6 ms·

Don't worry, it'll be great! You'll get a 10% raise, and prices will only be up 15%.

dnautics 5y ago
To be frank, for a small sliver of wage:mortgage ratios this could be fucking fantastic... for "young wage-earners" who already have a house (like me! but I'm not really that young anymore). For other wage-earners, not so much, sad trombone.
- fennecfoxen 5y ago
  Yeah, if you're at all on the fence, or close to the fence, it's a fine time to get a mortgage, even if house prices have gone up somewhat. An excellent inflation hedge!
  - Nbox9 5y ago
    Rising interest rates is likely to have a significant downward pressure on home prices. Think carefully before entering a very leveraged position (like the 3.5% down FHA loan) in the current market.
    - xapata 5y ago
      Owner-occupied real estate investments don't suffer from margin calls. If the asset price crashes, what does it matter so long as I can afford the monthly payments? If the home value is "underwater" then I can walk away and rent for 7 years, if I think that's better value.
      - NovemberWhiskey 5y ago
        Only if you live in a non-recourse state.
- giaour 5y ago
  Or for young wage earners who have significant student debt. Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation
  - tharne 5y ago
    > Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation Except for the fact that they're getting a pay cut year after year. This is why the general public gets so mad about inflation. Like another commenter mentioned, inflation screws over anyone who works for a wage.
    - dragonwriter 5y ago
      > Like another commenter mentioned, inflation screws over anyone who works for a wage. At worst, anyone who works for a fixed wage (and even then, the demand dynamics that create a fixed wage with inflation mean instead people just lose their jobs without inflation, because of the stickiness of nominal wages.)
      - giaour 5y ago
        > anyone who works for a fixed wage This includes anyone who works for minimum wage (assuming it's not indexed to inflation), and they are not likely to be able to handle a cut in real pay as easily as, say, middle class homeowners.
        dragonwriter 5y ago
        > This includes anyone who works for minimum wage No, it doesn't, unless they have a contract fixing their pay at minimum wage; being currently paid minimum wage doesn't mean you don't get raises.
        giaour 5y ago
        That's true; "anyone" was a bit too strong of a word. All things being equal, someone making minimum wage is less likely to get a raise than someone making more, since there's a possibility that the wage represented a statutory minimum and not the employee's "true value" to the employer.
- NovemberWhiskey 5y ago
  If interest rates don't rise, then sure - inflation is likely to show up in higher housing costs, which means you'll deflate away that loan and your asset will appreciate. If interest rates rise, then you have one or two problems. If your loan isn't at a fixed rate, then you'd better hope you can still afford your mortgage. Say you paid a 20% downpayment on a home worth $375K. A $300K note at 3% is a $1,250 per month expense, but at 8% it's $2,200 a month. People forget, but mortgage rates were 8% as recently as 2000. Even if your rate is fixed, new buyers have affordability problems due to the same phenomenon, which hits valuations. If you can afford $1,250 a month, maybe you can afford $1,500 after some inflation pads out your pay check. But, with rates at 8%, that's only a $200K mortgage, so maybe a $375K home is only a $250K home in the new rate environment and you're in negative equity all of a sudden. If you need to sell, then you're losing the initial downpayment and you may still end up owing the bank. If you can't cover it, say goodbye to your creditworthiness.
  - rory 5y ago
    While everything you said is true: 1) <10% of the US mortgage market is ARMs. 2) Treasury rates are still super low, even with high CPI inflation. It's not at all obvious interest rates will go up by much even with sustained 5-10% inflation, since society's ratio of capital to productivity is at an unprecedented level.
    - NovemberWhiskey 5y ago
      At this point, most of those who perform augury on the intentions of the Fed are predicting five to six 25bp interest rate increases before the end of 2023.
      - rory 5y ago
        Yes, but fixed mortgage rates aren't affected much by the fed funds rate, compared to treasury yields.
- hparadiz 5y ago
  Bought a house 4 months ago and suddenly all this inflation stuff is basically just telling me I can pay it off much faster than I thought.
  - dnautics 5y ago
    Sadly it doesn't work that way, unless you can get pay raises that match inflation. Remember, inflation is a policy choice to screw you out of your wages because you have "sticky" preferences. So, if you are getting pay raises that match inflation, the policy isn't working.
    - hparadiz 5y ago
      I got a significant bump well over inflation numbers just by switching jobs. The current inflation situation and shortage of qualified engineers coupled with my experience is giving me insane leverage when negotiating.
flavius29663 5y ago
The thing is this: inflation raised every year, whether you want it or not. Job hopping only happens every few years.

