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modern finance theory completely disagrees with your argument. as a very top level explanation (appealing to things you already know and don't dispute), your r

modern finance theory completely disagrees with your argument. as a very top level explanation (appealing to things you already know and don't dispute), your retirement should be invested in the stock market; and yet, the stock market is "fairly priced", no company's shares are clearly better priced than any other's. So, "you are better off in the stock market than not in the stock market, and you are better off owning a diversified, market-weighted basket of stocks". The stock market is (1) a good investment and (2) not only affordable, but is so affordable you can't afford not to invest. (3) the investment aspect of the housing market is not appreciably different except you don't easily get to diversify your portfolio. Luckily, location location location does a type of risk averaging, though you are exposed to the risk of location value changing. Housing does have another aspect, consumption: if you live it in, you are renting the house from yourself, consuming the space-time and depriving yourself of the rent you could be entitled to. Therefore, if you live in an expensive house, you are paying expensive rent.

bretpiatt 7y ago
What modern finance theory are you referring to? We may be talking past each other. Owning equity in a business, either through the stock market or private ownership, is different than a house. Simplistically the equity goes up in value as the business grows or goes down if it shrinks. A business is not a single fixed capital asset. A house is a fixed asset that does not grow. In order for a house to increase in price you have fixed asset appreciation. If that appreciation increases in price faster than wage growth or inflation it's a good investment and it isn't as affordable in the future for the median wage earner.
- fsckboy 7y ago
  your definition of "good investment" is not a workable definition because you're basing it a priori on the future outcome that you don't know yet: "if that appreciation increases in price faster than wage growth or inflation it's a good investment" What is a house's expected appreciation compared to inflation? that's all bound up in the "crowdsourced" current market price already. It's something else that makes a house a good investment, rather than your definition, and I tried to illustrate that in my first answer by pointing out that stocks are good investments without knowing precisely how individual stocks will perform in the future.

bretpiatt 7y ago

What modern finance theory are you referring to? We may be talking past each other. Owning equity in a business, either through the stock market or private ownership, is different than a house. Simplistically the equity goes up in value as the business grows or goes down if it shrinks. A business is not a single fixed capital asset. A house is a fixed asset that does not grow. In order for a house to increase in price you have fixed asset appreciation. If that appreciation increases in price faster than wage growth or inflation it's a good investment and it isn't as affordable in the future for the median wage earner.

fsckboy 7y ago
your definition of "good investment" is not a workable definition because you're basing it a priori on the future outcome that you don't know yet: "if that appreciation increases in price faster than wage growth or inflation it's a good investment" What is a house's expected appreciation compared to inflation? that's all bound up in the "crowdsourced" current market price already. It's something else that makes a house a good investment, rather than your definition, and I tried to illustrate that in my first answer by pointing out that stocks are good investments without knowing precisely how individual stocks will perform in the future.