We Are Entering Hyperinflation Even If The News Says We Are Not
By: Jessica Bugg
Tags: Money, Money Management, Economics, Finance, Education

Photo by Joshua Hoehne on Unsplash

What is inflation? Inflation is the rise in the cost of goods and services largely in part due to putting more money into the economy (ie the Federal Reserve printing more money and expanding the money supply by cutting the interest rates banks use to lend each other money).

Our interest rates are at an all time low. The lowest. Lower than post 2008 when we were told that we would never see mortgages under 4.5% in our lifetimes.

We are now at almost half of that.

Cost of Goods is Rising

Although interest rates being low may seem like a good thing, that is not always the case. Take home loans as an example, now because the interest rates are around 2–3% depending on the day.

That means little Joey buying a house who can only afford a $1200/month payment previously could only get a mortgage valued at around $150,000.

Now that interest rates are hovering around 2.9% at the time of writing this article, Joey can now take out a mortgage valued at $180,000 and be at the same amount of monthly payment give or take $20.

But Jessica, Isn’t It A Good Thing that the Interest Rates Are Low?

It can be because it means it’s almost free to borrow the money. That is the good thing.

The elephant in the room however is the rising price essentially overnight in economic terms due to the interest rates being so low.

So in our previous scenario, Joey could only afford to pay $1200 for a mortgage. His budget for his mortgage allows him to borrow $150K if rates are at 5%

Couple that with a 3.5% down payment (because most people do not put 20% down no matter what your favorite blogger wants to tell you).

Joey can afford about $155,000 for a house purchase.

Joey however, lives in Jacksonville, where most single family homes (the ones we are indoctrinated to believe hold their value) are about $180,000-$200,000.

Joey is saddened because he doesn’t want to buy a condo. He wants a house with a yard. His only choice is to buy a condo or wait until he has a larger down payment.

Then interest rates drop

So now our friend Joey has decided to wait until he can afford a larger down payment when wait! The mortgage interest rates have been cut! His mortgage broker calls him to say you can borrow more money than before!

Joey with the same $1,200/month is now bankable for a mortgage around $180,000.

Joey is ecstatic! He can go get that single family starter home of his dreams with enough back yard space to play cornhole.

Armed with his preapproval for $180,000 in mortgage money . . . Joey begins to look at single family homes now.

After all, he has an extra $30,000 to work with. He can definitely buy a single family home now.

Except He Can’t.

While Joey received more buying power through lower interest rates . . .

So did everyone else

Home prices, as a result, rise when interest rates are low, because more people can afford to buy the property AND can pay a larger total price for the home even though the monthly payment is the same.

Joey sadly, is STILL priced out.

But Jessica, Everyone is buying all the things right now, the stock market is up, and the TeeVee says that the economy is great.

The news often trails recessions by a 6 month lag time. It’s equatable to the amount of time it takes your parents to discover a “new song” or “new show” even though it’s been out for a year.

By The Time The News Reports A Recession It Is Almost Already Over