[quote=CA renter]I think livinincali made the correct observation. The only way a person’s mortgage payment can become “peanuts” is when there is wage inflation that meets or beats cost inflation in other basic needs like food, energy, healthcare, etc.
Whether it’s you, the next buyer, or your renter, most people depend on wages for purchasing power. Without wage inflation, cost inflation takes away from most people’s purchasing power. The one kind of inflation that the Fed hates is wage inflation…that seems to be the only thing they’ll fight. In the absence of wage inflation, I would not count on higher rents unless you run a flop house where people can bunk up in each of the rooms.
Back in the 70s, there was significant wage inflation. Much of that was due to the relative strength of unions and the lack of cheap overseas competitors, etc. Those conditions don’t exist today.[/quote]
That makes no sense. Lets say your P&I = 10% of GI right now. Lets say we see 100% inflation over 10 years. Even if your income increase at 1/2 of the inflation rate, that still mean your income increased by 50% over 10 years. Your P&I is fixed, so your P&I will become only 2% of your GI. How is that not becoming “peanuts”. Unless you’re assuming there’s 0% wage increase when inflation runs at 100% over 10 years. I don’t see that happening.
BTW, if you assume there’s no wage inflation and high asset inflation, then everyone will be dirt poor. At that point, we all can just stop working and go on Welfare. If that happen, then essentially, I’ll be in early retirement anyways. Since there will be no reason for me to work. There’s also much bigger problem to worry about in the scenario.
Did wage inflation in the 70s keep pace with inflation or did it outpace inflation? I’m in an industry that have no unionization and there are plenty of cheap overseas competitors. Yet, my wage has been far outpacing inflation for the last decade. So, your statement about needing union and no cheap overseas competitors to have wage inflation is completely wrong.
BTW, you don’t see the government increasing the section 8 assistance to match inflation? Or at lease somewhat keeping pace with inflation? If they do, then why can’t I count on higher rents?
