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.
This example shows how inflation can be helpful.
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.
In this case, inflation has been helpful to Rob and Mary. Their home is now worth more than when they bought it and the home payment has not made a significant increase.
In the years 2007 through 2009, inflation has dropped and the United States has been in a recession. The value of their home is now one hundred fifty five thousand dollars. The payment is still five hundred and forty dollars. There has been no inflation during these years and the home has lost value, even the home payment has remained about the same.
Runaway inflation is hurtful for most people. For those on fixed incomes, it is especially difficult. However, some inflation helps our lives to flow smoothly.
Balanced inflation allows property and investments to grow. Prices also will increase slowly but so do paychecks. This is sometimes referred to as balanced growth.
This example shows how inflation can be helpful.
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.
In this case, inflation has been helpful to Rob and Mary. Their home is now worth more than when they bought it and the home payment has not made a significant increase.
In the years 2007 through 2009, inflation has dropped and the United States has been in a recession. The value of their home is now one hundred fifty five thousand dollars. The payment is still five hundred and forty dollars. There has been no inflation during these years and the home has lost value, even the home payment has remained about the same.
Runaway inflation is hurtful for most people. For those on fixed incomes, it is especially difficult. However, some inflation helps our lives to flow smoothly.
Balanced inflation allows property and investments to grow. Prices also will increase slowly but so do paychecks. This is sometimes referred to as balanced growth.
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