3 ms·
If you're talking about a 1.5% nominal price increase, then it's impossible to say whether it's a good or bad investment, from just that information. If inflati
by SkittyDog 5y ago
If you're talking about a 1.5% nominal price increase, then it's impossible to say whether it's a good or bad investment, from just that information. If inflation is 2%, then your house rising at 1.5% is a terrible investment, compared to a stock market rising at 5%.
Investments are graded based on their expected real rate of return, over time... In simple terms, that would be the increase in the nominal value of the asset, minus inflation. The higher the increase in real value, the better the investment.
If an asset's value increases faster than inflation, then over time the real price of the asset is rising. That means less and less people will be be able to afford it, each year.
Remember, inflation is basically measuring how much purchasing power we have... So if the price of something is rising faster than inflation, by definition that thing is becoming more expensive, which means less people will be able to afford it.
Even though 1.5% real (above inflation) appreciation seems like a small number, the total appreciation will eventually grow quite large after several years... Each year, housing will become affordable to fewer and fewer people. It may take a while to notice, but that's the definition of a rising real asset price.
- Dylan16807 5y ago> If inflation is 2%, then your house rising at 1.5% is a terrible investment, compared to a stock market rising at 5%. I don't care if it's much worse than the stock market. All a house has to do is hold your money pretty steady against inflation and it will be an acceptable investment. If the intent is "houses can't beat the stock market and remain affordable" then that's what people should say, because that's very different from just being "an investment". And for what it's worth my intent was a number slightly below inflation, because it doesn't really matter if it's half a percent over or half a percent under. > Remember, inflation is basically measuring how much purchasing power we have... So if the price of something is rising faster than inflation, by definition that thing is becoming more expensive, which means less people will be able to afford it. That's only true if you assume wages stay steady with inflation, and they don't have to do that. If house prices would grow faster than inflation but slower than wage growth then everyone could be pretty happy with the result.
- SkittyDog 5y agoYou seem to be working some very personal, non-standard definitions, so there's really not much more for us to talk about. I hope you find a good financial advisor, and that you start listening to them.
- Dylan16807 5y agoNonstandard definition of what, "investment"? The thing you said about inflation is objectively false either way, so I wish you the same.