House prices are not sentient. Humans are sentient, and given a value (+) system that prioritizes individual return on investment via maximising sale price, yes, more income on the part of buyers will cause buyers to be willing to pay more, and sellers to require more. But these are human decisions, and there are other outcomes possible.
(+) moral, philosophical, personal values, not financial values
Ah, the myth of the sentient house price. Look at those clever little house prices! Somehow they just know that workers all got an extra $10k/yr. You can't fool them!
Look, prices don't control themselves. They go up because buyers choose to spend more and because sellers choose to demand more. It's not automatic, and its not inevitable, but changing it requires a values shift.
Parent is correct generally speaking. It's not that the prices are sentient, it's that sellers (of anything) are always charging as much as they can for their house and not a dollar less. If everybody suddenly has an extra 10K, the seller will notice that through an increase in bids for their house at price X, and a single surviving bid at price X+10K (the person who would have bought the house at X before everybody got the 10K). The option for the person who has X+10K would be to lose the bid, but they know they would face stiff competition at X for their next purchase attempt, thus they will eventually accept the higher price given that they have the money.
Of course, this is an oversimplification. But looking at the market as a whole, the more money people have to spend, the more you can charge for the house.
> Rising prices seem good superficially because a lot of people own houses and that means everyone is getting rich!
But this only helps people who own multiple houses, or don't plan to live in one. If you need a house, the gain you get from selling your existing house after appreciation is necessarily offset by the loss you take buying an appreciated replacement house.
You can't get rich, or benefit at all, from a nominal appreciation in the "price" of something you can't sell.
It’s a rather abstract view of making money. Other houses also go up in value. You only make money from the difference between how much houses in your area are going up, and how much houses in the area you want to move to are going up. And that difference may well be negative.
The entire edifice of the global financial system is anchored around real estate valuation (the dirt, not so much the improvements and not so much the price) and the network effects wrung out of it by the infrastructure accreted around it (most often paid by public taxation and the bulk of its monetization privatized), only made possible by the structural support embedded into credit finance, accounting and tax policies granted it as an asset class unique unto all others. There can be temporary price corrections, even deep ones, even lasting as much as a generation or two, but at this point so much is secularly bound to real estate valuation that it is one of the pins on the OR-gated-multi-pin hand grenade of single-planet-forever-growth economics.
Real-estate-the-dirt valuation is like the core tranches and/or core dynamic allocation strategy of one's investment thesis/theses, or the ballast in a ship. Forex dwarfs real estate as both a market and asset class, but policies do not treat forex as favorably over the long-term and in credit structures.
Also, for those who feel hard real estate market data (including visibility into contract terms) is opaque and inscrutably difficult to obtain, you're in for a treat when you get into the forex market (or for that matter, bonds, derivatives, etc.); pricing data is only the tip of the iceberg, and uniform cross-exchange visibility into order books is not seriously available in those markets the last time I investigated trading each of them (would love to be pointed in the right direction if I have my information wrong, though).
Depending upon how one models it, residential housing prices are like a second or third derivative off of the above opinionated, personal take on the key interrelationships with my embedded biases/prejudices/blindsights.
Once the first two tiers of Maslow's hierarchy are secured functionally into perpetuity at a stable "price", if I had to choose between putting wealth into dirt or into technological advancement to improve our mastery over energy (information being a valuable subset of energy), matter, and spacetime (solving distribution problem spaces being a valuable subset of spacetime), I'd choose the latter every time. In my personal opinion (YMMV of course), as a species we've sufficiently implemented the hypothesis that technological advancement is key to ever-improving conditions for the majority, such that it is worth at maybe a plurality subset of the species seeing where that path leads.
I think the meaning is clear given the full context of my comment.
It is ridiculous for a home owner to expect the value of their home to rise faster than inflation by a significant margin without there being massive improvements to either the home itself or the neighborhood.
And skyrocketing housing prices means the rich get richer while utterly fucking over the young generation and locking them out of home ownership as prices rise significantly faster than wages.
This ascribes morality to an amoral thing like population growth and markets. Buying anything is an investment. That’s what investment means - you take resources and invest them. The growth in value of an investment in a market is an artifact of supply and demand. Not all homes rise in value, some decline, and many are fairly stable over time. Likewise rent doesn’t rise steadily everywhere.
The absurdity of the story here is reflected in the person with the rent vs buy calculator trying to see which decision makes the most sense, then feeling a moral outrage that in order to make money the price of the house has to go up. This is like being morally outraged that X-Y is only positive if X is greater than Y. You certainly can be, but what’s the point and why on earth would you talk about that publicly?
By the way, home prices are most easily thought of as a proxy for rent utility. If you can buy a house on debt and rent it for more than the principal risk and debt cost then you’ve got an arbitrage opportunity and prices will go up. Likewise if you can’t and you’ll lose money prices will go down because prices are too high. So complaining about house prices and rent as orthogonal ignores that they’re intertwined.
