6 ms·

Housing prices reflect the cost of shelter for literally everyone who doesn't already own a house. Shelter is much closer to "food" than to "a piece of paper r

Housing prices reflect the cost of shelter for literally everyone who doesn't already own a house. Shelter is much closer to "food" than to "a piece of paper representing a stake in part of a corporation".

gruez 6y ago
>Housing prices reflect the cost of shelter for literally everyone who doesn't already own a house. Right, but using the raw purchase price of the house isn't a good measure. Mortgage rates dropping would cause housing prices to go up even if monthly payments stay the same. What actually matters is how much you spend per month on rent, or if you owned your house, the imputed rent. >Shelter is much closer to "food" than to "a piece of paper representing a stake in part of a corporation". From a finance perspective there's no difference between a house and a share in a corporation. They're both productive assets that provide returns. In the case of a house, it provides shelter as a service, which can either be consumed by the owner (by living it it), or by selling it (renting it out). The only difference is that with a house, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity.
- throwawaygh 6y ago
  > What actually matters is how much you spend per month on rent, or if you owned your house, the imputed rent. Right, but in most markets rent prices track property values. The long-term upward trend in housing prices is inflation to approximately everyone who doesn't own a house. Which, significantly, includes approximately everyone under the age of 20 or not yet born. > From a finance perspective there's no difference between a house and a share in a corporation. From an investor's perspective, perhaps. But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements. Consumer finance is finance.
  - gruez 6y ago
    >Right, but in most markets rent prices track property values. The long-term upward trend in housing prices is inflation to approximately everyone who doesn't own a house. Which, significantly, includes approximately everyone under the age of 20 or not yet born. and that's fine, because rents are tracked directly in the CPI. >But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements. That's what they tell themselves, but from an analytical perspective there's no difference between buying a $1M house that provides you $5000/month return in the form of imputed rent, and buying $1M in stocks/bonds that provides you $5000/month return in cash, which you can use to pay rent.
    - throwawaygh 6y ago
      > but from an analytical perspective there's no difference Only for embarrassingly impoverished analytical frameworks. Unless you know of a bank that will loan me seven figures at sub-3% interest rates based on 10% down and my income, and then let me spend that money in the stock market :)
      - gruez 6y ago
        >Unless you know of a bank that will loan me seven figures at sub-3% interest rates based on 10% down and my income, and then let me spend that money in the stock market :) That does indeed make a x% return in the housing market more attractive than a x% return in the stock market, but has to be considered against all the other factors as well eg. diversification, actual returns (historically stocks have higher returns), risk (10x leverage also means 10x more loss), costs (stocks require no upkeep, houses require yearly maintenance), etc. At the end of the day though, it's still an investment as opposed to something you consume.
- PEJOE 6y ago
  > From a finance perspective there's no difference between a house and a share in a corporation. They're both productive assets that provide returns. In the case of a house, it provides shelter as a service, which can either be consumed by the owner (by living it it), or by selling it (renting it out). The only difference is that with a house, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity. From a finance perspective, theres no difference between food and a share in a corporation. They're both productive assets that provide returns. In the case of food, it provides sustenance as a service, which can either be consumed by the owner (by eating it), or by selling it (on the side of the road, or in a restaurant.) The only difference is that with food, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity, and it depreciates much faster. /s/ when you have a hammer, everything is a nail. When you see the world through finance, everything is a series of cashflows. The ability of a worldview to be applied to many things does not mean it is applied well to those things. The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college. If CPI, etc, are not measuring these price changes, perhaps we should use another measure that does.
  - gruez 6y ago
    >From a finance perspective, theres no difference between food and a share in a corporation Clearly not. After you eat a bread, it's gone. After you live in a house it's still there. A better analogy would be something like a farm, which continuously provides sustenance as a service. >The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college. Should farm (or food producing corporation shares) prices be factored into the CPI as well? Like housing, food is also a necessity, and buying a farm would ensure you're protected against inflation in food. Also, your point about buying housing as some sort of protection against inflation doesn't tell the whole story. Yes, it's a hedge against future rent increases, but here's no free lunch because the inflation is already priced into the price of the house. If rents are expected to 10x in the next 10 years, you can be sure that housing prices will grow accordingly. That's why price-to-rent ratios are insane in coastal cities.
- clairity 6y ago
  you've implicitly bought into the finance perspective, but it's not the only valid perspective by a long shot. consider at least the humanist perspective that people need to live in housing, and that it's not all about money and wealth. this is a critical weakness of many economics perspectives in relation to how the world really works, and an active area of research in economics.
  - gruez 6y ago
    I'll reuse an argument from another comment I made: sure, let's accept that we need to treat housing differently because people need housing. Should we do the same for food? People need to eat as well. Does that mean we should factor in the cost of arable land into the CPI?
    - clairity 6y ago
      you'd asserted a simple statement that houses are (edit: only) assets, which is trivially rejected by showing just one of many other valid perspectives. that there is a spectrum of goods and diversity of economic intricacy among that range doesn't validate your original statement. the broader point is that asserting a house is just an asset is more a value statement (and more abstractly, an aggression) than a truism. investment has generally become decoupled from its intended purpose of producing value for the many, not just the few (i.e., the efficient allocation of capital), and this kind of misguidance contributes to that kind of misallocation.
      - gruez 6y ago
        >you'd asserted a simple statement that houses are assets, which is trivially rejected by showing just one of many other valid perspectives. that there is a spectrum of goods and diversity of economic intricacy among that range doesn't validate your original statement. Not exactly, because there are two definition of "asset". From wikipedia: https://en.wikipedia.org/wiki/Asset https://en.wikipedia.org/wiki/Asset >In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. https://en.wikipedia.org/wiki/Asset_(economics) https://en.wikipedia.org/wiki/Asset_(economics) >An asset in economic theory is a durable good which can only be partially consumed (like a portable music player) or input as a factor of production (like a cement mixer) which can only be partially used up in production.

