Online House Hunting

Stop house hunting because of risk of inflation?

We are a frugal family who lives within our budget. We have been saving for years for home and had been house hunting before the recent crisis. While we are in a good position to buy a house the talk of depression is scary. We have the 20% down pre-approval and are not in a hurry( we don't have to try to get a loan while banks are not giving them) ..but what worries me is we buy a house and then inflation goes through the roof and our budget goes out the window. What is the risk that even with the bail out we will still have higher inflation?

Public Comments

1. Assuming you don't buy a house bigger than you can afford (big assumption here), I don't think inflation is your big risk. In fact, once you get a fixed-rate mortgage (!), inflation might be your friend. (Inflation helps borrowers because they repay loans in cheaper dollars. It hurts lenders because they get paid back in dollars that are worth less.) There are two dangers that are more important: 1. That housing prices fall so that if you have to move for some reason, you will lose a lot (especially if you can't sell the house for what you still owe on the mortgage). 2. Your income goes down enough (because of losing a job, etc.) that you can't afford the payments on the mortgage. Who knows what will happen in the future? There were three factors in creating the recent inflation: 1. Growing demand for commodities: oil, food, raw materials, etc. from the growing economies of China, India, etc. 2. The weakening of the American dollar, making goods that were stable in Swiss francs, Euros, etc. more expensive to Americans. 3. The economic stimulation caused by Americans going into debt to keep buying. The Chinese and Indian economies are not going to stop growing, but their growth rate may well drop, somewhat easing demand for commodities. The American economy is already seeing lower demand as well (one reason oil is down from its peak prices) And, one can argue that it may well be that Americans can't go all that much further into debt in order to consume more. And that because the banks are reluctant to loan money, there are fewer dollars floating around. That's the good news on inflation. The bad news is that none of that addresses the weak American dollar so even if we are looking at inflation, it is hard to figure out what will happen. And if we have a long term recession/depression, inflation will not be our main concern.