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One way to protect against inflation is to take out a huge mortgage on a house. Interest rates are low right now, and if inflation is high, the mortgage balance

One way to protect against inflation is to take out a huge mortgage on a house. Interest rates are low right now, and if inflation is high, the mortgage balance will be eroded away by inflation.

redisman 5y ago
Aren’t you just buying a very inflated asset with that mortgage? The median house price in the US is +200% since the previous peak in 2008 https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- Specie33 5y ago
  Yes, the way to combat this is to buy a house that needs work on great property.
  - dagw 5y ago
    Except everybody thinks this way. When I was house hunting a few years ago houses that needed work on great property sold at basically 0% discount compared to houses that didn't need work. I saw bidding wars resulting in fixer-uppers going for literally more than houses that didn't need work. The only exception where houses that needed serious structural work, and even then the discount was nowhere near enough to make it really worth it.
    - Specie33 5y ago
      You are right. I had to buy an absolute basket case of a house all the easy fix and flips are gone. You have to be able to take the pain/work of the deals that people without vison pass on.
- jjav 5y ago
  > Aren’t you just buying a very inflated asset with that mortgage? If there is no significant inflation in the future, that's probably right. But if there is significant inflation, that value will go way up in absolute dollars simply due to the dollar devaluing. And the mortgage balance will effectively be minimzed by the same reason.
tyjaksn 5y ago
Important to note that the interest rate needs to be fixed. A variable rate could be increased and cancel out that erosion.
leoedin 5y ago
If inflation is followed with interest rates rising, and house prices are a product of mortgage affordability (and so interest rates), will inflation (and so interest rates rising) reduce house prices? Has anyone modelled this? If inflation is at 6% what is a "sensible" interest rate? What percentage reduction in total borrowing would the average person have in that scenario?

One way to protect against inflation is to take out a huge mortgage on a house. Interest rates are low right now, and if inflation is high, the mortgage balance will be eroded away by inflation.

redisman 5y ago

Aren’t you just buying a very inflated asset with that mortgage? The median house price in the US is +200% since the previous peak in 2008 https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS

Specie33 5y ago
Yes, the way to combat this is to buy a house that needs work on great property.
- dagw 5y ago
  Except everybody thinks this way. When I was house hunting a few years ago houses that needed work on great property sold at basically 0% discount compared to houses that didn't need work. I saw bidding wars resulting in fixer-uppers going for literally more than houses that didn't need work. The only exception where houses that needed serious structural work, and even then the discount was nowhere near enough to make it really worth it.
  - Specie33 5y ago
    You are right. I had to buy an absolute basket case of a house all the easy fix and flips are gone. You have to be able to take the pain/work of the deals that people without vison pass on.
jjav 5y ago
> Aren’t you just buying a very inflated asset with that mortgage? If there is no significant inflation in the future, that's probably right. But if there is significant inflation, that value will go way up in absolute dollars simply due to the dollar devaluing. And the mortgage balance will effectively be minimzed by the same reason.

tyjaksn 5y ago

Important to note that the interest rate needs to be fixed. A variable rate could be increased and cancel out that erosion.

leoedin 5y ago

If inflation is followed with interest rates rising, and house prices are a product of mortgage affordability (and so interest rates), will inflation (and so interest rates rising) reduce house prices? Has anyone modelled this? If inflation is at 6% what is a "sensible" interest rate? What percentage reduction in total borrowing would the average person have in that scenario?