gruez 6y ago

>Housing prices reflect the cost of shelter for literally everyone who doesn't already own a house. Right, but using the raw purchase price of the house isn't a good measure. Mortgage rates dropping would cause housing prices to go up even if monthly payments stay the same. What actually matters is how much you spend per month on rent, or if you owned your house, the imputed rent. >Shelter is much closer to "food" than to "a piece of paper representing a stake in part of a corporation". From a finance perspective there's no difference between a house and a share in a corporation. They're both productive assets that provide returns. In the case of a house, it provides shelter as a service, which can either be consumed by the owner (by living it it), or by selling it (renting it out). The only difference is that with a house, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity.

throwawaygh 6y ago
> What actually matters is how much you spend per month on rent, or if you owned your house, the imputed rent. Right, but in most markets rent prices track property values. The long-term upward trend in housing prices is inflation to approximately everyone who doesn't own a house. Which, significantly, includes approximately everyone under the age of 20 or not yet born. > From a finance perspective there's no difference between a house and a share in a corporation. From an investor's perspective, perhaps. But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements. Consumer finance is finance.
- gruez 6y ago
  >Right, but in most markets rent prices track property values. The long-term upward trend in housing prices is inflation to approximately everyone who doesn't own a house. Which, significantly, includes approximately everyone under the age of 20 or not yet born. and that's fine, because rents are tracked directly in the CPI. >But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements. That's what they tell themselves, but from an analytical perspective there's no difference between buying a $1M house that provides you $5000/month return in the form of imputed rent, and buying $1M in stocks/bonds that provides you $5000/month return in cash, which you can use to pay rent.
  - throwawaygh 6y ago
    > but from an analytical perspective there's no difference Only for embarrassingly impoverished analytical frameworks. Unless you know of a bank that will loan me seven figures at sub-3% interest rates based on 10% down and my income, and then let me spend that money in the stock market :)
    - gruez 6y ago
      >Unless you know of a bank that will loan me seven figures at sub-3% interest rates based on 10% down and my income, and then let me spend that money in the stock market :) That does indeed make a x% return in the housing market more attractive than a x% return in the stock market, but has to be considered against all the other factors as well eg. diversification, actual returns (historically stocks have higher returns), risk (10x leverage also means 10x more loss), costs (stocks require no upkeep, houses require yearly maintenance), etc. At the end of the day though, it's still an investment as opposed to something you consume.
PEJOE 6y ago
> From a finance perspective there's no difference between a house and a share in a corporation. They're both productive assets that provide returns. In the case of a house, it provides shelter as a service, which can either be consumed by the owner (by living it it), or by selling it (renting it out). The only difference is that with a house, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity. From a finance perspective, theres no difference between food and a share in a corporation. They're both productive assets that provide returns. In the case of food, it provides sustenance as a service, which can either be consumed by the owner (by eating it), or by selling it (on the side of the road, or in a restaurant.) The only difference is that with food, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity, and it depreciates much faster. /s/ when you have a hammer, everything is a nail. When you see the world through finance, everything is a series of cashflows. The ability of a worldview to be applied to many things does not mean it is applied well to those things. The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college. If CPI, etc, are not measuring these price changes, perhaps we should use another measure that does.
- gruez 6y ago
  >From a finance perspective, theres no difference between food and a share in a corporation Clearly not. After you eat a bread, it's gone. After you live in a house it's still there. A better analogy would be something like a farm, which continuously provides sustenance as a service. >The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college. Should farm (or food producing corporation shares) prices be factored into the CPI as well? Like housing, food is also a necessity, and buying a farm would ensure you're protected against inflation in food. Also, your point about buying housing as some sort of protection against inflation doesn't tell the whole story. Yes, it's a hedge against future rent increases, but here's no free lunch because the inflation is already priced into the price of the house. If rents are expected to 10x in the next 10 years, you can be sure that housing prices will grow accordingly. That's why price-to-rent ratios are insane in coastal cities.
clairity 6y ago
you've implicitly bought into the finance perspective, but it's not the only valid perspective by a long shot. consider at least the humanist perspective that people need to live in housing, and that it's not all about money and wealth. this is a critical weakness of many economics perspectives in relation to how the world really works, and an active area of research in economics.
- gruez 6y ago
  I'll reuse an argument from another comment I made: sure, let's accept that we need to treat housing differently because people need housing. Should we do the same for food? People need to eat as well. Does that mean we should factor in the cost of arable land into the CPI?
  - clairity 6y ago
    you'd asserted a simple statement that houses are (edit: only) assets, which is trivially rejected by showing just one of many other valid perspectives. that there is a spectrum of goods and diversity of economic intricacy among that range doesn't validate your original statement. the broader point is that asserting a house is just an asset is more a value statement (and more abstractly, an aggression) than a truism. investment has generally become decoupled from its intended purpose of producing value for the many, not just the few (i.e., the efficient allocation of capital), and this kind of misguidance contributes to that kind of misallocation.
    - gruez 6y ago
      >you'd asserted a simple statement that houses are assets, which is trivially rejected by showing just one of many other valid perspectives. that there is a spectrum of goods and diversity of economic intricacy among that range doesn't validate your original statement. Not exactly, because there are two definition of "asset". From wikipedia: https://en.wikipedia.org/wiki/Asset https://en.wikipedia.org/wiki/Asset >In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. https://en.wikipedia.org/wiki/Asset_(economics) https://en.wikipedia.org/wiki/Asset_(economics) >An asset in economic theory is a durable good which can only be partially consumed (like a portable music player) or input as a factor of production (like a cement mixer) which can only be partially used up in production.