loraward Posted May 19, 2015 Share Posted May 19, 2015 And the value of all housing going down means that the next house up costs less when you come to buy it, the gap has got smaller. Inflation erodes the value of your savings. Interest is what encourages saving, not inflation. Deflation on the other hand causes people to minimise spending. Why buy a car today if it will be cheaper tomorrow. So it's harmful for the economy in that it actually creates excess saving. But good for the environment as people make do with what they have instead of throwing it and buying new. Link to comment Share on other sites More sharing options...
El Cid Posted May 19, 2015 Author Share Posted May 19, 2015 If you dont believe me, the Bank of England does not want zero of even 1% inflation. "The inflation target of 2% is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). The remit is not to achieve the lowest possible inflation rate. Inflation below the target of 2% is judged to be just as bad as inflation above the target. The inflation target is therefore symmetrical." Link to comment Share on other sites More sharing options...
Cyclone Posted May 19, 2015 Share Posted May 19, 2015 Because most people would have taken out a £90k mortgage Just trying to look into this a bit deeper, there are a number of estimates of average outstanding mortgage value in the UK. http://www.moneywise.co.uk/news/2013-05-16/average-outstanding-uk-mortgage-100000 THE AVERAGE TOTAL DEBT PER HOUSEHOLD – INCLUDING MORTGAGES – WAS £55,197 IN MARCH. THE REVISED FIGURE FOR FEBRUARY WAS £55,086. I think this one is the most useful figure. We can compare this to the number of owner occupier homes and the average value of a house. Clearly at any given point in time, the majority of home owners do not owe 100% of the mortgage they've taken. In fact, very few do. By definition, the majority owe <50% of the value of their house, and it's probably a significant majority. So house price deflation has a potential downside for a very small minority, those being the ones who most recently took out a large mortgage. This downside is only temporary of course. It has an upside (a permanent one) for everyone else, those who don't (yet) own houses, those who rent, those who own and might upgrade, future generations as yet unborn... ---------- Post added 19-05-2015 at 13:46 ---------- But good for the environment as people make do with what they have instead of throwing it and buying new. Probably true. Although it might encourage more environmentally harmful behaviour such as running a failing diesel vehicle instead of replacing it... Or other more complicated effects. Difficult to say really. ---------- Post added 19-05-2015 at 13:46 ---------- If you dont believe me, the Bank of England does not want zero of even 1% inflation. "The inflation target of 2% is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). The remit is not to achieve the lowest possible inflation rate. Inflation below the target of 2% is judged to be just as bad as inflation above the target. The inflation target is therefore symmetrical." Don't believe what exactly? You haven't made any statements to agree or disagree with have you? Don't confuse house price inflation with CPI. ---------- Post added 19-05-2015 at 13:49 ---------- I would think that anyone with assets would benefit from inflation, as a general rule. Is this the statement you think I don't agree with? I do agree with the statement as it stands. But a house is not an asset in any realisable form. So I doubt if any sizeable fraction of the population own any assets that might appreciate (oil, gold, silver, other raw materials, 2nd or more houses, land and so on)... Link to comment Share on other sites More sharing options...
El Cid Posted May 19, 2015 Author Share Posted May 19, 2015 I do agree with the statement as it stands. But a house is not an asset in any realisable form.... We think differently, a house is an asset. Link to comment Share on other sites More sharing options...
Cyclone Posted May 19, 2015 Share Posted May 19, 2015 Yes it is. But explain to me how you're going to liquidate it without becoming homeless? If you own a single house, it's increase in value as an asset is only useful to you if you downsize. It's potentially good for your offspring if you die, but that's not good for you. I didn't say "a house is not an asset", I said "a house is not an asset in any realisable form" Do you disagree with the entire sentence? Link to comment Share on other sites More sharing options...
El Cid Posted May 19, 2015 Author Share Posted May 19, 2015 Yes it is. But explain to me how you're going to liquidate it without becoming homeless? If you leave it to your children when you die, or if you sell it and rent once you have turned 65. A £150k nest egg, nice for you in retirement, or your children. Link to comment Share on other sites More sharing options...
Cyclone Posted May 20, 2015 Share Posted May 20, 2015 If you leave it to your children when you die, or if you sell it and rent once you have turned 65. A £150k nest egg, nice for you in retirement, or your children. If you're dead YOU haven't liquidated anything. I already covered death. If you sell it and rent you'll have realised the asset alright, but now have an ongoing monthly cost that is higher than just owning the home. If you live for 20 years you'll have spent the entire proceeds on rent alone. You might as well just burn it down just before you die! Anyway, prices falling wouldn't hurt the rental scenario, as rental prices would fall as well, so you've got about 20 years worth of rent money when you sell no matter how much the market falls. Downsizing is a scenario you didn't mention, that's one scenario where a person wants the market to inflate rather than deflate. So we have 2 very small groups of people who suffer. Those who suffer negative equity for a short period, and those who might want to downsize. Everyone else benefits. Link to comment Share on other sites More sharing options...
poppet2 Posted May 20, 2015 Share Posted May 20, 2015 Deflation on the other hand causes people to minimise spending. Why buy a car today if it will be cheaper tomorrow. So it's harmful for the economy in that it actually creates excess saving. But how do you know that car is going to be cheaper tomorrow, why should it go down further in price? There are things I want to buy in shops, but I don't think they will fall in price for one moment. Link to comment Share on other sites More sharing options...
Danny_Boy Posted May 20, 2015 Share Posted May 20, 2015 But how do you know that car is going to be cheaper tomorrow, why should it go down further in price? There are things I want to buy in shops, but I don't think they will fall in price for one moment. Because if there is deflation then the cost if items is getting smaller as time goes on so people will hold off buying, which in turn leads to surplus stock which then leads to prices falling even further. When house prices crashed a lot of buyers were put off buying as they didn't want to buy a house for £100k that could be worth £90 in 6 months. Link to comment Share on other sites More sharing options...
Cyclone Posted May 20, 2015 Share Posted May 20, 2015 But how do you know that car is going to be cheaper tomorrow, why should it go down further in price? Because that's what deflation means. ---------- Post added 20-05-2015 at 22:38 ---------- There are things I want to buy in shops, but I don't think they will fall in price for one moment. Because we aren't really suffering from deflation. Link to comment Share on other sites More sharing options...
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