Thinking Argentina or Turkey in the recent years – if the local inflation is so severe that the price of grocery in the morning vs evening (on the same day) is different, how do people make large purchases like a house or a car? How is the price determined and who would provide the long term financing?
In: Economics
In Argentina you basically need to stash USD purchased from a grey market under your mattress to save it. If you want to save up for an apartment there you can’t tell anyone as it makes you a big target for robberies. If you ever go to Argentina bring as much USD as you can legally carry, you will live like a king
Can inflation help longer term though with large purchases, isn’t that to an extent what the housing market and even government debt is built on.
Assuming I brought a house £100k, interest rate is quite high let’s call it 10%.
Inflation in whatever country is running away and creeping up year on year, 15% then 20% let’s say.
As currency devalues and wages have to climb dramatically year on year so people can afford to live.
If I’m locked in at 100k and my wages are going up let’s say 10+% year on year, after a few years my monthly payment is becoming a smaller and smaller % of my salary.
I know this is not perfect at the extreme end, but the anology of my parents brought a house for 10k 30 years ago plays out to some extent to being worth alot more partly due to inflation.
I know there are many other factors that drive house prices but inflation is a massive factor.
If inflation is very high, i would put as little down as possible and have the longest loan as possible, assuming the interest rate is lower than the predicted inflation rate.
They make a lot of money and / or invest in high interest bearing assets (because inflation and interest are directly correlated).
Quick answer, we don’t. You will need a huge salary and in many occasions, is more healthy to live in a rented home that owning one, here in Colombia you have to pay 2 taxes: a county tax and general taxes yearly. Same for cars.
They mostly don’t. Or it’s largely financed by remittances from countries with more stable currencies (USD, EUR, CHF).
Latest Answers