As inflation hits, you may have noticed that mortgages are following a similar trend. To understand this, we must first break down the idea of a mortgage. First, they consist of two things—the monthly payment you’re making and your remaining mortgage balance. Mortgages that decline in value are actually good for you.

Jason Hartman would like to tell you how exactly these declining mortgages will play out, but unfortunately, there are too many variables. It depends on how much of this and that and the other thing you have. The best strategy then is to have as little of this as you can, as much of this as you can. But more of one thing probably means less of another. Confusing enough?

What we’re talking about is the LTI Ratio, which stands for Land to Improvement Ratio. In expensive markets, this is bad. In expensive markets that are now declining, land values are not high. In places with high land values (like Hawaii, Chicago, California, Oregon, Nevada, and Arizona) markets are through the roof.

While land values are not as high as they used to be, they remain high. In Florida, Miami, Washington, D.C., New York, Massachusetts, and the Northeastern states, high land values are declining because the decline has to come out of the land. It’s a stop-loss. If you can’t repeat the same construction, then nobody builds it. And when nobody builds it and the population around it continues to increase, you’re onto something good.

For the last three decades, year after year, there’s been a housing shortage. Housing has never really kept up with demand, because it is expensive and people just cannot afford it. They double up, live on smaller lots, and live in condos that are less expensive. Not surprisingly, the average American house has gotten larger by square footage, but the land around has become smaller.

The world population continues to grow, and the United States is no exception. In California alone, 300,000 new housing units are needed every year to satisfy growth from annual immigration. Housing is a universal need. But where are the best places to invest?

Read on next week for more details.

(photo credit: image_less_ordinary via photopin cc)

Read more from Jason Hartman:

Gold vs. Real Estate

And If Inflation Doesn’t Happen?

The Jason Hartman Team

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