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>At the same time, (inflation-adjusted) sticker prices will go down. Who cares about inflation adjusted price when you have a mortgage ? Your rate will be X fo
by reader_mode 6y ago
>At the same time, (inflation-adjusted) sticker prices will go down.
Who cares about inflation adjusted price when you have a mortgage ? Your rate will be X for Y years, as long as your income keeps up with inflation you'll get a net discount. Buying a property with loans is a good way of betting on inflation - I don't know if it will happen but if it does you'll win.
Worst case scenario is recession, you have reduced income and housing prices plummet - I don't see this playing out, running low interest rates to high inflation seems likely to me.
- stouset 6y ago> Worst case scenario is recession, you have reduced income and housing prices plummet - I don't see this playing out, running low interest rates to high inflation seems likely to me. And the standard case scenario is rising interest rates, where your highly-leveraged asset drastically underperforms the market (and may even produce negative real returns, if it doesn't keep up with inflation).
- bluGill 6y agoWhich only matters if you want to sell. So never buy a house you don't plan to live in for a long time.
- refurb 6y agoI don’t know too many people who would be excited at continuing to pay off a $500k mortgage on a house worth $400k.
- sombremesa 6y agoAlso, the bank will ask you to post the difference in money ASAP. The bank never loses.
- Nick87633 6y agoBanks in the US don't do this on mortgages.
- sombremesa 6y agoInteresting, looks like you're right. Also looks like you can improve the home (even DIY) and use that improvement to erase negative equity. Though of course it has to be the 'right' improvement, like kitchens and baths.
- refurb 6y agoWith fixed mortgages this is true, but if you get an adjustable rate, you’ll need to refinance and that’s when you need to requalify and meet loan to value ratios.
- reader_mode 6y agoDisagree, rising interest rates in this economy would lead to a recession - the worst case scenario. I don't see realestate underperforming inflation without some massive changes either. And in case of rising interest rates, the first thing I expect to pop is overvalued stocks and money parking commodities.
- lifty 6y agoThe FED and mainstream economists know that if interest rates will go up it will create huge deflationary forces (on top of existing ones) so they will do everything in their power to keep them low. I doubt we will see high interests for the next few years until debt ratios go a bit lower. The FED even mentioned that they’re willing to allow inflation to run higher for a while. That being said, it’s not a given that we will see inflation.
- JMTQp8lwXL 6y agoFor debt ratios to decline, people have to stop going into debt as much. Or, they pay off their existing debts instead of using that cashflow to qualify for more debt. It's hard to imagine reducing debts unless you have a shock like '08 GFC, which changed the standards for acceptable underwriting.
- webinvest 6y ago> For debt ratios to decline, people have to stop going into debt as much. Low interest rates and high perceived inflation causes people to take on increasingly higher amounts of debt. In some cases, it makes sense to borrow at 3-8% interest if you expect an ROI of 12-20% and you set aside 1/3rd of your gross return for taxes. However this system has some positive effects. If you go out and build 3 homes and people buy them, you’ve effectively created 3 homes worth of wealth.
- wskinner 6y agoThe long term historical trend is falling interest rates. So at least for the last 100+ years, the standard case scenario has been that your highly leveraged and refinanceable asset outperforms the market.