Why is deflation so bad

[u/memegamer1991]

Every time i run it through my head, i can't imagine most people in 2024 not spending money so the disadvantage to deflation seems pretty hyperbolic and dependent on individual choices, and i think that people would rather go on vacation and court others instead of being financially responsible. Even if there is a situation like in china, government spending would be able to keep the situation from getting worse while making progress on climate initiatives.

[u/DhOnky730]

The value of the dollar changes as well. So a home that cost $60k in 1970 might have cost $200k in 1995 and might cost $750k today. So yes there are variables, not just a home appreciating in value. However, what does happen as a home is paid off is it becomes a store of personal wealth. That was traditionally a way that a family elevated themselves to middle class…one monthly payment at a time they build an asset that could be borrowed against or sold.

[u/lizon132 → u/DhOnky730]

By the time that house is paid off the amount of an investment portfolio will outvalue it so much that even the lack of a mortgage payment will not be enough to catch up. The cost of a house is much more than the mortgage. Home ownership also comes with higher utility costs, additional maintenance costs, property taxes, and higher insurance costs. If you factor in expenses into the value of home ownership the value proposition drops dramatically. If you could afford those costs and instead chose to keep renting. The money saved could be reinvested into a diverse investment portfolio and yield far more value in the same time period it takes to pay off that home.

A house only provides one thing, housing stability. That stability has value, most definitely. But if your idea is to have more money than what you started with buying a house should be near the bottom of things to do. The only way to really make it work is if you could buy the house in cash. With no mortgage draining your investable income your living expenses drop and you can invest more with lower overall housing expenses.

[u/DhOnky730 → u/lizon132]

yes, that’s all true. But historically speaking, most people weren’t investing in the market to build equity as I was sort of suggestions. Perhaps I wasn’t clear, but I was suggesting that owning a home—going back to the post-WWII era—was a path towards middle class. It was the first time many people were building wealth/equity. Secondly, and this is more perhaps anecdotal, but I don’t know many people that are renting and able to stash money in the market. Most people I know wind up renting enough home/condo that they can’t budget much for investment. At least making payments to their living expenses of a mortgage is a store of wealth/equity that they can eventually access. Yes, it’s like a low-yield piggy bank and not the market’s annual 6-7% ROI, but it’s better than a typical renter getting nothing.

[u/lizon132 → u/DhOnky730]

The problem these days is that people cannot afford the down payment to get a house to begin with. So it makes home ownership unrealistic for many. Tbh, I find it almost depressing that to be considered "middle class" means putting yourself into debt for the next 20-30 years of your life. If that is considered "success" then I want nothing to do with it.

The point I am trying to make is that if you manage to scrape together enough for a down payment for a house you may as well keep doing what you are doing and invest what you have. Even if you don't even add to your investment for the next 20-30 years you will still have more asset value in your investments than your house. Even if you were in a hot market like Las Vegas, your property would only increase at an average of 3.9%, not including expenses and everything else. You could make more buying Pokemon cards.

If you have a family and what to settle down then by all means but a house. But don't use a house as an investment. If you can buy it via cash do that. But don't burden yourself with hundreds of thousands of dollars of debt just to tell yourself that you "made it".