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people put off buying homes and other big purchases because they know it will be cheaper later
What absolute drivel. This myth was obviously formulated by some wealthy economist who had only ever worries about purchasing vacation homes.
People put off buying homes UNTIL THEY CAN AFFORD IT. How many people does the author think are currently in the streets or renting for years just so they can save a bit on their mortgage? Completely garbage.
But companies will have to lay off workers! Oh wait, they’re already doing that despite record profits.
Companies will stop giving raises! Oh wait, they’ve been doing that for decades.
The economy stopped working for the average person. It’s been going on so long now that it’s normalized. People are afraid. We need to wake up to our exploitation.
And I say this as a person who is well paid, at a company that treats its people well. I’ve worked enough other jobs to know how abnormal my situation is and will gladly fight alongside those who aren’t as lucky as me because I refuse to accept the “fuck you, I’ve got mine” mantra.
With the interest rates what they are, it makes sense to wait on buying a home, even if you can technically “afford” it. My mortgage would be 60% higher if I bought today vs. 2 years ago when interest rates were a lot lower.
Except even then you can plan to refinance. There’s tradeoffs- it’s a pain and you have to pay additional costs, but if the rate is that much of a problem it’s usually worth it. Plus the additional history of a few years of mortgage will likely help your credit score.
And there’s even more context. You’re talking about buying today- my parents had immaculate credit and a huge down payment when they bought their house in the 80’s. Their interest rate was 15%. The US has had artificially low rates for decades, to the point where people are considering 6% and 7% to be “high”.
Rates will certainly impact who can or cannot afford to buy a home of course, but the only ones who are deferring purchasing at all for that reason are people viewing their home as a financial instrume that needs return on investment. If you need a home for shelter, a slightly higher rate is still a way better financial decision in the long-run than renting most of the time.
So in theory, it’s not exactly wrong. If you’re going to buy a house that’s $300k today, but you knew that it would be $250k tomorrow, why wouldn’t you wait? And the next day you see that the price has dropped to $225k, so why wouldn’t you wait a little bit longer?
That’s why the Fed tries to maintain a positive inflation rate- if your money is going to be worth less tomorrow than it is today, you would want to spend it as soon as possible to maximize your purchasing power (assuming you’re a rational actor, which is always a toss-up when discussing economics).
In practice, you’re exactly right. I’ve seen people not buy houses because inflation was too high and they couldn’t afford it, but nobody was waiting when inflation was low for it to get even lower before buying a house. Mostly because when housing gets too low, rent-seekers start buying them en masse.
The problems are 1) when your inflation rate is too high, because then people just don’t have the money to buy things so instead of not buying because they don’t want to, they stop buying because they can’t spend more, and 2) corporations used COVID as an excuse to jack prices up because they could. When your production is back at pre-Covid levels but your pricing isn’t, simple supply/demand curves aren’t enough to explain why. (Also I’m not saying that all production and manufacturing has returned to pre-Covid levels, only that it’s been a long time since I went to the store and couldn’t get what I wanted or a reasonable substitute yet those things are more expensive than they were five years ago.)
I’m putting off buying solar panels onto my roof because I know that the longer I wait the cheaper they’ll get.
Cool story. Not sure how it’s relevant.
Knowing that something will cost less in the future does affect consumer behaviour in a negative way. That’s how it’s relevant.
That’s a gross oversimplification of consumer behavior. Consumers react differently to market changes for different types of goods.
There’s probably a good reason the vast majority of economists agree that deflation is bad for this exact reason. It’s not just my opinion - I’m not an economist and I doubt you’re either.
Economists are pretty famous for fighting amongst themselves. The vast majority of economists don’t agree on anything with each other.
The loudest economists tend to agree with each other. The ones whose views and supported policies happen to result in more wealth being funneled to capital holders. For some reason those people are the ones who get interviews on TV and articles published by major outlets. I wonder why that could be?
I’m not saying every “indie” economist on the Internet is valid as there’s plenty of bad ones too. But the idea that deflation is terrible certainly deserves scrutiny. Just look around… Is the populace happy with the results of the current systems and policies?
To quote one of the most famous economists, Hayek, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”
Yeah, we would move tomorrow if we could afford to. We own a house that is a nice house in a nice neighborhood, but not in a desirable town, so it’s not worth much. We can’t afford to sell it and buy a house somewhere else. We’re not waiting for a good deal, we can’t afford any deal right now.
Not really. Many put off buying a house until it makes financial sense. If renting makes more sense (it does in many markets currently), you are going to continue to do that. Why buy something and deal with the hassle of ownership if you don’t have to? As someone with an 80 year old house, I can tell you that renting was a hell of a lot easier.
It’s also a lot more difficult to afford when the bank has no reason to lend to anyone. They can just sit on the money they already have and make a return risk free.
Conventional economists spinning deflation as “almost always bad” has always felt like pro-corporate voodoo bullshit to me. Especially when the inflation that proceeded it was driven by boardroom greed and pathological profit-seeking.
I’m not saying deflation is always good. But right now it would likely just be a correction back to the usual Reaganomics greed instead of the post-pandemic let’s-burn-it-all-down levels of greed.
Per the article deflations caused people to put off making larger purchases such as house because they’ll wait for prices to fall. As opposed to inflation when people put off large purchases such as houses because they cannot afford it with out saving longer.
It’s about protecting capital. The government literally ensures inflation so that accumulated wealth doesn’t decrease because profit is more important than you surviving.
Anyone that believes their survival relies on capitalism has been sold the narrative that benefits only those with wealth. Some are convinced that owning a billionth of a percent of the market makes them part of the game; like a younger brother handed a second controller that isn’t hooked up to the system.
like a younger brother handed a second controller that isn’t hooked up to the system.
I’m definitely remembering that one.
Best comment here imo
This deflation from the bumpy COVID, supply chain, and corporate greed is good. But sustained long term deflation is very bad. The easiest way to explain it is basically everything runs on debt. If your revenue keeps going down but your debt is fixed, your debt effectively grows and the company is fucked. Same thing on a personal level if your wages go down and your mortgage is fixed.
Still the same level of greed. Just all the juice had been squeezed from the lemons.
I think most things economists say is pro-corporate voodoo bullshit. It’s a social science, they’re the priests of the ruling class.
Well said. “Just ETF harder, bro!”
Local drive-through coffee places here are cheaper than Starbucks and they don’t get the deals that a huge corporation that Starbucks has, meaning their profit margins are a lot lower.
This has all been about price gouging.
Absolutely. There’s a nice sit-down restaurant close to where I work. I go there and get a much better meal for less than I would pay at the shitty McDonald’s half a mile away.
Meanwhile, McDonald’s: Where did everybody go? IS THIS DEFLATION!?
Same for my family. We just stopped going to fast food at all and eat at much better restaurants since it’s costs the same or nearly so. They screwed themselves hard I think.
When in all of history has Starbucks not been price gouging
Well for a while, local places were able to rise their prices as well to keep up with Starbucks, but now they’ve realized that they don’t need to.
What an absolute garbage article
