Housing can’t be a good investment and affordable
http://cityobservatory.org/housing-cant-be-a-good-investment...
http://cityobservatory.org/housing-cant-be-a-good-investment...
Dollars are created via lending. The largest pool of loans in the US is lending for housing. It's worth about 9 trillion dollars.
When housing prices go down, borrowers walk away from houses and mortgages, and banks with single-digit equity (basically all of them) become insolvent. When banks become insolvent, the economy crashes.
When that happens, the Federal Reserve steps in and prints trillions of dollars to prop up asset prices, and houses (and equities) go back up.
I don't see this changing anytime soon.
while this is somewhat true, i really dislike this perspective. dollars are created from--and first and foremost, represents--labor. whenever i work, i create something of value, and to trade that value for something else of value, i use money to abstract my labor into a uniform medium that is universally recognized and easily tradeable.
it is not some central bank granting me value via a loan, it's my labor granting value to the money.
i'm referring to the federal reserve creating currency (which is a type of debt)--in theory, the fed was created to print precisely enough money to account for the value generated by our cumulative labor, so that we have that well-accepted paper medium to exchange with each other rather than having to barter for everything.
you're talking about consumer debt, which still represents labor, but it's borrowed from others (or from the future). of course when you borrow to buy depreciating assets, that lowers your personal wealth (you're basically throwing away value).
its interest that creates value from capital rather than labor, ostensibly as a reward for risk-taking, but also to account for the time value of money (and its cousin, inflation). this is why the wealthy care so much about interest rates.
Before that, the only financial rationale I recall for buying a house was as a forced savings vehicle and as freedom from rent variations.
that doesn't mean it can't be a safe place to put your money which is not a bad investment actually. For the last 10 years inflation has been beating what a bank can return.
Of course, there's a huge difference between living in your house or renting it out. If you live in it, you're taking a pretty big liability. If you rent it out in a rent to own ratio optimized location, it can be a very good investment and return 6% after all expenses (roughly 4% after income taxes), plus the principle is inflation pegged in the very very long term.
But assuming you're not being sarcastic, you should know that the price of a share of stock, in isolation, says nothing about whether or not it is cheap.
Stock purchases are elective, and can be readily scaled down and up based on a person's means. Stocks are highly liquid. They are as affordable as you have discretionary income to purchase them.
Housing is not elective for most people and it can't be scaled down or up anything like the degree to which stock ownership can be scaled. Moving is expensive and hard, as is selling and buying houses, and housing affordability is a function of its cost as a percentage of measures of local median incomes.