Thursday, November 22, 2007

Valuing Your "Stuff"... Near Zero

One trend in housing is the ever-increasing size of the average American house. A drive through any city or suburb will show that new houses are growing larger, right up to the lot lines, and buyers perceive total square feet to be an important amenity. If you took the typical suburban family and put them in the house that they originally grew up in they'd generally shudder - only one bathroom for all those people, sharing a bedroom, and hardly any closets! Closets are viewed as a key amenity, with the ability to store racks and racks of shoes and clothes for all seasons is a virtual requirement.

In parallel with this is the growth in off site storage. When I was growing up it seemed that few people I knew had off site storage, but it seems much more prevalent today. Storage for furniture, hobbies, collectibles and everything else that people can't bear to throw out.

While houses are getting larger and in particular storage elements & off-site storage is a growth industry, a different trend is going the OTHER way. Deflation, or chronic price reduction, is occurring with most of the "stuff" that people are storing.

Here is one example - my new "blog" camera with a small footprint (it is pretty slim although the lends does pop out when you turn it on) was only $212 and it has 7 megapixels and a bunch of cool features, like when you tilt the camera 90 degrees the photos switch from landscape to portrait in "view" mode. This camera blows the doors off previous digital cameras that I paid over 600 dollars for just a few years ago.Fry's, the gargantuan electronics store, has its post-Thanksgiving sale on Friday, and I can hardly believe how cheap everything is. For example:
  • A Sony 7.2 Megapixel digital camera for $77
  • A 32" LDC HDTV for $377
  • A camcorder for $157
  • A Samsung 800-watt DVD Home theater system with DVD player, stereo, and surround sound speakers, for $219
  • A 700 watt microwave for $19
  • A cordless phone system with an answering machine and four remote handsets for $79
Where does this all lead? Well it leads to this...

"Get a phone for less than you paid for this paper" (which is $2, I think at the news stand).

When you are justifying that big mortgage don't justify it by the requirement to store all of your stuff... you'd be better off just throwing most of it out and buying new stuff, at least from a financial perspective. The cost growth has been in services, taxes, land and commodities, not hard goods.

Cross posted at Chicago Boyz

1 comment:

James R. Rummel said...

I was first employed as a computer operator back in 1988, and I noticed that they had a huge old mainframe that had been built back in the 1960's in storage.

Why was this behemoth with gigantic pin boards and vacuum tubes still doing tucked away in the dusty area with boxes of forms and green bar computer paper?

It had cost so much money when it had first been purchased that it was still depreciating, and the accountants could write off the "lost" value every year!

So what I want to know is, how do you calculate inflationary pressures if everything gets less expensive every year? Even food costs compared to average income have gone down from what I remember them being back in the 1970's.

Is this reverse inflation?

I suppose this is why those news articles which want to strike an alarmist note about our improving circumstances keep going on and on about how the "gulf between the rich and poor keeps growing!" Even the poor have material comforts that didn't even exist 30 years ago. (At least they do if the people living in the crack house three doors down are any indication.)