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> How can there be a drop in demand if your house is now worth 50-100% Note that house value increase (paper value) doesn't generate any disposable cash to the

by jjav 4y ago

> How can there be a drop in demand if your house is now worth 50-100% Note that house value increase (paper value) doesn't generate any disposable cash to the owner. They could go and refinance (at a higher rate now) to get some equity cash out, but anyone doing that to spend the money on consumables is doing a bad decision.

dsfyu404ed 4y ago
They all went and bought vacation houses (read: what would have been somebody else's starter house) in flyover states. The money spent on goods is just a figment of them spending all the stuff they need to kit out their extra house.
spaceman_2020 4y ago
This is the part that’s hard to capture in data. Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. You might objectively know that you can’t sell your $1M house for its current zillow estimate, but when you’re out at the bar, its easy to justify in your head that you can “afford” that extra drink. After all, didn’t you just become a millionaire? There is a huge psychological component to money that’s somehow never talked about.
- jjav 4y ago
  > Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. Do you know of research showing this behavior? I haven't seen research one way or the other, but anecdotally this seems very unlikely. I don't know of anyone who feels that way and we're in silicon valley so everyone we know has houses that have appreciated quite a bit. But everyone knows both objectively and emotionally that zillow zestimates are not money that can be spent. It might be money a number of decades in the future after retirement and selling the house to move, but that's way too far in time and uncertainty to have any impact on behavior today.
  - harambae 4y ago
    > Do you know of research showing this behavior? There is extensive research on the wealth effect. Try "Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data" (IMF)

by jjav 4y ago

dsfyu404ed 4y ago

They all went and bought vacation houses (read: what would have been somebody else's starter house) in flyover states. The money spent on goods is just a figment of them spending all the stuff they need to kit out their extra house.

spaceman_2020 4y ago

This is the part that’s hard to capture in data. Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. You might objectively know that you can’t sell your $1M house for its current zillow estimate, but when you’re out at the bar, its easy to justify in your head that you can “afford” that extra drink. After all, didn’t you just become a millionaire? There is a huge psychological component to money that’s somehow never talked about.

jjav 4y ago
> Seeing your networth double, even if its on paper, has an impact on your spending patterns. Especially smaller, “feel good” purchases, such as ordering takeout or buying an extra drink at the bar. Do you know of research showing this behavior? I haven't seen research one way or the other, but anecdotally this seems very unlikely. I don't know of anyone who feels that way and we're in silicon valley so everyone we know has houses that have appreciated quite a bit. But everyone knows both objectively and emotionally that zillow zestimates are not money that can be spent. It might be money a number of decades in the future after retirement and selling the house to move, but that's way too far in time and uncertainty to have any impact on behavior today.
- harambae 4y ago
  > Do you know of research showing this behavior? There is extensive research on the wealth effect. Try "Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data" (IMF)