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getdoon_weebobby

Why Do Cash Buyers Fear Inflation?

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the way i see it an inflation shock will help us in our quest for a cheap house as it will lead to an interest rate hike. only a lot later once prices have fallen to take into account this high interest rate/inflationary environment will the inflation eventually carry house prices along with it (by which point we will all of jumped in and bought <_<:lol:

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Based on a limited sample of two, I'd say it was as a result of having their houses bought for them by the 1970s, and expecting to see a re-run of it shortly.

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Based on a limited sample of two, I'd say it was as a result of having their houses bought for them by the 1970s, and expecting to see a re-run of it shortly.

:lol::lol:

edited to add - there is a vital missing ingredient this time though - Wage Inflation. ;)

it's that globalisation thingy

Edited by grumpy-old-man-returns

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Based on a limited sample of two, I'd say it was as a result of having their houses bought for them by the 1970s, and expecting to see a re-run of it shortly.

would i be right in saying the 70s saw inflation take off from a position of high interest rates which we dont have this time.

wages rose in line which we dont have this time

etc

etc

circumstances are so different

no btl in the 70s!

Edited by getdoon_weebobby

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Fears could include worry that:

a. inflation is high, yet the gov finds a way to keep base rates low hence my deposit becomes worthless - would rather it was a mortgage that got eroded away!

b. high inflation means high interest rates have to pay 40% of interest to government

c. as a result of high inflation and wage inflation HPI takes off again.

d. no suitable house is for sale and the moment that is right to buy

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Iceland has 15-20% inflation. Real house prices there are falling at over 20%, nominal at about 7%. I'd guess you can get 10-15% on a bank deposit, so there doesnt seem much difference on the net outcome.

House prices will fall till they meet wages. Might not be double figure % decreases every year to the bottom, but youre cash position should maintain a double figured rate of improvement.

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:lol::lol:

edited to add - there is a vital missing ingredient this time though - Wage Inflation. ;)

it's that globalisation thingy

Precisely. I didn't say I thought they were right :)

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OK, so your deposit deflates......what does that to house prices? are they going to rise? is a 100K thats say 40% deposit, become any less of a 40% deposit?

No, so REAL prices will fall.

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Iceland has 15-20% inflation. Real house prices there are falling at over 20%, nominal at about 7%. I'd guess you can get 10-15% on a bank deposit, so there doesnt seem much difference on the net outcome.

House prices will fall till they meet wages. Might not be double figure % decreases every year to the bottom, but youre cash position should maintain a double figured rate of improvement.

exactly. a quick look at iceland

http://www.landsbanki.is/Uploads/documents...90601_enska.pdf

http://www.sedlabanki.is/?PageID=179

accounts paying 9.8% (i believe)

inflation at 11.6%

interest rate 12%

inflation and interest rates have come back somewhat since end of 2008

so whats the problem! keep your cash in the best instant access accounts till houses reach a nominal bottom.

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no worries Moo, I actually didn't mean it that way to you, but I admit it does read that way. my apologies. :)

No problems 'ol chap. It's just a conversation I've had a with a few people of that generation, and the notion that inflation and wage inflation are one and the same seems very strong.

As a slight aside, it's actually this attitude and the passing of it down the generations that I consider to be one of the big pillars of the housing boom. Today's thirtysomethings are the product of that generation. For what it's worth, I had a bizarre conversation with a friend last summer who told me flat out that inflation (specifically, the rising of oil*) was paying his mortgage shortly after telling me about his paycut. It took five minutes of extreme tact to work around that one.

* And before you ask, no, he's not a commodities investor.

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exactly. a quick look at iceland

http://www.landsbanki.is/Uploads/documents...90601_enska.pdf

http://www.sedlabanki.is/?PageID=179

accounts paying 9.8% (i believe)

inflation at 11.6%

interest rate 12%

inflation and interest rates have come back somewhat since end of 2008

so whats the problem! keep your cash in the best instant access accounts till houses reach a nominal bottom.

But 40% tax leakage on interest income. Best instant access currently around 2.75%, thats 1.65% gross.

Need a 4% gross yield to cover rent. And house prices were I live still not really falling.

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I'm worried about this myself, and I was looking at NS&I index-linked certificates.

It looks like they're tax free and that you can take your money out without penalty, regardless of which duration you've gone for (3 or 5-year). The only part you lose in not leaving your money in for the full term is the full additional 1% that you earn over and above RPI, but even then you get 0.75% or 0.85% if you withdraw the money on one of the anniversary dates. That's the way I read the terms and conditions, anyway.

The worry with these is that the official RPI figures are manipulated, as they seem to be at the moment, so that the rate paid doesn't reflect real-world inflation.

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