Reply to: You are better off renting now

[Board Game Geek]

wage inflation has been next to zero for the last 10-15 years?

Well, it's been stagnant for me for the last 3 years.

6 renewals in that period and each time I ask, I'm told the client only do a fixed rate for their contractors.

Spoken to the other contractors and they are in the same boat as well, with no rate rises across the board.

Still, at least we are holding our daily rates, unlike the permies.

All the permie jobs have been regraded, with an average salary decrease of 7% (although a rise at the board level).

[TimberWolf]

Price inflation does not rip off the payment numbers at all, indeed it reduces your available income and increases your real expense for the mortgage. If you mean salary inflation, yes; a pity that in the last 10-15 years it has been next to zero and the trend is not certainly positive with open frontiers and outsourcing going on. Rents, on the other hand, might go up but that is more strongly related to salary inflation (at least from the last years it appears to be more linked with that rather than with price inflation) as otherwise people could not afford to live, so you are more safe on the renting side from this point of view too.

Hmm, perhaps a good point, perhaps not.

Wage increases are often linked to, and influenced by, inflation though, and visa versa, and since there is little hope of predicting how each might change over the next 20 years it might make sense to assume the two are the same for the sake of this discussion, or if not with evidence of what they might be in future. Otherwise we'll get nowhere here fast. How do you know that wage inflation has been next to zero for the last 10-15 years?

[AtW]

Switzerland sucks.

Why? It sounds like a nice place.

[sasguru]

But most people will not use them. They'll keep the house forever because they believe that its value will never go down and might not make the profit because sooner or later you will need that money (or your direct descendants) and it might happen at a time where you have to make a loss. Would you rather keep the shares hoping they will give you a strong dividend forever or would you cash them in once you make a good return from the sale and move on to something else?

Sorry I don't get your point. maybe because I'm practical and not theoretical.

[sasguru]

[QUOTE=Francko;344749]

Switzerland sucks.

Hate to say, but I told you so.

[Francko]

[QUOTE=sasguru;344744]

Price inflation does not rip off the payment numbers at all, indeed it reduces your available income and increases your real expense for the mortgage. If you mean salary inflation, yes; a pity that in the last 10-15 years it has been next to zero and the trend is not certainly positive with open frontiers and outsourcing going on. Rents, on the other hand, might go up but that is more strongly related to salary inflation (at least from the last years it appears to be more linked with that rather than with price inflation) as otherwise people could not afford to live, so you are more safe on the renting side from this point of view too.[/QUOTE

Sounds like self-justification to me. Enjoy Switzerland.

Switzerland sucks.

[Francko]

And what the flip is your point? If you can get rich in a speculative bubble, and can identify it as such, then fine. But you always have to plan for the long term. Speculative bubbles come and go. Use them if you can. For that you need some knowledge of history - note I don't say economics.

But most people will not use them. They'll keep the house forever because they believe that its value will never go down and might not make the profit because sooner or later you will need that money (or your direct descendants) and it might happen at a time where you have to make a loss. Would you rather keep the shares hoping they will give you a strong dividend forever or would you cash them in once you make a good return from the sale and move on to something else?

[sasguru]

[QUOTE=Francko;344741]Price inflation does not rip off the payment numbers at all, indeed it reduces your available income and increases your real expense for the mortgage. If you mean salary inflation, yes; a pity that in the last 10-15 years it has been next to zero and the trend is not certainly positive with open frontiers and outsourcing going on. Rents, on the other hand, might go up but that is more strongly related to salary inflation (at least from the last years it appears to be more linked with that rather than with price inflation) as otherwise people could not afford to live, so you are more safe on the renting side from this point of view too.[/QUOTE

Sounds like self-justification to me. Enjoy Switzerland.

[Francko]

Towards the end of the term those mortgage payments will cost next to nothing in real terms, because inflation rips into them. Interest is paid all during that term and one loses out there big time, especially early on, but the point is that the cost of the house also rises with inflation and partially offsets this cost. Rents rise with inflation too, and so don’t become less costly in real terms. The longer you rent the worse of you become then in this simplified model, so I don’t see how ‘inflation is not influential at all’.

Run some numbers to convince me.

Price inflation does not rip off the payment numbers at all, indeed it reduces your available income and increases your real expense for the mortgage. If you mean salary inflation, yes; a pity that in the last 10-15 years it has been next to zero and the trend is not certainly positive with open frontiers and outsourcing going on. Rents, on the other hand, might go up but that is more strongly related to salary inflation (at least from the last years it appears to be more linked with that rather than with price inflation) as otherwise people could not afford to live, so you are more safe on the renting side from this point of view too.

[sasguru]

The name of the game for any speculative bubble is this: get rich quick (with little effort).

And what the feck is your point? If you can get rich in a speculative bubble, and can identify it as such, then fine. But you always have to plan for the long term. Speculative bubbles come and go. Use them if you can. For that you need some knowledge of history - note I don't say economics.

[AtW]

A diversified portfolio is the name of the game.

The name of the game for any speculative bubble is this: get rich quick (with little effort).

[sasguru]

FFS the story is this: no one (I hope) just invests in one option. A diversified portfolio is the name of the game. Now, we all have to live somewhere. It is clearly better to buy, because after 25 years when you're old, you have somewhere to live, after maintenance. None of you has factored in, say, 15-20 years of retirement after paying off your mortgage. So buying means you stop paying during your non-income years. If you have also invested in the stock market, you will be quids in.

[TimberWolf]

No, the inflation is the only factor that is not influential at all.

Towards the end of the term those mortgage payments will cost next to nothing in real terms, because inflation rips into them. Interest is paid all during that term and one loses out there big time, especially early on, but the point is that the cost of the house also rises with inflation and partially offsets this cost. Rents rise with inflation too, and so don’t become less costly in real terms. The longer you rent the worse of you become then in this simplified model, so I don’t see how ‘inflation is not influential at all’.

Run some numbers to convince me.

[bored]

Your mistake in that calculation is that you are comparing yield of a no risk fixed rate investment to the yield of a high risk investment (property). Make the comparison between property and shares and the picture will change drastically.

[sasguru]

So much talk. Basically my parents are theoretical millionaires because they bought a basic detached house in the right place at he right time.

So they are in a better position than most people in Europe who have rented all their lives.

End of story.