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Considering the value of a transferable good is based on what others are willing to exchange for that good, yes, inflated house prices means they are worth more

Considering the value of a transferable good is based on what others are willing to exchange for that good, yes, inflated house prices means they are worth more. It does not mean that houses are worth more at any point in time, but it does mean that they are at that point in time. Falling housing prices are not an example of losing money. They are an example of losing potential money, since there is no actual loss until sold. That's simplified--interesting things happen with valuation, property taxes, exotic mortgages, etc. Edit: removed redundant paragraph. As someone who dodged the housing deflation (not because I'm a genius, but because I got strangely lucky) by getting out before the value went south and moving to a rental at an attractive price as new lots started to idle in my area, I am sympathetic to what you're suggesting, though. Housing prices were not artificially inflated. They may have been inflated, but there's nothing artificial about the fact that the demand side of the equation was willing to pay the high rates. Everyone agrees the housing prices were inflated, but I'd suggest it was a feedback loop involving government policy, a need for financial institutions to create value w/o necessarily creating wealth for competitive reasons and a desire on the part of investors to turn a profit on a sky-rocketing asset without a full understanding of the reasoning and the risk involved. I might be missing some factors. But I do generally dislike everyone who calls in to C-SPAN in the morning suggesting that only one thing they already happened to dislike for some specific reason was the culprit.

grandalf 18y ago
"Housing prices were not artificially inflated." Well, considering that during the time that housing prices increased there was a large mortgage interest deduction, an implicit bailout of Fannie/Freddie, a huge capital gains tax loophole on selected home sales, as well as a variety of programs designed to allow people who wouldn't normally have been able to afford a house to buy one, I'd beg to differ. The above are all demand stimulating laws. For some reason people believe that paying interest to a bank (instead of rent to a landlord) is the American dream, and significant government revenue was allocated to creating home ownership. Why wouldn't any smart speculator double down on the idea that by betting on home prices increasing he's got the government on his side and stands to make a mint? Now, those speculators (and in this group I include anyone who bought a house expecting it to increase faster than twice the rate of inflation) are being bailed out by the policymakers who made their gambles possible!
- justindz 18y ago
  The problems you cite were legitimate. All I was suggesting was that prices were still not artificially inflated because they are set by demand. You could say that unsustainable demand was generated by policy, but I don't think that's the same thing as artificial price inflation. People were legitimately willing to pay way too much for these (in my area at least) shoddy McMansions. And I'm not defending the sequence of inanities that led up to this whole debacle. Voted you up, too, because I think the conversation about renting versus interest is a good one. I sold my house about half a year before the collapse and have a sweet rental at the moment.

grandalf 18y ago

"Housing prices were not artificially inflated." Well, considering that during the time that housing prices increased there was a large mortgage interest deduction, an implicit bailout of Fannie/Freddie, a huge capital gains tax loophole on selected home sales, as well as a variety of programs designed to allow people who wouldn't normally have been able to afford a house to buy one, I'd beg to differ. The above are all demand stimulating laws. For some reason people believe that paying interest to a bank (instead of rent to a landlord) is the American dream, and significant government revenue was allocated to creating home ownership. Why wouldn't any smart speculator double down on the idea that by betting on home prices increasing he's got the government on his side and stands to make a mint? Now, those speculators (and in this group I include anyone who bought a house expecting it to increase faster than twice the rate of inflation) are being bailed out by the policymakers who made their gambles possible!

justindz 18y ago
The problems you cite were legitimate. All I was suggesting was that prices were still not artificially inflated because they are set by demand. You could say that unsustainable demand was generated by policy, but I don't think that's the same thing as artificial price inflation. People were legitimately willing to pay way too much for these (in my area at least) shoddy McMansions. And I'm not defending the sequence of inanities that led up to this whole debacle. Voted you up, too, because I think the conversation about renting versus interest is a good one. I sold my house about half a year before the collapse and have a sweet rental at the moment.