Cost of things like a house nearing millions when will it stop?
and its not uncommon to see ones costing over a million or two. cars 50 thousand. this all trickles down to day to day stuff what used to be about 5 dollars is now 20 dollars or more
how can this continue to work . in the past wasnt there a war most often that changed this or how is it done
Answer:
Economic theory predicts that the price of a house should be dicatated by two main factors -- household income and the interest rate. Income has a positive effect on the price of housing, while interest rates have a negative effect.
US interest rates have been dropping pretty steadily over the past decade. This has made housing cheaper, in a sense, because the monthly interest burden has dropped. But, the Fed has stopped lowering rates, and interest rates have crept up in recent months.
Thus, we should expect the housing boom to stop, and housing prices may actually fall, if households were too exuberant during the past couple of years.
There has to be a proportion between the cost of an ordinary house / apartment and the income of individuals. If the cost of house exceeds 5 to 7 times of the annual salary, no one can afford to buy house/ apartment. The system will breakdown. So there wil be a fall in house prices or incomes have to go up.
People should not normally buy houses costing more than 5 times the annual salary.
For long salaries have not increased significantly. This may take place soon unless the house prices, particularly the low income house prices drops sharply.. Just wait and see.
Most of credit results in money supply. That causes inflation if GDP does not grow with the same rate. The excess money is finding its way in assets.
Inflation has to feed on ever-increasing credit growth. That is unlikely for ever, unless people start feeling the currency is getting worthless. This is the point of bifurcation.
If rates are increased, there may be deflation, if not, inflation may continue, but subside in long term.
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