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what home buyers should take into consideration, is inflation on outstanding debt, ie interest only mortgage say $100k
the purchasing power (pp) of the 100k will diminish considerably over 25/30yrs, the saver who put the 100k in the bank, will take the biggest hit, at a guess after interest earned the pp could drop to less than 25% of original value,
every $ put into a pension will also take a hit by inflation unless
the annual percentage return on investments is very high,AND
MAINTANED over lifetime of contributions
property should always be a good investment, if the borrowing is
balanced, and y can buy in a downturn
but dyor
Heraclitusstudent
2014 Jan 20, 11:06am
Pointing to inflation as an help to pay mortgage doesn't make sense for several reasons.
For one, home prices rose faster than inflation since 1980, because of rising leverage, as rates when down. A period of higher inflation would push up nominal rates and force deleveraging. i.e. people would afford to pay less if rates were higher, which means house prices would be lower.
This means if inflation rise, prices would most likely not keep up with inflation - just like cash. What you would gain on a mortgage would be fully lost on lower value.
An other point is that houses do depreciate. You don't see many 100yrs old houses around, for a good reason: most were all destroyed and rebuilt. The owners had to pay to destroy them and rebuild them. Land doesn't lose value, but houses do. That's in addition to all maintenance that goes into it.
If you want to talk about how much value will remain 30 yrs from now, you ought to consider this.
http://www.theonion.com/articles/wait-what-if-we-try-giving-people-home-loans-they,34930/?source=Patrick.net. This article is funny and terribly dead on at the same time. What happens if the majority of "homeowners" can't ever pay off their loan in their lifetime? What happens if the market stabilizes, or goes down to historical norms? I know a lot people are betting on it going up and living off the equity, or trading up, or flipping. What if that doesn't happen? I don't want to hear how that can never happen, there are plenty of threads to argue that. My question is what is the plan for the people who can never pay off their home? What is the plan for almost an entire generation that has saved absolutely nothing for their retirement? So many of my friend are counting on their house as their sole investment. What if it's not capable of being their sole investment? What are we going to do with over half the population without any retirement savings? What is the plan if the market goes back to normal and stays there? Do we bail them all out somehow in thirty years? If so, how should we bail them out?