Much of your comment is valid but this paragraph is just so wrong I needed to pull you up on it.
> In the case of houses, you only lose if the resale value of the property falls below the outstanding amount of the loan, presuming interest + taxes + maintenance do not exceed the equivalent amount of rent.
While absolute dollar loses may not be bigger if you are leveraged than buying the same house outright the buying power is and the absolute loss is greater than it would be if you bought something that you could buy outright.
Example 1: If you have 100K and buy an apartment for 100k then the market drops 10% you have 90K in equity and could still buy a similar apartment (and trading up is actually cheaper than before).
Example 2: You have 100K and borrow 400K to buy a 500K house. The market falls 10% and you have a 450K house with a 400K mortgage and only 50K equity and you are unlikely to be able to get a similar property. You may need to trade down substantially and you can't even buy a 90K apartment without a mortgage.
The final sentence is true but makes it sound like there is a high confidence of keeping up with inflation (doubtful in my view given the current levels of private debt.
> Because loans are fixed at a currency amount on the date of funding, a property that keeps pace with inflation wins.
Given the fact that you are losing value on savings due to the central bank increasing the supply of money, you also have to take into the account the amount of time it took you to save up the 100K.
You may very well actually saved 100K to buy the apartment, but the real value of that 100K may have already decreased by 10K.
The question is whether the rate of value loss by currency inflation is outpaced by the interest you'd pay on a mortgage.
In both my examples 100K was saved at the beginning so I'm not sure that is relevant.
Currency inflation is a positive factor for you if you have a large mortgage. Deflation while obviously historically less frequent but not unknown (US 1930s, Japan 1990-current) is a negative risk if you have debt, and one that you don't have if you haven't got debt.
> "Given the fact that you are losing value on savings due to the central bank increasing the supply of money, you also have to take into the account the amount of time it took you to save up the 100K."
Presumably the hypothetical subject isn't saving money by stuffing it in a mattress. In which case the interest rate on their savings should have been at least able to track inflation.
Right now in the US, interest rates on savings isn't keeping up with inflation. Not sure what macro-econ says about the sustainability of such a situation, but current fed policy is definitely penalizing savers in the short term.
And the current economic situation is an aberrant special case; it isn't implicit or ever-present.
And, even still: I think anyone whose annualized rate of return on savings -- over the last, say, ten years -- has fallen below the rate of inflation, can be safely said to have invested in a manner tantamount to stuffing it in a mattress.
You're right, it was poorly worded and has an obvious error. It should have said that you only lose if the price falls below the original purchase price. Of course any decrease in capital in absolute terms is a loss.
> In the case of houses, you only lose if the resale value of the property falls below the outstanding amount of the loan, presuming interest + taxes + maintenance do not exceed the equivalent amount of rent.
While absolute dollar loses may not be bigger if you are leveraged than buying the same house outright the buying power is and the absolute loss is greater than it would be if you bought something that you could buy outright.
Example 1: If you have 100K and buy an apartment for 100k then the market drops 10% you have 90K in equity and could still buy a similar apartment (and trading up is actually cheaper than before).
Example 2: You have 100K and borrow 400K to buy a 500K house. The market falls 10% and you have a 450K house with a 400K mortgage and only 50K equity and you are unlikely to be able to get a similar property. You may need to trade down substantially and you can't even buy a 90K apartment without a mortgage.
The final sentence is true but makes it sound like there is a high confidence of keeping up with inflation (doubtful in my view given the current levels of private debt.
> Because loans are fixed at a currency amount on the date of funding, a property that keeps pace with inflation wins.