To be frank, for a small sliver of wage:mortgage ratios this could be fucking fantastic... for "young wage-earners" who already have a house (like me! but I'm not really that young anymore). For other wage-earners, not so much, sad trombone.

fennecfoxen 5y ago
Yeah, if you're at all on the fence, or close to the fence, it's a fine time to get a mortgage, even if house prices have gone up somewhat. An excellent inflation hedge!
- Nbox9 5y ago
  Rising interest rates is likely to have a significant downward pressure on home prices. Think carefully before entering a very leveraged position (like the 3.5% down FHA loan) in the current market.
  - xapata 5y ago
    Owner-occupied real estate investments don't suffer from margin calls. If the asset price crashes, what does it matter so long as I can afford the monthly payments? If the home value is "underwater" then I can walk away and rent for 7 years, if I think that's better value.
    - NovemberWhiskey 5y ago
      Only if you live in a non-recourse state.
giaour 5y ago
Or for young wage earners who have significant student debt. Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation
- tharne 5y ago
  > Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation Except for the fact that they're getting a pay cut year after year. This is why the general public gets so mad about inflation. Like another commenter mentioned, inflation screws over anyone who works for a wage.
  - dragonwriter 5y ago
    > Like another commenter mentioned, inflation screws over anyone who works for a wage. At worst, anyone who works for a fixed wage (and even then, the demand dynamics that create a fixed wage with inflation mean instead people just lose their jobs without inflation, because of the stickiness of nominal wages.)
    - giaour 5y ago
      > anyone who works for a fixed wage This includes anyone who works for minimum wage (assuming it's not indexed to inflation), and they are not likely to be able to handle a cut in real pay as easily as, say, middle class homeowners.
      - dragonwriter 5y ago
        > This includes anyone who works for minimum wage No, it doesn't, unless they have a contract fixing their pay at minimum wage; being currently paid minimum wage doesn't mean you don't get raises.
        giaour 5y ago
        That's true; "anyone" was a bit too strong of a word. All things being equal, someone making minimum wage is less likely to get a raise than someone making more, since there's a possibility that the wage represented a statutory minimum and not the employee's "true value" to the employer.
NovemberWhiskey 5y ago
If interest rates don't rise, then sure - inflation is likely to show up in higher housing costs, which means you'll deflate away that loan and your asset will appreciate. If interest rates rise, then you have one or two problems. If your loan isn't at a fixed rate, then you'd better hope you can still afford your mortgage. Say you paid a 20% downpayment on a home worth $375K. A $300K note at 3% is a $1,250 per month expense, but at 8% it's $2,200 a month. People forget, but mortgage rates were 8% as recently as 2000. Even if your rate is fixed, new buyers have affordability problems due to the same phenomenon, which hits valuations. If you can afford $1,250 a month, maybe you can afford $1,500 after some inflation pads out your pay check. But, with rates at 8%, that's only a $200K mortgage, so maybe a $375K home is only a $250K home in the new rate environment and you're in negative equity all of a sudden. If you need to sell, then you're losing the initial downpayment and you may still end up owing the bank. If you can't cover it, say goodbye to your creditworthiness.
- rory 5y ago
  While everything you said is true: 1) <10% of the US mortgage market is ARMs. 2) Treasury rates are still super low, even with high CPI inflation. It's not at all obvious interest rates will go up by much even with sustained 5-10% inflation, since society's ratio of capital to productivity is at an unprecedented level.
  - NovemberWhiskey 5y ago
    At this point, most of those who perform augury on the intentions of the Fed are predicting five to six 25bp interest rate increases before the end of 2023.
    - rory 5y ago
      Yes, but fixed mortgage rates aren't affected much by the fed funds rate, compared to treasury yields.
hparadiz 5y ago
Bought a house 4 months ago and suddenly all this inflation stuff is basically just telling me I can pay it off much faster than I thought.
- dnautics 5y ago
  Sadly it doesn't work that way, unless you can get pay raises that match inflation. Remember, inflation is a policy choice to screw you out of your wages because you have "sticky" preferences. So, if you are getting pay raises that match inflation, the policy isn't working.
  - hparadiz 5y ago
    I got a significant bump well over inflation numbers just by switching jobs. The current inflation situation and shortage of qualified engineers coupled with my experience is giving me insane leverage when negotiating.

flavius29663 5y ago

The thing is this: inflation raised every year, whether you want it or not. Job hopping only happens every few years.