There is no reason why efficient pricing of all assets is socially desirable. Efficient pricing may have a cost. Housing is a relatively illiquid market on a local basis. The way to make it more liquid would be to have people buy and sell houses more frequently. Sure we might have a finer grained understanding of what a given house is "really" worth at any given moment but what good is there in that information? Likewise what social good (as opposed to good for the individual speculator) is there in shares of companies changing hands easily and frequently? Liquidity has a cost. The cost of liquidity is instability (volatility) and short termism. Fractional ownership of a company should be a long term undertaking. Not a speculative position. Otherwise how can good corporate governance be incentivized if owners can jump ship at a moment's notice with essentially no cost? How can debacles like Boeing engineering failures be avoided when all that matters is quarterly appearances?
I might have answered my own question - perhaps it's when we see corporations speculate and win it adds no value and is gross? But if they actually do come up with a better way to price houses and fix them efficiently it's a positive right?
OP is claiming that housing is a commodity. If treated as a commodity, all houses would be priced the same. Then the reality sets in and you have to deal with the fact that some houses are more desirable than others, so you need to distribute them somehow without changing the price.
I think for a good functioning economy we do want housing prices to generally go up, but in a much more modest and controlled way - so in that way it should be viewed as an appreciating asset.
What it shouldn't be is a speculative investment for companies, non residents or wealthy individuals.
(2) is where your argument falls apart. Everyone wants to buy houses nowadays- it's not illiquid. In large cities, most houses only stay on the market for a few days. Buying houses with cash is becoming increasingly common also.
In the common conception of markets no seller has enough power to sit on their laurels, they must sell their product in order to survive. It seems wrong to me that in the real estate market liquidity would drop as prices drop. There needs to be a cost associated with holding real estate so that there is turnover in good times and bad times.
In a lot of ways this is a problem creating itself.
The reason Home Ownership is desirable is that the pricing of houses go up faster then both inflation and depreciation caused by wear decreases the utility value of a dwelling, and the reason that houses are expensive is that the state actors are invested enough in this cycle to make sure it never really breaks.
In a real functional market there would be no real benefit to house ownership over long term leases. but were dealing with a market thats been deliberately broken by policies promoting home ownership for reasons that's fundamentally religious/dogmatic in nature.
I agree with you when it comes to a mortgage or real-estate only really being worth what it will actively sell for. Real estate by at large isn'r really liquid. I've known a lot of young people who are too quick to take out huge loans and get into "house flipping" only to realize that they're now playing a risky waiting game of when they'll have enough equity to match the cost of fees to actually sell the house combined with the assumption that they'll be able to sell it.
However, as someone who's lived in a large urban area with public housing - I can confidently say that the only real benefit public housing has is reducing the price of high end real-estate in close proximity and increasing petty crime in the area.
Source - lived in the South End neighborhood of Boston proper.
Traditional economic theory should handle liquidity in pricing.
That is it would be a weird market where prices were artificially high for houses you couldn’t sell quickly. The price would just lower and the rent should follow.
I’m experienced enough to believe markets don’t follow traditional models, but in this thought experiment at least liquidity isn’t an interesting new unknown variable.
Sure. Don't deny that. I just question the wisdom that on the long run this is healthy or sustainable to believe that houses are always appreaciating assets when usually gains come from asset price inflation not inherent value increase.
Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable.
Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.
All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.
To what end though? Housing prices are just a bidding war to allocate desirable real estate. More and more wealth becomes trapped in real estate.
It's an effective market-based method for allocating scarce resources- a classic tactic. But I'm beginning to wonder.
America's real estate is worth ~$25T. Suppose property was simply assigned. An unfair system, probably vulnerable to corruption and nepotism and such, but on the other hand that's $25T that can be invested in other pursuits. What might that additional liquid $25T do for us?
A gross oversimplification to be sure, and perhaps completely wrong-headed. But it seems like the key difference from many other bidding wars is the money doesn't leave the system. When I sell my house, I probably take the proceeds to buy another house. The seller of that house takes his proceeds, to buy another house, and so on. It seems rare that anyone downsizes houses, and takes the proceeds out of the market.
I actually disagree with you about shares of companies. They should accurately reflect the value of the underlying company. Wanting everything to "go up" all the time is part of the problem that we face throughout the economy, not just in housing. Just as city councils have conspired to rig the process for housing, forces like central banks have rigged the process for all types of investment assets (including housing!). This will become a problem as a generation of savers/investors is unable to generate positive returns on investments to fund their lifestyles and retirements.
Housing is a notoriously illiquid asset with high transaction costs. In addition, the percent that turns over each year is an incredibly small percent of all homes (and homes aren’t fungible, each one is unique, so comparables are imperfect).
That makes price discovery harder and means that the market price can lag what is a sustainable long-term price.
I see no problem with home ownership being out of reach, so long as housing is affordable.
IMO all asset classes are at risk of exuberance and thus we cannot stop investors from over pricing them. However, their underlying value (rent price) should remain sustainable for those who need somewhere to live. How is this possible? Simple, someone who has capitalized in the past is free to rent for far lower than someone who has purchased in the present. Someone who bought in 1970 likely has extremely low operating costs and thus is free to lower rents to meet market demands, some asset owners may go bankrupt in falling rents/asset prices... Thats just how capitalism works.
IMO we should be building far more supply to cause an eventual shock and real drop in housing value. Make those who are doing idiotic things like paying more than asking price for a home learn the lessons of capitalism .
I don't think this is true - for one, housing in the US isn't all that scarce (~14M vacant units) [1], and housing doesn't behave like most markets vis a vis supply / demand - there are too many confounding factors and it's not exactly a liquid market.
This would also make sense given that this algorithmic pricing platform is used by so many clients. If just enough real estate firms can maximize their profits in this way, they can afford to buy out anyone who might compete on price.
My thinking was that real estate's lack of volatility comes from its illiquid nature. You can't buy and sell property on whim so there's less chance of temporary events (e.g. Trump tweets, earnings call results) having an outsized impact on prices.
Similarly, regional market pricing would prevent pan-region price crashes arising from someone dumping a large number of coins in this illiquid market. However, the more I think about this, I think it's a non-issue if you have large enough demand for this coin and a lack of liquidity.
reply