4 ms·

If you believe that inflation is actually much higher than is generally believed by the public/markets you shouldn't care so much about mortgage payments > 10 y

by harryh 6y ago

If you believe that inflation is actually much higher than is generally believed by the public/markets you shouldn't care so much about mortgage payments > 10 years from now on a loan with fixed payments. The huge inflation you expect will mean the real cost of these payments dwindle in size so they will matter very little to you.

paganel 6y ago
The issue is of course that the salaries/wages don't get raised as much as the other costs mentioned by the OP (housing, among others, I'd add education), they haven't done so for quite a long time now. In order to be able to have "real cost of payments" going down because of inflation you'll still need some down-payment or some basic proof that you'll be able to pay back the loan you're about to get, and those stagnating wages often times are not enough for that.
- harryh 6y ago
  When a subset of goods are rising in price at a faster rate than other goods you aren't really talking about inflation anymore. You're talking about something else. It's pretty important to recognize the distinction.
  - paganel 6y ago
    > subset of goods are rising in price This is not a random subset of goods, we're talking about basic things like housing (as also mentioned by someone above) and education. It's not like the diamonds or the yacht markets have gone through the roof while everything else has remained pretty much stable, we're talking about stuff that affects almost everyone in their day-to-day life.
    - harryh 6y ago
      I'm not saying that these price increases don't matter. I'm saying that they aren't caused by inflation and that recognizing the distinction is important.
      - turbinerneiter 6y ago
        I think that depends on how you use the word inflation. Some posts up someone defined it in eco science terms. Some people define it via the consumer price index. The consumer price index is what governments and and companies use in salary negotiations. So for people, the consumer price index is what drives their salary. If this consumer price index is not adequately factoring in the price of houses (cost of housing) or stocks (price of saving for retirement), than they are skewed. Salaries will trail behind rising cost aka. my generation is basing social status on smartphones instead of houses, because we can't afford houses. Now, low interest rates play an important counter role: it is cheaper to finance a house. It due to the increased prices, it takes a lot longer. Combine that with the fact that my generation deals with less worker rights and job safety (they call it flexibility) and the fact that I have now seen two once in a lifetime economic crisis within 12 years ... It's getting quite hard to sign that 40 year finance plan. There is however a solution to this, which is to leave the cities and move to the countryside, where I can build a house on a plot of land that used to be part of my grandma's farm. Not everybody is that lucky tough and not everybody can a find a job there or work remote. Hell, I'm not sure if I can, given that the internet there is still copper based. In my opinion the issue is that to much money goes into buying existing things and to little money goes into creating new things. QE and other gov. measures seem to be going mostly into propping up prices of existing values, so the ones who own them don't lose virtual money.
- imtringued 6y ago
  Inflation rate is a measure of how much demand is exceeding supply. Generally central banks focus on inflation on consumer goods because consumer goods and services pay the wages of workers. If consumer inflation is low that means there is little demand for consumer goods and by extension there is little demand for workers. The point harryh was trying to make is that if consumer inflation is high then you could trivially pay off a low interest mortgage because inflation is constantly reducing the effective principal of the mortgage. In reality what we see is asset inflation and asset inflation is usually a sign of mild deflation because there is an overabundance of production capacity or labor and therefore consumer goods with no takers.

by harryh 6y ago

paganel 6y ago

The issue is of course that the salaries/wages don't get raised as much as the other costs mentioned by the OP (housing, among others, I'd add education), they haven't done so for quite a long time now. In order to be able to have "real cost of payments" going down because of inflation you'll still need some down-payment or some basic proof that you'll be able to pay back the loan you're about to get, and those stagnating wages often times are not enough for that.

harryh 6y ago
When a subset of goods are rising in price at a faster rate than other goods you aren't really talking about inflation anymore. You're talking about something else. It's pretty important to recognize the distinction.
- paganel 6y ago
  > subset of goods are rising in price This is not a random subset of goods, we're talking about basic things like housing (as also mentioned by someone above) and education. It's not like the diamonds or the yacht markets have gone through the roof while everything else has remained pretty much stable, we're talking about stuff that affects almost everyone in their day-to-day life.
  - harryh 6y ago
    I'm not saying that these price increases don't matter. I'm saying that they aren't caused by inflation and that recognizing the distinction is important.
    - turbinerneiter 6y ago
      I think that depends on how you use the word inflation. Some posts up someone defined it in eco science terms. Some people define it via the consumer price index. The consumer price index is what governments and and companies use in salary negotiations. So for people, the consumer price index is what drives their salary. If this consumer price index is not adequately factoring in the price of houses (cost of housing) or stocks (price of saving for retirement), than they are skewed. Salaries will trail behind rising cost aka. my generation is basing social status on smartphones instead of houses, because we can't afford houses. Now, low interest rates play an important counter role: it is cheaper to finance a house. It due to the increased prices, it takes a lot longer. Combine that with the fact that my generation deals with less worker rights and job safety (they call it flexibility) and the fact that I have now seen two once in a lifetime economic crisis within 12 years ... It's getting quite hard to sign that 40 year finance plan. There is however a solution to this, which is to leave the cities and move to the countryside, where I can build a house on a plot of land that used to be part of my grandma's farm. Not everybody is that lucky tough and not everybody can a find a job there or work remote. Hell, I'm not sure if I can, given that the internet there is still copper based. In my opinion the issue is that to much money goes into buying existing things and to little money goes into creating new things. QE and other gov. measures seem to be going mostly into propping up prices of existing values, so the ones who own them don't lose virtual money.
imtringued 6y ago
Inflation rate is a measure of how much demand is exceeding supply. Generally central banks focus on inflation on consumer goods because consumer goods and services pay the wages of workers. If consumer inflation is low that means there is little demand for consumer goods and by extension there is little demand for workers. The point harryh was trying to make is that if consumer inflation is high then you could trivially pay off a low interest mortgage because inflation is constantly reducing the effective principal of the mortgage. In reality what we see is asset inflation and asset inflation is usually a sign of mild deflation because there is an overabundance of production capacity or labor and therefore consumer goods with no takers.