Why are high home prices seen as desirable?

[oslecamo]

I have never seen anyone argue for spending everything you own. Is there anyone that actually believes it, or is it the sort of theory that exists only so that people can point to it and say "I'm not one of those guys"?

Eerr, that's the main reason why there's big market crashes.

There's this thing that looks like a big short-term investment, so people advise you to invest as much money as possible. The more you invest, the more you'll profit! Get credit, borrow, put your house and family as collaterals, you'll soon be able to pay it all back and fill your pockets!

Until sooner or later said big short-term investment will fluke. And suddenly you can't pay back all those fancy investments.

Except if you're "too big to fail". Then the government will pay your debts. So big companies have zero reason to hold anything back, because if something goes wrong for them, the taxpayers are the ones that have to pay the tab.

[Frogman55]

I have never seen anyone argue for spending everything you own. Is there anyone that actually believes it, or is it the sort of theory that exists only so that people can point to it and say "I'm not one of those guys"?

I have seen "spending is good for the economy", but not "spend everything you get for the economy, go go go!" After all, every time you "save" you are lending money to the bank and the bank is lending it to someone else, so even if you are not spending your wealth right now somebody else is.

Hmm.

Let me try an analogy. If you put a certain amount of energy into something, you will get a certain amount of energy out. This is simple, and it makes perfect sense. After all, if I punch someone, then he gets hit for just as hard as I hit him. Newton's law. However, a little bit of thought and examination reveals that every time energy works or is transferred, then you lose some energy. Put a few joules into a spring, you'll get fewer joules out. This is still simple, and easily demonstrated, and well understood, right? And yet the patent office gets lots of applications for various perpetual motion devices.

Teachers regularly simplify things in order to eliminate variables and make it easier to teach and examine a single concept. And people regularly decide that the simplified concept is gospel truth. The 100% spending thing is a simplification of the concept that high spending is good, which in turn is a simplification of the concept that liquidity is good, which in turn is a simplification of the concept that... actually, I'm not sure where that goes. Like I said, economics gets complicated in a hurry.

[PlzBreakMyCampaign]

So if the prices are inflated due to speculation, shouldn't the response for new homeowners be to build a new home for 'cost'? Economies of scale can't be that large for something as individualized as single family homes...

This is the best topic on this subforum. Carry on.

[StreamOfTheSky]

I've been trying to figure out a good way to gauge the fluctuating cost of building an identical house in the same location for a while now; I'm too shy to ask around the builders in my area just to find out and then ask them again months later, etc...  I've always assumed a good measure is how well builders' stocks are doing and the number of housing starts, since that number will inevitably fluctuate up and down faster than their employment numbers (more builders w/ nothing to do and dreading layoffs = cheaper bids; opposite when they are booked solid).  But I really do not know much still.

The other issue with new house construction is the cost of buying the land; in some states it can be pretty expensive, including mine.  And since the corporate federal reserve is finally going to raise interest rates eventually sorta maybe... and you can't get a mortgage till the house is near completion (I've been told), you could get double-burned by paying currently inflated prices caused by cheap rates, only to be hit with 1% higher rates when you can actually take out the loan.  That would suck, and is an uncertainty unique to only certain periods, again thanks to our benevolent federal reserve.

It's funny, I was about to necro this thread anyway, having just read this (year old, but displays quite well the trend of housing becoming unaffordable again lately -- except for places in middle america with no jobs that no one wants to move to, and even those for the most part).