Is Inflation Always A Problem?
Inflation is a term that often has a negative connotation for stock market beginners. We hear the word and it makes us shudder. No one wants to pay more today for a product that we bought yesterday for a lower price. However, inflation is not always bad. In real estate, inflation can increase the value of our home while we pay the same mortgage payment.
Here is an example of how inflation can be a good thing.
Bob and Marie bought their first home in 1989 for fifty four thousand dollars. The home payment, which includes the insurance premium and the taxes, were four hundred dollars each month.
In 2005, the value of their home had increased two hundred nine thousand dollars. Their payments have also increased due to an increase in the homes assessed value and insurance rates. Their total payment in 2005 is five hundred and forty dollars.
Bob and Marie have benefited greatly from inflation. There investment has grown by a five hundred percent factor. At the same time, they are paying the same amount of money for the home in 2006 that they were 17 years ago.
Bob and Marie list the property for sale, but it does not immediately sell. The market for real-estate quickly turns sour and they watch the value of their home drop. Eventually it is appraised at one hundred thirty thousand dollars and they decide to wait to sell. Although the payment remains constant, they are no longer seeing the benefits of inflation.
No one wants to see runaway inflation. That means that we will be paying more at the store for our food and other necessities of life. However, we all depend on some inflation in order for our lives to flow smoothly.
While we do not want runaway inflation, we do need balanced in inflation. That means that the price of goods will grow slowly along with take home pay and property values. - 23208
Here is an example of how inflation can be a good thing.
Bob and Marie bought their first home in 1989 for fifty four thousand dollars. The home payment, which includes the insurance premium and the taxes, were four hundred dollars each month.
In 2005, the value of their home had increased two hundred nine thousand dollars. Their payments have also increased due to an increase in the homes assessed value and insurance rates. Their total payment in 2005 is five hundred and forty dollars.
Bob and Marie have benefited greatly from inflation. There investment has grown by a five hundred percent factor. At the same time, they are paying the same amount of money for the home in 2006 that they were 17 years ago.
Bob and Marie list the property for sale, but it does not immediately sell. The market for real-estate quickly turns sour and they watch the value of their home drop. Eventually it is appraised at one hundred thirty thousand dollars and they decide to wait to sell. Although the payment remains constant, they are no longer seeing the benefits of inflation.
No one wants to see runaway inflation. That means that we will be paying more at the store for our food and other necessities of life. However, we all depend on some inflation in order for our lives to flow smoothly.
While we do not want runaway inflation, we do need balanced in inflation. That means that the price of goods will grow slowly along with take home pay and property values. - 23208
posted by X - Men @ 10:29 AM
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