Mark Twain gave the advice to invest in real estate, they’re not making any more of it. Ignoring that you should never take investing advice from Mark Twain, there’s truth to it. Lack of affordability has to do with scarcity - if everyone is moving to San Francisco and expecting to be able to buy a beautiful Victorian in the Castro, expect the prices and rents to be sky high as there’s only so many and there will never be more than there was effectively 50 years ago. There’s nothing immoral about this. It might feel unfair in some “the universe owes me a beautiful life” way, but it’s actually not unfair. It might feel unfair that someone working for the city who moved into the Castro in 1970 got a great deal on a beautiful house while you live in a SRO in the Tendergroin with 15 roommates working as a senior principal engineer at google, but it’s actually not. It’s just the way things are. If you don’t like it, it’s not the city workers fault for being a nimby that you can’t afford their house, or that the city they live in attracted so many wealthy people and the value of their house exploded.
There simply no morality at play here. There’s no way not make ownership of property not an investment. There’s no entitlement to affordable housing. We can work to make more house available so more people can afford it, but we also probably can’t ensure everyone on earth can move to San Francisco and have a nice house in Noe Valley.
But you can't just look at the rise in one good relative to the medium of exchange (money) and say that money is going down in value; people want a return, and stocks haven't provided it in the last 2.5 years or so, which about matches up with the author's timeline. If the buyers were actually _living_ in these houses as primary residences, it'd make a stronger case for genuine inflation. Commodifying them as value generators by flipping or renting them out may be the beginning of a speculative bubble - not a good thing, but a different phenomenon.
> Prices are determined by comparables. When home owners sell, and can push prices higher, it pushes all possible future prices for all properties nearby higher simultaneously.
Prices are determined by supply and demand. What you're describing is only true because supply is so choked relative to demand.
>normally the value of a house climb [sic] faster than inflation
It would be more accurate to say "in a healthy, growing economy, the value of a house climbs faster than inflation."
It is not a foregone conclusion that home prices must rise faster than inflation. Like any prospective investor, you must look at the individual factors affecting the property you want to buy before making a decision. Overall, the "home prices rise faster than inflation" trope is incredibly harmful because uninformed investors use it as a heuristic justification for making major life decisions and massive purchases.
Even if home prices did always outpace inflation, it still might not be a good investment. If there are other investment vehicles with a higher yield over the investment period, your money would be better spent there.
But isn't that more of an illusion of greater wealth? I mean, if you don't stay in your current house, you will just swap it for another one. The price level doesn't really matter, just as long as you can still get something of equal value.
yeah I'm not sure anyone is arguing that the appreciation of housing values is a good thing, just that it's an emergent thing and it's not that surprising. Much of this paper is corroborating Piketty, whose central thesis is more or less that the rate of return on capital is too high, and that the consequence of the high rate of return on capital is increasing wealth inequality. We're in essence creating a system that says that if you want to make more money, owning stuff is better than doing stuff. That's a pretty lamewad system imho, as it encourages the growth of the rentier class as the expense of the working class.
Right! I keep saying I want house prices to fall so I can buy a nicer one!
Apparently human psychology works in such a way that people tend to feel richer if their house goes up in value and they spend more as a consequence. People are weird...
Anyway, from my personal experience, my personal wealth rate of change was definitely negatively affected by the housing market, due to increase in valuations, which turned into a significant increase in real estate taxes.
I live in one of those places (Austin) where my house valuation jumped by 120% YoY.
Considering the value of a transferable good is based on what others are willing to exchange for that good, yes, inflated house prices means they are worth more. It does not mean that houses are worth more at any point in time, but it does mean that they are at that point in time.
Falling housing prices are not an example of losing money. They are an example of losing potential money, since there is no actual loss until sold. That's simplified--interesting things happen with valuation, property taxes, exotic mortgages, etc.
Edit: removed redundant paragraph.
As someone who dodged the housing deflation (not because I'm a genius, but because I got strangely lucky) by getting out before the value went south and moving to a rental at an attractive price as new lots started to idle in my area, I am sympathetic to what you're suggesting, though.
Housing prices were not artificially inflated. They may have been inflated, but there's nothing artificial about the fact that the demand side of the equation was willing to pay the high rates. Everyone agrees the housing prices were inflated, but I'd suggest it was a feedback loop involving government policy, a need for financial institutions to create value w/o necessarily creating wealth for competitive reasons and a desire on the part of investors to turn a profit on a sky-rocketing asset without a full understanding of the reasoning and the risk involved. I might be missing some factors. But I do generally dislike everyone who calls in to C-SPAN in the morning suggesting that only one thing they already happened to dislike for some specific reason was the culprit.
I don't understand your first point. Could you please explain?
As for the second, you realize your gain when you sell your house at which point you need to buy another which price has also skyrocketed. So unless you end up renting or you buy a smaller house, those gains will be lost. Even if you buy a smaller house, the gain might not be that important as having to sell your own house that you took care for many years could also have a psychological effect... people think of those things in theoretical terms but selling a house is not like selling stock.
That's why my point is that rising prices should not be presented as a universal good news.
In the first part you are mocking "sentient" house prices, but then in the second part you explain how house prices are "sentient".
Surely you put together that making more money results in a "values shift", correct?
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