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The "mortgage" in itself has to be valued in isolation. Yes, people that have money at their disposal often waste it, while putting it in a mortgage preserves it. A house may be a money pit, with no real increase in value, depending on the repairs and location. Certainly having a mortgage on a house in Detroit is no inflation protection. People that own homes on average own more stuff than people in apartments. Depending on your economic acuity and station, there is no definitive correct answer. However, in many markets it is easy to have a mortgage, taxes, and expenses far less than the same identical home rented would be. The only qualification is whether the down payment is affordable, and the lost earnings on that down payment and appreciation are worth the difference. Many locations it easily is. Many it is not.
The "mortgage" in itself has to be valued in isolation. Yes, people that have money at their disposal often waste it, while putting it in a mortgage preserves it. A house may be a money pit, with no real increase in value, depending on the repairs and location. Certainly having a mortgage on a house in Detroit is no inflation protection. People that own homes on average own more stuff than people in apartments. Depending on your economic acuity and station, there is no definitive correct answer. However, in many markets it is easy to have a mortgage, taxes, and expenses far less than the same identical home rented would be. The only qualification is whether the down payment is affordable, and the lost earnings on that down payment and appreciation are worth the difference. Many locations it easily is. Many it is not.
You're contradicting yourself - first you say it is in isolation and then you are combining it with the implicit shelter rental value of the house.
the mortgage has to be looked at in isolation . it is neutral and is not the inflation hedge itself , it is only the bridge that can get you to one .
if my mortgage today represents 30% of my income the idea behind paying a mortgage back with cheaper dollars is my income grows with inflation and so instead of 30% of my income it is 20% and eventually perhaps 10%.
but that is only the case if my wages increase with inflation.
if they do then your earning capacity to generate more income is the inflation hedge not the mortgage.
in fact wages have not kept up with inflation for over 25 years
wages in many cases stayed static in nominal terms and so there is no advantage for those folks in inflation . i myself earn less today than 15 years ago.
so 15 years later that mortgage is still 30% of your income .
mortgages are bridges that only lead to inflation hedges be it other investments or you acting as an inflation hedge with your own earning ability.
as you see without you having that earning ability to exceed inflation the mortgage stays just the same percentage of income it started at.
the mortgage has to be looked at in isolation . it is neutral and is not the inflation hedge itself , it is only the bridge that can get you to one .
if my mortgage today represents 30% of my income the idea behind paying a mortgage back with cheaper dollars is my income grows with inflation and so instead of 30% of my income it is 20% and eventually perhaps 10%.
but that is only the case if my wages increase with inflation.
if they do then your earning capacity to generate more income is the inflation hedge not the mortgage.
in fact wages have not kept up with inflation for over 25 years
wages in many cases stayed static in nominal terms and so there is no advantage for those folks in inflation . i myself earn less today than 15 years ago.
so 15 years later that mortgage is still 30% of your income .
mortgages are bridges that only lead to inflation hedges be it other investments or you acting as an inflation hedge with your own earning ability.
as you see without you having that earning ability to exceed inflation the mortgage stays just the same percentage of income it started at.
think about it.
You are still paying the mortgage back with less valuable dollars. If your mortgage is/was 30% of your income and your income doesn't change, the rest of your COL moves up and yet the mortgage remains at 30% and thusly has hedged against rising costs.
Change it from a 30 year fixed to an ARM that resets annually and the mortgage cost would consume more than 30% over time in a general inflationary environment
with a fixed rate those dollars still represent the same 30% of your income if wages did not increase. there are no cheaper dollars in your pocket.
if wages did increase and act as an inflation hedge then again it isn't the mortgage doing it , it is your own earnings capacity that acted as the hedge.
if i had no mortgage and payed cash i still have all the benefits of ownership holding down my costs .
the mortgage is only the means to gain access to a hedge . it is not a hedge itself. ..
it is never the mortgage , it only the things the mortgage lets you do or buy that can be a true inflation hedge.
i think we beat this to death enough , we will just have to disagree on what the function is of a mortgage.
with a fixed rate those dollars still represent the same 30% of your income if wages did not increase. there are no cheaper dollars in your pocket.
if wages did increase and act as an inflation hedge then again it isn't the mortgage doing it , it is your own earnings capacity that acted as the hedge.
if i had no mortgage and payed cash i still have all the benefits of ownership holding down my costs .
the mortgage is only the means to gain access to a hedge . it is not a hedge itself. ..
it is never the mortgage , it only the things the mortgage lets you do or buy that can be a true inflation hedge.
i think we beat this to death enough , we will just have to disagree on what the function is of a mortgage.
The dollars in your pocket are less valuable. You keep trying to put it into perspective of being cheaper but that's not the angle and is ignoring reality. If inflation is making everything else more expensive becuase general prices are going up but your wages aren't your fixed rate mortgage is not getting more expensive and thusly has hedged against inflation even without looking at other investment opportunities. With a fixed rate mortgage you have hedged a large expense against increased cost due to inflation, everything else increased in cost eating away more of your stagnant dollars except your mortgage payment.
I'm not sure how hedging is defined in this discussion. I thought it meant using something that moves in the opposite direction of something else, such as using a put to hedge a long position. Fixed mortgage payments do not move at all, so such a mortgage doesn't hedge anything.
As for protection against positive inflation, a fixed mortgage does provide it to a certain extent. If house prices don't move in the same direction as inflation, the mortgage only protects against house appreciation, not inflation. If houses depreciate, you lose out, regardless of positive or negative inflation.
Fixed interest rate of mortgage doesn't need to move to be a hedge. Just like insurance you are paying a premium to hedge against the risk of future high interest rate hikes. Any kind of insurance can be thought as a hedge to protect investment.
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