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people put off buying homes and other big purchases because they know it will be cheaper later
What absolute drivel. This myth was obviously formulated by some wealthy economist who had only ever worries about purchasing vacation homes.
People put off buying homes UNTIL THEY CAN AFFORD IT. How many people does the author think are currently in the streets or renting for years just so they can save a bit on their mortgage? Completely garbage.
But companies will have to lay off workers! Oh wait, they’re already doing that despite record profits.
Companies will stop giving raises! Oh wait, they’ve been doing that for decades.
The economy stopped working for the average person. It’s been going on so long now that it’s normalized. People are afraid. We need to wake up to our exploitation.
And I say this as a person who is well paid, at a company that treats its people well. I’ve worked enough other jobs to know how abnormal my situation is and will gladly fight alongside those who aren’t as lucky as me because I refuse to accept the “fuck you, I’ve got mine” mantra.
I mean - I could afford a home now, it’s just stupid expensive and I’d be leveraged up to my eyeballs. You do usually need to have the deposit in on-hand cash (though if you’re sneaky and an utter idiot you could probably find some way to borrow for the down payment).
I understand where you’re coming from but it’s accurate language to use because a lot of people technically could afford to buy homes right now they just know it’s dumb and realize the market is about to collapse and they’d end up underwater on like an 8% mortgage.
I could make mortgage payments standing on my head considering what I pay in rent. It’s the down payment that’s the killer for me.
Aside, it is absolutely fucking insane that rents usually far exceed mortgages. The rent does need to account for the lack of liability for depreciation property damage (like, if your apartment floods you’re not on the hook to replace your floor boards) but in a lot of markets it’s become entirely detached from reality.
(though if you’re sneaky and an utter idiot you could probably find some way to borrow for the down payment).
I borrowed for my down payment. It was in 2009, and I bought a 3bed/2bath house in a major city for ~$100k that is worth probably close to $500k now.
Am I an utter idiot, or are there circumstances where borrowing for the down payment is the right move?
There are circumstances when it’s appropriate but it’s really risky. It’s extremely easy to find yourself underwater in debt if you’ve borrowed the full amount. In 2009 when the housing market had fully crashed it was probably an acceptable level of risk.
With the interest rates what they are, it makes sense to wait on buying a home, even if you can technically “afford” it. My mortgage would be 60% higher if I bought today vs. 2 years ago when interest rates were a lot lower.
Except even then you can plan to refinance. There’s tradeoffs- it’s a pain and you have to pay additional costs, but if the rate is that much of a problem it’s usually worth it. Plus the additional history of a few years of mortgage will likely help your credit score.
And there’s even more context. You’re talking about buying today- my parents had immaculate credit and a huge down payment when they bought their house in the 80’s. Their interest rate was 15%. The US has had artificially low rates for decades, to the point where people are considering 6% and 7% to be “high”.
Rates will certainly impact who can or cannot afford to buy a home of course, but the only ones who are deferring purchasing at all for that reason are people viewing their home as a financial instrume that needs return on investment. If you need a home for shelter, a slightly higher rate is still a way better financial decision in the long-run than renting most of the time.
I’m sorry to be pedantic but this is a pet peeve of mine. If you bought a house you would not have any mortgage payment. You (and everyone else usually) are talking about financing a house.
Maybe I’m the crazy one but when I buy something I like to look at the total amount that I’m paying for it.
If I wanted a house listed for $300,000 5-years ago and I wanted to finance it, the rate might have been 3% so the total amount I would be paying would be $455,332.36 over 30yrs. Therefore I would only finance if I thought ~$450,000 was a fair price. If I thought the house was only worth $300,000 then I would need to pay in cash.Today rates are at 7% so a house listed at $300,000 actually costs $718,526.69 when financed. Do I think the houses I see listed for $300,000 are worth over $700,000? No. Do I have more than $300,000 needed to afford to pay in cash? Also no. Therefore, I’m not buying.
*These calculations are ignoring the down payment but the principle is still valid.I’ll up your pedantry with even more pedantry, colloquially “bought a house” is understood to mean “closed a deal on a house with financing” - “bought a house outright” would be for a full cash purchase.
