7 ms·

Housing can’t be a good investment and affordable http://cityobservatory.org/housing-cant-be-a-good-investment-and-affordable/ http://cityobservatory.org/housi

• nostromo 8y ago
  The US economy revolves around housing. You can't unwind that without tanking everything. Dollars are created via lending. The largest pool of loans in the US is lending for housing. It's worth about 9 trillion dollars. When housing prices go down, borrowers walk away from houses and mortgages, and banks with single-digit equity (basically all of them) become insolvent. When banks become insolvent, the economy crashes. When that happens, the Federal Reserve steps in and prints trillions of dollars to prop up asset prices, and houses (and equities) go back up. I don't see this changing anytime soon.
  • pathseeker 8y ago
    You are describing what happened once as a generality.
    • nostromo 8y ago
      The Federal Reserve would no doubt respond in the same way if we find ourselves in a similar situation.
      • toomuchtodo 8y ago
        Labor will give up on seeking housing long before the Fed stops propping up traditional asset prices.
    • AnimalMuppet 8y ago
      Nostromo is also kind of describing the savings and loan crisis back in the 80s and 90s. The difference is that it wasn't money-center banks that were in trouble, and the government closed a bunch of institutions rather than printing money and bailing people out. (They protected the depositors, but not the S&Ls.)
  • clairity 8y ago
    > "Dollars are created via lending...." while this is somewhat true, i really dislike this perspective. dollars are created from--and first and foremost, represents--labor. whenever i work, i create something of value, and to trade that value for something else of value, i use money to abstract my labor into a uniform medium that is universally recognized and easily tradeable. it is not some central bank granting me value via a loan, it's my labor granting value to the money.
    • empath75 8y ago
      You’re taking about wealth not currency.
      • clairity 8y ago
        no, i'm not. wealth is the accumulation of the value created by labor. for the wealthy, that means the accumulation of the fruits of other people's labor.
        • tracker1 8y ago
          Or labor being more frugal and not spending every penny frivolously, then investing the difference.
          • clairity 8y ago
            what dynamics exist that this is the primary problem to address, rather than being able to generate spare cash to invest in the first place?
            • tracker1 8y ago
              By nearly every standard in the world, people in the United States are very wealthy. People in the U.S. also extend themselves into huge amounts of debt, most of which is avoidable. I'm not saying it's the primary problem, I'm pointing out that wealth isn't created solely on the backs of labor.
• danans 8y ago
  I tend to agree, but I also feel like houses as a financial growth (vs family housing stability) investment is a new thing over the last 25-30 years, exacerbated no doubt by economic policies. Before that, the only financial rationale I recall for buying a house was as a forced savings vehicle and as freedom from rent variations.
• randyrand 8y ago
  Is this true for all things? Stocks?
  • danans 8y ago
    Yes, but stocks don't protect people from the elements. Their primary purpose is financial. Housing's primary purpose is not.
    • randyrand 8y ago
      Stocks are pretty cheap though. Most are less than $100. And robin hood has 'free' trading.
      • danans 8y ago
        Ah, I see. You aren't talking about housing. But assuming you're not being sarcastic, you should know that the price of a share of stock, in isolation, says nothing about whether or not it is cheap.
        • randyrand 8y ago
          *affordable. Are affordability and ROI mutually exclusive? For housing we're saying yes. But for stocks it seems the answer is no.
          • danans 8y ago
            "Affordability" doesn't have the same meaning for housing and for stocks, so the phenomenon are not directly comparable, except in an a highly oversimplified worldview. Stock purchases are elective, and can be readily scaled down and up based on a person's means. Stocks are highly liquid. They are as affordable as you have discretionary income to purchase them. Housing is not elective for most people and it can't be scaled down or up anything like the degree to which stock ownership can be scaled. Moving is expensive and hard, as is selling and buying houses, and housing affordability is a function of its cost as a percentage of measures of local median incomes.
• drinkzima 8y ago
  This ignores the leverage applied to a typical primary residence purchase via fixed rate debt. With 20% down, your return is 5x inflation, and housing indeed is a perfectly reasonable investment when you amortize transaction costs over an extended period of time.
• pascalxus 8y ago
  your absolutely right. In the long term house prices must be roughly pegged to inflation and if society is actually making progress on providing houses it would be even less than inflation. anything else simply isn't sustainable. that doesn't mean it can't be a safe place to put your money which is not a bad investment actually. For the last 10 years inflation has been beating what a bank can return. Of course, there's a huge difference between living in your house or renting it out. If you live in it, you're taking a pretty big liability. If you rent it out in a rent to own ratio optimized location, it can be a very good investment and return 6% after all expenses (roughly 4% after income taxes), plus the principle is inflation pegged in the very very long term.