So in theory, it’s not exactly wrong. If you’re going to buy a house that’s $300k today, but you knew that it would be $250k tomorrow, why wouldn’t you wait? And the next day you see that the price has dropped to $225k, so why wouldn’t you wait a little bit longer?
That’s why the Fed tries to maintain a positive inflation rate- if your money is going to be worth less tomorrow than it is today, you would want to spend it as soon as possible to maximize your purchasing power (assuming you’re a rational actor, which is always a toss-up when discussing economics).
In practice, you’re exactly right. I’ve seen people not buy houses because inflation was too high and they couldn’t afford it, but nobody was waiting when inflation was low for it to get even lower before buying a house. Mostly because when housing gets too low, rent-seekers start buying them en masse.
The problems are 1) when your inflation rate is too high, because then people just don’t have the money to buy things so instead of not buying because they don’t want to, they stop buying because they can’t spend more, and 2) corporations used COVID as an excuse to jack prices up because they could. When your production is back at pre-Covid levels but your pricing isn’t, simple supply/demand curves aren’t enough to explain why. (Also I’m not saying that all production and manufacturing has returned to pre-Covid levels, only that it’s been a long time since I went to the store and couldn’t get what I wanted or a reasonable substitute yet those things are more expensive than they were five years ago.)
The other thing missing is you need to live somewhere now. You also have other considerations - if you are starting a family you typically will need to have a place for the family to live and that forces you to buy now. This is why most deflation arguments fail - people need to live, so they will buy food, and shelter (including clothing). People will replace their broken down car. People will buy toys if they can afford it.
Even if you can buy the house for $200k next year, you don’t know that the price will go down - I’ve seen prices go down and then go back up more than once in my life. Maybe you get unlucky, but maybe you bought the bottom, you have no idea what inflation/deflation will do in 5 years and only educated guesses for next year.
So in theory, it’s not exactly wrong. If you’re going to buy a house that’s $300k today, but you knew that it would be $250k tomorrow, why wouldn’t you wait? And the next day you see that the price has dropped to $225k, so why wouldn’t you wait a little bit longer?
That’s why the Fed tries to maintain a positive inflation rate- if your money is going to be worth less tomorrow than it is today, you would want to spend it as soon as possible to maximize your purchasing power (assuming you’re a rational actor, which is always a toss-up when discussing economics).
In practice, you’re exactly right. I’ve seen people not buy houses because inflation was too high and they couldn’t afford it, but nobody was waiting when inflation was low for it to get even lower before buying a house. Mostly because when housing gets too low, rent-seekers start buying them en masse.
The problems are 1) when your inflation rate is too high, because then people just don’t have the money to buy things so instead of not buying because they don’t want to, they stop buying because they can’t spend more, and 2) corporations used COVID as an excuse to jack prices up because they could. When your production is back at pre-Covid levels but your pricing isn’t, simple supply/demand curves aren’t enough to explain why. (Also I’m not saying that all production and manufacturing has returned to pre-Covid levels, only that it’s been a long time since I went to the store and couldn’t get what I wanted or a reasonable substitute yet those things are more expensive than they were five years ago.)
The other thing missing is you need to live somewhere now. You also have other considerations - if you are starting a family you typically will need to have a place for the family to live and that forces you to buy now. This is why most deflation arguments fail - people need to live, so they will buy food, and shelter (including clothing). People will replace their broken down car. People will buy toys if they can afford it.
Even if you can buy the house for $200k next year, you don’t know that the price will go down - I’ve seen prices go down and then go back up more than once in my life. Maybe you get unlucky, but maybe you bought the bottom, you have no idea what inflation/deflation will do in 5 years and only educated guesses for next year.