I don’t mind unnecessary pedantry where appropriate, but you’re incorrect in this context.
And, technically speaking, when you buy a house (mortgage or not) you become the owner of that house - you’re just also receiving a loan with your house as collateral. So, if you fully paid off your house and then applied for a loan to start a business would you consider your house no longer owned by you?
If we really dig down here your pedantry about buying a house becomes quite meaningless because the loan using your house as collateral doesn’t mean you’re any less an owner of your house - you own it, fully and completely, you just also have an outrageously large loan using it as collateral (granted it’s a pretty special loan for a number of good social reasons).
It is extremely good to acknowledge how much that loan interest rate is effectively increasing the price of your house though, far too few people realize how much actual money they end up paying.
I would disagree with you on the pedantry. There would be two separate transactions: a buy buys the property from the seller, and the borrower borrows from the lender.
The property is treated as collateral, but the buyer/lender is the owner of the property. Mortgages are a bit special different from most common consumer debt because of the timing- the transactions need to be simultaneous because you need to have the collateral to get the money, and you need the money to get the property, but afterwards you still have ownership of the property.
Whether it’s a mortgage, a car, putting a latte on your credit card, or a multi-billion dollar corporate acquisition it’s the same.
That aside, the rest of your comment I agree is good advice to consider, but it’s just part of the equation. You’re assuming the mortgage is actioned as plan throughout it’s lifetime. However, the borrower has options. They might want to pay early and will save a lot of interest that way (maybe more than just interest if they have PMI). There’s also the option to refinance out of a higher rate later on.
Also… You’re comparing two different things by asking if a house listed for $300,000 is worth $700,000. In order to do a fair comparison, you need to do the same calculation for every house you consider and for the entire market you’re basing your expectations around. The only houses worth $300,000 when you factor in the interest of a 30 year mortgage would be a fraction of that cost. Or if you’re comparing to the alternative of not buying, then what you really need to compare is the cost of renting vs the interest you expect to save in whatever period you expect to defer buying for.
Yeah, we would move tomorrow if we could afford to. We own a house that is a nice house in a nice neighborhood, but not in a desirable town, so it’s not worth much. We can’t afford to sell it and buy a house somewhere else. We’re not waiting for a good deal, we can’t afford any deal right now.
So in theory, it’s not exactly wrong. If you’re going to buy a house that’s $300k today, but you knew that it would be $250k tomorrow, why wouldn’t you wait? And the next day you see that the price has dropped to $225k, so why wouldn’t you wait a little bit longer?
That’s why the Fed tries to maintain a positive inflation rate- if your money is going to be worth less tomorrow than it is today, you would want to spend it as soon as possible to maximize your purchasing power (assuming you’re a rational actor, which is always a toss-up when discussing economics).
In practice, you’re exactly right. I’ve seen people not buy houses because inflation was too high and they couldn’t afford it, but nobody was waiting when inflation was low for it to get even lower before buying a house. Mostly because when housing gets too low, rent-seekers start buying them en masse.
The problems are 1) when your inflation rate is too high, because then people just don’t have the money to buy things so instead of not buying because they don’t want to, they stop buying because they can’t spend more, and 2) corporations used COVID as an excuse to jack prices up because they could. When your production is back at pre-Covid levels but your pricing isn’t, simple supply/demand curves aren’t enough to explain why. (Also I’m not saying that all production and manufacturing has returned to pre-Covid levels, only that it’s been a long time since I went to the store and couldn’t get what I wanted or a reasonable substitute yet those things are more expensive than they were five years ago.)
The other thing missing is you need to live somewhere now. You also have other considerations - if you are starting a family you typically will need to have a place for the family to live and that forces you to buy now. This is why most deflation arguments fail - people need to live, so they will buy food, and shelter (including clothing). People will replace their broken down car. People will buy toys if they can afford it.
Even if you can buy the house for $200k next year, you don’t know that the price will go down - I’ve seen prices go down and then go back up more than once in my life. Maybe you get unlucky, but maybe you bought the bottom, you have no idea what inflation/deflation will do in 5 years and only educated guesses for next year.
No, that isn’t remotely what is happening. They rolled back price increases that were more than the public would accept.
