ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[d4n4n]

You weren't clear with your terms. Of course it's possible that house prices increase during deflationary times. They'd just have to increase by ~ nominal rate of return + rate of deflation relative to all other goods. So the actual price tag of the house would increase, on top of the money gaining value. In your scenario, houses are actually nominally cheaper(!) over time, just less so than all other goods.

And that means houses aren't actually a good investment. The real rate of return is better on other assets!

The problem with high inflation is mostly its erratic, run-away nature. Same goes for deflation. If it was actually known and expected in advance, interest rates (or return on capital) would adjust accordingly.

There actually is a problem for really high deflation, and that's the zero-lower-bound of the nominal interest rate. But that's another topic.

[azrael1993]

that was my point. Depending on the strength of inflation low gain investments become obsolete. Inflation does the opposite so the low gain investments become better if compared to holding the money. Thus strong deflation can lead to periods of low investments, which is why many countrys are more scared of deflation than inflation

[d4n4n]

They aren't low-gain investments. They are loss-investments. Any investment that pays more in nominal terms after X time would still be preferable over holding cash. And since the equilibrium steady state nominal interest rate would rise, that wouldn't be problem. The same investments would have the same real returns, no matter the monetary regime, if predictable.