Talk about a case of One picture is worth a thousand words.

It’s not hard to spot the trend.

You’ve hit the nail square on the head. Central banks must react to wage gains, so when unions, after intense campaigns, win Cost of Living Allowance (COLA) inflation protection, the central banks invariably fix the COLA indexes to grossly understate actual inflation.

So what part of The Rich Get Richer don’t we understand? Here’s the summary …

“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

– The Judge

That would explain why all levels of government are giving themselves raises at (much) higher levels than the “official” rates of inflation. Why, if they stuck with the official rates, they wouldn’t be keeping up!

We should tie ALL government salaries at *ALL* levels of government to the “official” levels of inflation. Then I’ll bet you’ll eventually start to see inflation figures that are more in line with reality.

– The Judge

In other words, if the government cooks the books on “core inflation” — pay no attention to the inflated price of gas or rising grocery prices! — then it doesn’t have to raise the amount it contributes on the first of the month. Is that correct?

– The Judge
“Sell now or be priced in forever”

FYI: Forbes says 6.6% is closer to the actual figure.

Best and Worst U.S. Housing Markets
…
Nationwide, prices fell by 6.6%, a number that makes sense at this point in the housing cycle, experts say.
…

“Housing prices: Comparing Shiller and HPI”, by Michael Shedlock, Mish’s Global Economic Trend Analysis, May 30, 2007.

Eyes are focused on the upcoming Office of Federal Housing Enterprise Oversight (OFHEO) housing price report due out on Thursday to hopefully tell us what we already know: home prices are falling. [emphasis in original]

Big Picture had a great article a couple of weeks ago on core inflation calculations.  I especially appreciated this comment:

Whenever I hear the phrase "excluding volatile food and energy" I just laugh. Can a pricing group be considered volatile if it merely goes up each month in an orderly fashion — for years and years?

That’s not volatility, thats a trend.

I read a story from a reputable source (can’t remember the name right now) that said if inflation were being calculted today using the same methods it was calculated with 15 or 20 years ago, then we’d currently be looking at around 10% annual inflation.

It’s all smoke and mirrors. Gov’t doens’t like the way inflation is looking? Easy! Change the formula for calculating it!

My commute would likely be out there, to like avondale and the such. My wife’s would be to the airport which looks like a half an hour but if the airforce base gets converted to the regional airport it would likely be the better side of town for us. I like the smart growth downtown in Verrado. and feel like it might be a good community. I was just wondering about the specifics of the comments and whether any of it applies to that community.

Otherwise, I like your neck of the woods perhaps in the world’s largest cul-de-sac. Gotta be near the shopping right?

Verrado is not the only subdivision in the White Tanks area.  I think this old article does a pretty good job of describing some of the problems with Verrado, although I understand the community itself is nice.

Disclosure*** I’ve called the Phoenix East Valley home since kindergarten- even when Mr. Twist has talked me into trying other locales for awhile.  Consequently, I do tend to view anything west of Central as impossibly far out.  That said, Verrado is NOT a convenient commute.  What you save in the way of a mortgage you could make up in gas.

I am interested in Verrado and would appreciate the feedback.

I’ll have to concede the point on the weak dollar- that one’s an ongoing problem. I guess I should have said in real terms.

But hey, this can’t be all bad- a declining dollar is probably my best shot at being a millionaire!

I’ve never understood leaving food and fuel out of the inflation rate. With a household full of teenagers, they are two of the biggest line items in my budget!

“There is such a huge glut of rental units, I don’t see any upward pressure on prices in the next couple of years. In fact, I have watched rents come down for the past two.

I think it more likely that the mismatch will put downward pressure on the purchase price over the next five years, rather than upward pressure on rents.”

I agree. And this could be agrevated by the fact that such a large proportion of the valley’s economy depends on housing.

But know this, rents will double in 10 years or less as the dollar becomes more worthless.

Believe it or not, the flippers are still out there.  See this home, purchased 5/03/07 for $868K?  I saw it listed on Craigslist for rent a couple of days ago for $2,100.  I can’t stop scratching my head.

For about six months, food producers in Nova Scotia (beef, pork, etc. …) have been totally freaked out over what corn / ethanol has done to feed prices. I wish that core inflation rate would reconsider its exclusion of energy and food. They’re joined at the hip and rising fast.