Conventional economists spinning deflation as “almost always bad” has always felt like pro-corporate voodoo bullshit to me. Especially when the inflation that proceeded it was driven by boardroom greed and pathological profit-seeking.
I’m not saying deflation is always good. But right now it would likely just be a correction back to the usual Reaganomics greed instead of the post-pandemic let’s-burn-it-all-down levels of greed.
Per the article deflations caused people to put off making larger purchases such as house because they’ll wait for prices to fall. As opposed to inflation when people put off large purchases such as houses because they cannot afford it with out saving longer.
It’s about protecting capital. The government literally ensures inflation so that accumulated wealth doesn’t decrease because profit is more important than you surviving.
Anyone that believes their survival relies on capitalism has been sold the narrative that benefits only those with wealth. Some are convinced that owning a billionth of a percent of the market makes them part of the game; like a younger brother handed a second controller that isn’t hooked up to the system.
like a younger brother handed a second controller that isn’t hooked up to the system.
I’m definitely remembering that one.
Best comment here imo
This deflation from the bumpy COVID, supply chain, and corporate greed is good. But sustained long term deflation is very bad. The easiest way to explain it is basically everything runs on debt. If your revenue keeps going down but your debt is fixed, your debt effectively grows and the company is fucked. Same thing on a personal level if your wages go down and your mortgage is fixed.
Even without debt, sustained deflation is a sign the economy went to shit. Prices go down when there’s no one buying, if there’s no one buying companies close, people lose jobs, which causes other companies to go bankrupt and so on. Debt is the icing on the cake. People that think that long term deflation and deflationary policies are good never went through one.
The Apple II sold for $1298 in 1977. You can buy a mac mini for $599 today. Deflation is real in some markets and we are just fine.
Keyword in some markets. And in that case driven by efficiency increases in comparison with the rest of the economy.
Yeah, inflation is kinda good way to incentivise getting loans and mortgages as early as possible because you know that you’ll never be able to save that much money as they get cheaper and cheaper. So, does everything run on debt when there is inflation, too?
Still the same level of greed. Just all the juice had been squeezed from the lemons.
I’m not convinced this is deflation as I don’t think the market ever adjusted to 12$ big whoppers - I think this is just some companies that tried to really fucking exploit price increases to get a more comfortable profit margin being taken to task by low demand.
Let me know when the housing market corrects.
I was thinking the same. cutting back gouging is not deflation.
Gouging is the word I was looking for - that’s a perfect expression, thanks.
Gas is up for us … so … yeah. Not seeing anything they’re suggesting as evidence around these parts.
Sorry for the Economic pedantry
Demand never really changed other than what would be expected from population and technology growth. The supply of money did change. The Fed has been quietly right sizing the money supply.
If this continues to work, it could really mean good things for Americans in the future.
The demand curve didn’t shift - I agree. That was sort of my point - in legitimate inflation we’ll see demand curves shift as price sensitivity adjusts to the new market comprehension of purchasing power.
The actual amount of demand (or, like, buy orders if you prefer to avoid the term demand) absolutely did decrease though because we shifted the price point along that demand curve.
Local drive-through coffee places here are cheaper than Starbucks and they don’t get the deals that a huge corporation that Starbucks has, meaning their profit margins are a lot lower.
This has all been about price gouging.
Absolutely. There’s a nice sit-down restaurant close to where I work. I go there and get a much better meal for less than I would pay at the shitty McDonald’s half a mile away.
Meanwhile, McDonald’s: Where did everybody go? IS THIS DEFLATION!?
Same for my family. We just stopped going to fast food at all and eat at much better restaurants since it’s costs the same or nearly so. They screwed themselves hard I think.
When in all of history has Starbucks not been price gouging
Well for a while, local places were able to rise their prices as well to keep up with Starbucks, but now they’ve realized that they don’t need to.
So, technically, “inflation” can refer to many metrics. But in terms of CPI, which is usually what people are talking about, deflation isn’t happening. We had 0.4% inflation (not annualized, just for the month) in April, the last month for which data is available.
https://www.usinflationcalculator.com/monthly-us-inflation-rates-1913-present/
Anti paywall link https://archive.ph/JxFc4
What an absolute garbage article
