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.
> 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.
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.
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.
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?
I learned Spanish immersed in the street life of working-class Venezuelans in the 1990s. Ultimately, my command of the language was good enough that native Venezuelans detected an accent, but assumed I was from a different, unfamiliar part of Latin America. When I tried to speak Spanish in Barcelona years later, folks really got a kick out of my accent and idiomatic expressions.
I picked up a hitchhiker in Denmark once that had been an exchange student in New York. He spoke English with the most delightful Brooklyn accent. Just enough Bugs Bunny to be hilarious coming from a Dane.
I used it in conversation with my spouse the other day and was legitimately surprised to realize that it wasn't in common usage. Or that I apparently had failed to use the term in their hearing in the past 20 years of us knowing each other.
This kind of thing is solvable. When I built my house in Park City, Utah, I discovered that the growth in the area is projected to overwhelm the municipal sewer system in the coming decade. So I had to pay an impact fee of $3,000 per bathroom in order to get my building permit. I happily paid $15K, knowing that the money will go to the budget of a new treatment plant. There are very few places where there's actually no water. It's mostly a question of the infrastructure being available (enough storage, for example).
