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>Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than infla

>Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than inflation. Sorry you have that bad experience but it was derived by a distortion in the market, one important component on each investment is timing. >Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc That is different though. Companies prefer to have variable cost and reduce minimum fixed cost. An airline doesn't know what will be his flight offer in 5 years so renting airplane allows them to be flexible and keeping their cost proportional production. The same for companies offer since you don't know how is going to be the size of the company, although big companies once they are stable tend to own their headquarters.

raverbashing 11y ago
> normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)
- pmelendez 11y ago
  > "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
- lwhalen 11y ago
  Actually, Detroit is just starting a renaissance of sorts right now. If I had the spare cash, I would absolutely buy up a bunch of houses in Detroit Metro, fix 'em up, and rent/sit on them for a couple years. Alternate business plan: buy a large (or several small) commercial plots for pennies on the dollar, and build a Level 3 datacenter in Detroit.
deleted 11y ago
[deleted]
cgearhart 11y ago
>normally the value of a house climb [sic] faster than inflation It would be more accurate to say "in a healthy, growing economy, the value of a house climbs faster than inflation." It is not a foregone conclusion that home prices must rise faster than inflation. Like any prospective investor, you must look at the individual factors affecting the property you want to buy before making a decision. Overall, the "home prices rise faster than inflation" trope is incredibly harmful because uninformed investors use it as a heuristic justification for making major life decisions and massive purchases. Even if home prices did always outpace inflation, it still might not be a good investment. If there are other investment vehicles with a higher yield over the investment period, your money would be better spent there.
- pmelendez 11y ago
  > It would be more accurate to say "in a healthy, growing economy, the value of a house climbs faster than inflation." I totally agreed, that's what I meant by normally but you are right, it might be not normal at all.
prostoalex 11y ago
> normally the value of a house climb faster than inflation Why? That implies that there's a pricing disbalance at every transaction, starting with the builder who sold it, and continuing with every seller down the road who accepts such a crappy deal. Why do so many rational people and businesses make irrational decisions to sell the house then? As the house and underlying materials get older, maintenance and replacement costs go up, so eternal appreciation is questionable. I understand the long-term statistics are on your side, I'm just trying to understand the rationality of microeconomics behind it.
- pmelendez 11y ago
  > Why do so many rational people and businesses make irrational decisions to sell the house then? Well a decision like this doesn't have one dimension. For instance, some people in their 60's see that they don't need a big house anymore and could use the extra money on their retirement plans. The tricky thing about houses is that they serve a purposes while can be used as an investment tool. > As the house and underlying materials get older, maintenance and replacement costs go up, so eternal appreciation is questionable. True, but in many cases what changes the value is not the house itself but the land where it is located. I agree with other commenter though, this should be a evaluated in a case by case fashion, and my over-simplification was just for discussion's sake. > I understand the long-term statistics are on your side, I'm just trying to understand the rationality of microeconomics behind it. And you are right, in the short term it doesn't makes sense because it assumes you'd pay with cash and there are better tool for investment. But if you need a place to live it might make sense to buy a house under certain conditions (you plan to stay in the area for a long time, the economy is not under a bubble, etc.)
  - zo1 11y ago
    >"But if you need a place to live it might make sense to buy a house under certain conditions (you plan to stay in the area for a long time, the economy is not under a bubble, etc.)" Or you buy a house that is well below your means. That's another condition in which buying is a good idea.

raverbashing 11y ago

> normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)

pmelendez 11y ago
> "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
lwhalen 11y ago
Actually, Detroit is just starting a renaissance of sorts right now. If I had the spare cash, I would absolutely buy up a bunch of houses in Detroit Metro, fix 'em up, and rent/sit on them for a couple years. Alternate business plan: buy a large (or several small) commercial plots for pennies on the dollar, and build a Level 3 datacenter in Detroit.

deleted 11y ago

[deleted]

cgearhart 11y ago

>normally the value of a house climb [sic] faster than inflation It would be more accurate to say "in a healthy, growing economy, the value of a house climbs faster than inflation." It is not a foregone conclusion that home prices must rise faster than inflation. Like any prospective investor, you must look at the individual factors affecting the property you want to buy before making a decision. Overall, the "home prices rise faster than inflation" trope is incredibly harmful because uninformed investors use it as a heuristic justification for making major life decisions and massive purchases. Even if home prices did always outpace inflation, it still might not be a good investment. If there are other investment vehicles with a higher yield over the investment period, your money would be better spent there.

pmelendez 11y ago
> It would be more accurate to say "in a healthy, growing economy, the value of a house climbs faster than inflation." I totally agreed, that's what I meant by normally but you are right, it might be not normal at all.

prostoalex 11y ago

> normally the value of a house climb faster than inflation Why? That implies that there's a pricing disbalance at every transaction, starting with the builder who sold it, and continuing with every seller down the road who accepts such a crappy deal. Why do so many rational people and businesses make irrational decisions to sell the house then? As the house and underlying materials get older, maintenance and replacement costs go up, so eternal appreciation is questionable. I understand the long-term statistics are on your side, I'm just trying to understand the rationality of microeconomics behind it.

pmelendez 11y ago
> Why do so many rational people and businesses make irrational decisions to sell the house then? Well a decision like this doesn't have one dimension. For instance, some people in their 60's see that they don't need a big house anymore and could use the extra money on their retirement plans. The tricky thing about houses is that they serve a purposes while can be used as an investment tool. > As the house and underlying materials get older, maintenance and replacement costs go up, so eternal appreciation is questionable. True, but in many cases what changes the value is not the house itself but the land where it is located. I agree with other commenter though, this should be a evaluated in a case by case fashion, and my over-simplification was just for discussion's sake. > I understand the long-term statistics are on your side, I'm just trying to understand the rationality of microeconomics behind it. And you are right, in the short term it doesn't makes sense because it assumes you'd pay with cash and there are better tool for investment. But if you need a place to live it might make sense to buy a house under certain conditions (you plan to stay in the area for a long time, the economy is not under a bubble, etc.)
- zo1 11y ago
  >"But if you need a place to live it might make sense to buy a house under certain conditions (you plan to stay in the area for a long time, the economy is not under a bubble, etc.)" Or you buy a house that is well below your means. That's another condition in which buying is a good idea.