[quote=livinincali]I think rates can go up without high inflation. See Greece, Spain, Portugal, etc. That’s where the problem lies in betting that buying a higher price home at a low interest rate guarantees good positive returns on rent in the future. It’s certainly possible that you’d see deflation in a rising rate environment as we are witnessing in Europe. Unemployment can rise, vacancy can rise, and rates can rise at the same time.
The big bet on residential real estate is that higher than average inflation is coming and that a fixed 30 year rate going to allow you to win huge when that inflation shows up. Of course you’re screwed if deflation shows up along with higher rates. At the same time I can’t find any recent occurrences of a 1970’s type environment. Japan has been mired in deflation and low rates forever. Europe is experiencing higher rates and deflationary forces as well. Yet here we are in America thinking the worst can happen is 1970’s stagflation with asset owners hitting the jack pot. It’s possible but I don’t know that’s it’s likely.
Even if it does pan out this government has shown no respect for contract law so what makes you think they won’t stick it to the little man holding 30 year fixed mortgages on rental properties. Hi little man, we’re going to be adding a new fee to mortgages on second properties that were obtained in the years 2008-1015.[/quote]I agree that it could happen. But then again, every country is different and we’ve never experienced a Greece/Spain/Portugal/etc situation before. That doesn’t mean that it can’t happen. It’s just that it hasn’t. We can print more USD while Greece/Spain/Portugal/etc can’t print more Euro to increase inflation.
So, I’m still betting that our country is different than others and we’re more likely to repeat our past than repeat other country’s past/current. Only time will tell and my crystal ball is broken, so I’ll just have to wait.
