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Shouldn't home prices rise the same rate as inflation? The % of salary people devote to housing shouldn't increase by a large amount each year. And people's s

Shouldn't home prices rise the same rate as inflation? The % of salary people devote to housing shouldn't increase by a large amount each year. And people's salaries don't rise that much year to year either. It rises the same rate as inflation.

opportune 9y ago
In this case home prices rose because it became cheaper to make mortgage payments on a house. People were willing to spend the same mortgage payment as before, so the net effect is that housing prices rose. Salaries don't necessarily rise at the same rate as inflation. If they did, there would be 0% real growth in the economy. Inflation is usually measured by watching the prices of a basket of goods: if those goods' prices increased by 5%, then inflation is 5% (in reality it can be more complex than this). Inflation isn't a "real" metric in the sense that it affects all things equally. Housing prices could increase by 50% but the price of a gallon of oil or a bar of soap could decrease by 10%.
- dragonwriter 9y ago
  > Salaries don't necessarily rise at the same rate as inflation. If they did, there would be 0% real growth in the economy. You are confusing “salaries” with “output”; salaries (or even domestic incomes in total, which involves more than salaries) growing at the rate of inflation can occur with negative or positive real growth. Zero real growth means output growing at the rate of inflation. (National economies aren't closed systems, and some output may produce foreign rather than domestic income, as in returns to overseas investors.)
  - opportune 9y ago
    True, but for practical purposes salaries (or the mean of salaries + returns from investments) closely approximate output. In any case it should be clear that salaries and inflation aren't directly linked. Salaries should (generally) increase slightly more than inflation as productivity increases over time
mixmastamyk 9y ago
Bank loans, money creation, and tax breaks subsize them, causing prices to rise. Not to mention population growth and nimbys restricting supply.
maxxxxx 9y ago
I think that's how it used to be for a long time.
yxhuvud 9y ago
No, it should be slightly faster as outlying areas get more central (relatively speaking) as cities grow.
Someone 9y ago
As you get richer, you have a choice as to what to spend your money on. You could buy more expensive food or eat out more, buy hand-made suits, go on expensive holidays, buy a huge car, etc, but most people seem to put higher utility on a better (size, location, whatever) house. Therefore, the distribution of your spending over the various categories can change as your income goes up.

opportune 9y ago

In this case home prices rose because it became cheaper to make mortgage payments on a house. People were willing to spend the same mortgage payment as before, so the net effect is that housing prices rose. Salaries don't necessarily rise at the same rate as inflation. If they did, there would be 0% real growth in the economy. Inflation is usually measured by watching the prices of a basket of goods: if those goods' prices increased by 5%, then inflation is 5% (in reality it can be more complex than this). Inflation isn't a "real" metric in the sense that it affects all things equally. Housing prices could increase by 50% but the price of a gallon of oil or a bar of soap could decrease by 10%.

dragonwriter 9y ago
> Salaries don't necessarily rise at the same rate as inflation. If they did, there would be 0% real growth in the economy. You are confusing “salaries” with “output”; salaries (or even domestic incomes in total, which involves more than salaries) growing at the rate of inflation can occur with negative or positive real growth. Zero real growth means output growing at the rate of inflation. (National economies aren't closed systems, and some output may produce foreign rather than domestic income, as in returns to overseas investors.)
- opportune 9y ago
  True, but for practical purposes salaries (or the mean of salaries + returns from investments) closely approximate output. In any case it should be clear that salaries and inflation aren't directly linked. Salaries should (generally) increase slightly more than inflation as productivity increases over time

mixmastamyk 9y ago

Bank loans, money creation, and tax breaks subsize them, causing prices to rise. Not to mention population growth and nimbys restricting supply.

maxxxxx 9y ago

I think that's how it used to be for a long time.

yxhuvud 9y ago

No, it should be slightly faster as outlying areas get more central (relatively speaking) as cities grow.

Someone 9y ago

As you get richer, you have a choice as to what to spend your money on. You could buy more expensive food or eat out more, buy hand-made suits, go on expensive holidays, buy a huge car, etc, but most people seem to put higher utility on a better (size, location, whatever) house. Therefore, the distribution of your spending over the various categories can change as your income goes up.