Many folks have scoffed at me when I have talked about inflation in the future and rising home prices down the road. Last week, the Kiplinger letter suggested that in the not too distant future, we might be looking at inflation again.
Most people think that the economy has to be really good for inflation to hit, with too much money chasing too few goods. That's what we learned in high school. However, high government debt is the main ingredient in the Kiplinger letter from Oct. 7. I won't go into all the details here -- you can read the letter -- but I firmly believe that it will happen. It might not be as bad as the 1980s, but we could easily see 5 percent to 6 percent per year over a relatively long time period starting as early as 2013.
Think about how that would affect the real estate that you own now or that you would buy at low prices this year. Let's say you buy a home that used to be worth $125,000 and now you get a great deal because of depressed prices or a foreclosure at $100,000. Your payment would be under $500 before taxes and insurance at today's very low fixed rates. By the time you added on taxes and insurance, your payment would likely be around $700 per month. That's about the same price as an average apartment.
Let's assume it takes awhile but over the next 10 years, we average 5.5 percent inflation. That means the home would be worth somewhere over $170,000 in 2023 dollars.
Skeptics will argue that wages, gas and food will have all increased at the same rate, so the price of the house is really the same as it is now. Well, that is partially true, but what about rent versus a mortgage payment? Rent will have increased to about $1,200 in the same time period with the same inflation rate. What happened to your mortgage payment? Well, you locked in with those cheap rates back in 2011 and your real estate taxes are the only thing that increased by less than 100 dollars during that period, so your payment still is under $800. After you figure tax advantages and inflation advantages, despite some maintenance costs, it is a little hard for any skeptic not to look at buying as a lot better financial decision than renting if there is inflation on the horizon. Now calculate the wisdom of purchasing a vacation home or rental property in today's dollars and -- well, you can do the math.
Most people think that the economy has to be really good for inflation to hit, with too much money chasing too few goods. That's what we learned in high school. However, high government debt is the main ingredient in the Kiplinger letter from Oct. 7. I won't go into all the details here -- you can read the letter -- but I firmly believe that it will happen. It might not be as bad as the 1980s, but we could easily see 5 percent to 6 percent per year over a relatively long time period starting as early as 2013.
Think about how that would affect the real estate that you own now or that you would buy at low prices this year. Let's say you buy a home that used to be worth $125,000 and now you get a great deal because of depressed prices or a foreclosure at $100,000. Your payment would be under $500 before taxes and insurance at today's very low fixed rates. By the time you added on taxes and insurance, your payment would likely be around $700 per month. That's about the same price as an average apartment.
Let's assume it takes awhile but over the next 10 years, we average 5.5 percent inflation. That means the home would be worth somewhere over $170,000 in 2023 dollars.
Skeptics will argue that wages, gas and food will have all increased at the same rate, so the price of the house is really the same as it is now. Well, that is partially true, but what about rent versus a mortgage payment? Rent will have increased to about $1,200 in the same time period with the same inflation rate. What happened to your mortgage payment? Well, you locked in with those cheap rates back in 2011 and your real estate taxes are the only thing that increased by less than 100 dollars during that period, so your payment still is under $800. After you figure tax advantages and inflation advantages, despite some maintenance costs, it is a little hard for any skeptic not to look at buying as a lot better financial decision than renting if there is inflation on the horizon. Now calculate the wisdom of purchasing a vacation home or rental property in today's dollars and -- well, you can do the math.
Source www.wausaudailyherald.com
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