind of economic incentives, but as long as “the quantity of money and bank notes in circulation” is left unattended, the problem will persist.

 

Government deficit spending, enabled by the Fed creating trillions out of nothing, will cause the problem to not only continue, but get worse. The political class prefers it that way!

Quoting Murray Rothbard:

“The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about “inflation,” for which virtually everyone else in society seems to be responsible. What we are seeing is the old ploy by the robber who starts shouting “Stop, thief!” and runs down the street pointing ahead at others.

We begin to see why it has always been important for the Fed, and for other Central Banks, to invest themselves with an aura of solemnity and mystery. For, if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that

Jorg Guido Hulsmann chimes in:

“…. Inflation springs ‘from a violation of the fundamental rules of society,’ transforming what should be honest economic exchange into systematic deception.

…. When fiat inflation ‘turns moral hazard and irresponsibility into an institution,’ it destroys the pricing system’s ability to convey truth. In such an environment,…it is difficult to explain the difference between truth and lie,’ prices cease to function as reliable signals coordinating economic decisions.

…. Through debt-based policies, ‘Western governments have pushed their citizens into a state of financial dependency unknown to any previous generation.’

…. Towering debts are incompatible with financial self-reliance and thus they tend to weaken self-reliance also in all other spheres. The debt-ridden individual eventually adopts the habit of turning to others for help, rather than maturing into an economic and moral anchor of his family, and of his wider community. Wishful thinking and submissiveness replace soberness and independent judgment.”

Market Timing???

If mortgage rates hold as Wolf Richter suggests, home prices should normalize and our country will be better off. Until the Fed is radically changed, or eliminated, and Glass-Steagall reinstated, the bankers will continue to destroy the dollar and our society will decline. When our children eventually inherit our new home, they will find it has been a good inflation hedge.

What About Your Age Dennis?

Jo and I asked several realtors “Are we too old to be buying here?” We got plenty of reassurance that there are many people our age, or older living and loving the lifestyle.

We follow podcasters, Jerry & Linda, The Villages Florida Newcomers. Their videos are entertaining, encouraging and informative.

Recently a viewer asked the same question (at the 30:30 mark), “Am I too old to buy here?” They were very reassuring; however, Jo and I are older than the caller.

A mini-epiphany!

Another caller (41:00 mark) offered her response. (Paraphrasing), “You are going to be (your age) no matter where you are. You can choose to be up north watching TV under a blanket, or be in Florida enjoying a fun lifestyle. Either way, your age isn’t going to change

At the time, I was in my chair wrapped in a blanket and it was below freezing outside. The lady hit home; she was speaking to us. Age be damned!

Being with family for the holidays is the absolute top priority, yet knowing we have a warm place to go for the winter sure helps. We enjoy life and want to continue as long as we can. When our time runs out, we suspect one of the kids will want to buy out their siblings and continue doing the same! If not, that’s OK too….

We can’t do much about out-of-control government spending, but we can enjoy the ride as long as our health allows…. Keep on Keeping on!
 

On The Lighter Side…

Sometimes things happen that I immediately feel I want to share with readers. This week two things fit the bill.

When I started my writing adventure, friend Chuck Butler told me to NEVER underestimate our readers. They are savvy, and if you want a question answered; ask away and the answer shall appear.

That sure happened this week. Subscriber Myron C. responded to a question in last week’s closing remarks. Makes perfect sense to me….

“Why do we say something is out of whack? What is a whack?

Having been a machinist and toolmaker for almost 50 years, a mechanical engineer for over 25, and actually a steam engineer to the tune of about 25,000 miles, I feel qualified to share what my peers would say in answer.

A ‘whack’ is the blow that you administer to an ornery piece of machinery that just won’t act like it’s supposed to. Often, especially in steam engines and their associated valves, a good whack will get it to free up and start working again. When someone says something is ‘out of whack’, that means it is time for another ‘whack’!”

#2

Erik Z. is my longest, and oldest friend. Our mothers grew up together and were life-long friends. We were born a couple days apart and shared the same nursery in the hospital. We went to school together and have stayed in touch for 85 years.

We spoke this week, exchanging Christmas greetings, and Erik shared a thought. I immediately asked him if I could share it with readers.

Erik’s adult children asked him what he wanted for Christmas. He responded, “I really don’t need anything, nor can I think of anything I want.” He asked, “How about you, what do you want?” They gave the same response.

Erik paused, and said, “If that’s the case, then we should really count our blessings, it wasn’t always that way.”

Wow! That really hit home….

While we buy for the little ones, how many years have we bought something the recipient didn’t want or need, just so they would have something to unwrap? His family decided their Christmas gift would be to go out for a fine dinner, those who normally prepare the meals need not work so hard or fret over the normal family feast.

It was a beautiful reminder for all of us. Christmas is time to celebrate and take a moment and count our blessings….
 

Quote of the Week….

Our next article will be released just before New Year. Hopefully Jo and I will have motored safely to the warmer climate of Florida. Many northern football games are being played in sub-freezing temperatures. In my younger years, I joined the party, freezing, trying to convince myself I was having fun. Here is a quote of mine that I firmly believe:

“If God meant for me to be cold, I would have more fur!” — Dennis Miller
 

And Finally…

Friend Phil C. shares some more ideas to ponder:

• If work is so terrific, why do they have to pay you to do it?
• If all the world is a stage, where is the audience sitting?
• If love is blind, why is lingerie so popular?
• If you are cross-eyed and have dyslexia, can you read all right?
• Why is bra singular and panties plural?
• Why do you press harder on the buttons of a remote control when you know the batteries are dead?
• Why do we put suits in garment bags and garments in a suitcase?
• How come abbreviated is such a long word?
• Why do we wash bath towels? Aren’t we clean when we use them?
• Why doesn’t glue stick to the inside of the bottle?
• Christmas – What other time of the year do you sit in front of a dead tree and eat candy out of your socks?
• Why do we drive on a parkway and park on a driveway?

And my favorite:

• Does rapidly pressing the elevator several times make it arrive quicker?

Until next time…

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More By This Author:

How Long Can Investors Afford To Ignore Reality?
Inflation Should Not Trigger A Minsky Moment
Will The World Fix Our Banking Problem?