Not only did I appreciate Russ’ comments on the median price, but the comments at the bottom on the corn crop as well.

I’m seeing more corn planted around here than I ever remember seeing, and now I’m wondering if there are the facilities to process and/or store it all. When people flock to huge profits, those profits tend to drop- I’m wondering if the corn market might not end up glutted this year.

There is such a huge glut of rental units, I don’t see any upward pressure on prices in the next couple of years. In fact, I have watched rents come down for the past two.

I think it more likely that the mismatch will put downward pressure on the purchase price over the next five years, rather than upward pressure on rents.

Thanks for your detailed post. Regarding your comment: “… You know, it’s that 1% drop in prices the pundits talk about.” Earlier today, one of bubbledom’s most bearish bloggers took on the issue of why we don’t see bigger headline price drops in the statistics.

“The Flat House Price Myth”, by Russ Winter, WallStreetExaminer blog, May 30, 2007.

Interesting. I have to agree.

Now, lets combine that observation with the mature subdivisions that have many homes that are rented out. I’m talking about areas that may be 10 years old whose owners paid 125K, took a little equity out on the way to a trade up and are now stuck with an empty home that needs to be rented. What will those areas look like in 18 months? Slums?

I evaluated the Pheonix market in 2005 and then again in 2006 and found it to be grossly overvalued from a shelter utility, rent versus ownership perspective. It appears to me that given stable interest rates, the average home is in danger of losing 40% of its value as the home I could rent for say 1500 a month, would cost me 400K to purchase in a decent area. That is an upside down market. In my opinion rents need to inflate about 50% to right the ship from a cost perspective and this could take 5 years or more given the relative over supply of shelter out there.

One thing that impressed me about phoenix is the abundance of quality rental housing, apartments, and condos. Truly a great place to start out in life and I would think,ultimately a great place to settle into homeownership as things stabilize.

Ready cash and good credit will create some great opportunities as you suggest.

My first trip to the area was in November of 2006. The market had turned south the previous January, but the party was still going on. I knew it from the homebuilder stocks. I owned a number of them and they started moving down indicating to me, a crash was in the making. In the general area of the Coe subdivision, there are many, many homes that sold in the $700 and $800s, some for much more. They are mostly Spanish style on acre lots with views of the White Tank mountains. Many purchasers are horse enthusiasts. I was fascinated as to who is affording these homes. In fact I stopped to look at one under construction one day. The neighbor and her husband were putting in landscaping and struck up a conversation with me. They appeared to be in their 60s. They indicated they were going to flip the home. I told them the market had crashed in January and they looked at me like I was from Mars. The homes a little further north in Waddell jumped from $250-$300 – $600-$650 almost overnight. They have dropped back down into the $450 range, still to high for fundamentals. You know, it’s that 1% drop in prices the pundits talk about.

One thing that I noted in the general White Tank area is that a lot of the homes were originally purchased by construction workers. This is evident from the trucks in their driveways. Tom’s Roofing or Bob’s drywall type of stuff. Homes they purchased for $150 – $200 were suddenly on the market for $500 – $600. That’s when the music stopped. I came to realize there is a sociological element in subdivisions. These areas got to a point where prices commanded new buyers to earn about $200,000 a year giving them construction workers a neighbors. It is simply a class mismatch.

This Coe subdision is not different than many others that have already sold. On the way to the entrance of the White Tank Regional Park there are many sold homes in the same price range. The Coe folks just got to the party too late. I still have hopes for our family to find a home in the area. I look for lots of foreclosures and sharply declining prices.

Last night I thought of a comparison of the defunct auto industry and the housing market. Car prices got so high that people couldn’t afford to buy them, so they leased cars or took seven year loans. I’m surprised there weren’t ARM type loans for cars. Notice that the car industry isn’t recovering because prices have not come down. That’s why GM will end up moving their manufacturing to China. Unions are adding on too much in fixed costs. I look for much higher interest rates, high unemployment, a credit bust and plunging housing prices. There will be foreclosures sitting on the market for long periods of times. Those with cash and patience will make once in a lifetime buys in real estate.