Quote:
Originally Posted by Fuzz
Bare minimum, your math should be interest + inflation <= appreciation if you want to say you are ahead.
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Inflation doesn't play into this example per se, as the mortgage rate should already take into effect macro inflation drivers. So as inflation increases do would the marginal interest rate, and so would the house price.
(Yes a total generalization)
If I buy a 600k house instead of a 300k house at 3% I am paying real dollars in interest per year that are unaffected by inflation in terms of real dollars. As long as the rate of real estate increases at 3% it is a net wash in terms of real net worth. Sure the value of the end point of net worth is less in purchase power, but that's the same whether I got a 300k house or a 600k house.
You are correct when evaluating whether to rent, buy a 300k , or buy a 600k house inflation matters for what is the best way to maximize/increase net worth.
But when people look at total interest over the years and say "you are going to pay 100$k in extra interest over the lifetime of this mortgage" it is irrelevant if at the end the home is worth $100k more, it is a real dollar wash. Sure you could use hat money for something else, and get any rate of return, which is the rent va buy small vs buy big argument. But you are not worst off having to pay more interest as long as real estate prices increase at your mortgage rate.