Okay, let’s say we have 100% inflation over 10 years, and your income goes up only 50%. What if your healthcare costs go up 150% (they’ve been outpacing inflation for quite a while), food costs go up 90%, and energy costs go up 100%.
Let’s take a hypothetical wage earner who earns $6,000/month (make it net, just to keep it simple).
1. P&I is $2,000/month on a 30 yr FRM.
2. Healthcare costs are $1,000 for a family of four.
3. Gasoline, natural gas, electricity run around $600/month.
4. Groceries and household items cost around $1,000/month.
We’ll leave out the other costs just to keep it simple, as well; most of those will go up, too.
These costs add up to $4,600/month while your earnings are $6,000. These costs consume 76% of your earnings.
….
At the end of 10 years, the wage earner makes $9,000/month (unlikely, will go into this later).
1. P&I are $2,000/month.
2. Healthcare costs are $2,500/mo.
3. Energy costs are $1,200/mo.
4. Groceries and HH items are $1,900/mo.
These four items now cost $7,600.00 while your wages are $9,000/month. They consume 84% of your earnings.
Now, while you have certainly benefitted from the fixed mortgage payments, how about the person you intend to sell to? Do you think they will be able to contribute more than 84% of their income toward these expenses in order to pay you a higher price for your house? Don’t forget, interest rates will likely rise from the zero bound; they can’t really fall, which means that equal (or lower) monthly payments will dramatically reduce the amount they are able to pay you.
What about renters? In many occupations where renters tend to come from, wages are lower, **nominally** than they were in the 1980s and 1990s. The only way to increase rents is for these people to move more and more people into their homes, and even that would be pushing it since so many of them were already living with lots of roommates back in the 80s and 90s. How are they going to pay higher rents if costs are going up and wages are stagnant of lower?
Also, while you’ve seen your wages go up in the past 10 years, I think you’re younger than most of us here. IIRC, you graduated from college around the time of the stock/internet bubble, which means you’re in the early stages of your career trajectory. Most of your gains in earnings will happen in the first 10-20 years of your career. While you may well see rising wages over time, most people tend to top out at a certain point, usually in their 40s or 50s.
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Regarding Section 8 and CPI: Most would agree that CPI drastically understates real inflation. Also, with all the drubbing the govt is getting regarding spending, expect “welfare” programs to get hit as well. Section 8 might be getting cut back as we move forward.
