Inflation isn’t something that causes all prices to rise at the same rate.
Over that last few years, housing and stock prices have inflated much faster than any other types of assets. Energy, health care, education, and gold prices have also seen a lot of price inflation. HOWEVER, salaries for the lower and middle classes have inflated at MUCH lower rates, making it IMPOSSIBLE for them to afford to buy the houses at anywhere near today’s inflated prices without resorting to suicide loans (which will end in foreclosure). I don’t see anything that will cause wages to rise substantially for most people. This is not like the 70’s where wages inflated along with almost everything else. If people try to demand higher wages, companies will just fire them and send the jobs to China, India, Mexico or a host of other countries. So yes, I feel the Dollar will keep losing value and we’ll have to pay more for a lot of imported goods as well as energy and other commodities but people’s wages will NOT increase much, so they will have to either (1) cut down their spending to the bare necessities and not buy an overpriced house or (2) keep running up debt until they go broke and end up doing #1 eventually.
I have no emotional issues against renting and I may never buy a house again but IF I do, it probably won’t be for a least a few more years. The price declines are just BEGINNING to get serious and it’s still much cheaper to rent vs buy. My preference is to invest in stocks in foreign countries with stable currencies and to invest in commodities or related stocks/funds. I believe these will yield higher real returns than houses. Housing to me has way more downside risk than upside potential right now. I like to keep most of my $$ in FDIC insured CD’s but I put some of it in inflation-hedge type investments as noted above.
Another problem with using your house as an inflation hedge is that it’s very illiquid. What if you get laid off and have to move to get a decent job? You can’t predict the timing of something like that and you may be stuck in a log-jam. What if you get a great job offer in another city but it comes at I time when house prices have fallen below what you paid? Would you take a triple digit loss or forgo the job opportunity? The house could become a noose around your neck in these cases. I see no benefit to buying in a declining market. You’d have to be pretty DARNED sure you could ride out the entire downturn in that house and I think very few people in our economy are that sure of anything.
