Yes it was. A whole generation have been cut off from home ownership.

That said, though I missed the chance to buy affordable real estate, the opportunity now for me is to buy Bitcoin.

“Real wealth generation should create value. It should create more goods, more services, more capabilities to do things we couldn’t before. But there’s minimal new value reflected in the rising house prices.”

Ironically, if we didn't price things in dollars and instead used a monetary asset with a fixed supply these distortions would disappear. In other words, in a hyperbitcoinized world housing prices should be more inline with the actual value they provide rather than the distorted "number go up" they are now.

But you don't even need Bitcoin to see this. Try pricing houses against literally anything else. For example in 1970 a house would have cost you about 95,000 cartons of eggs. Guess how many cartons of eggs a house costs today? About 90,000.

But isn't the landlord who bought the property and is renting it out providing value by moving the property onto the rental market, so the renter can rent it and doesn't have to buy it? On the rental market, the property is accessible to more people and allows them to maintain liquidity, which can be directed into other investments (such as BTC, which may prove better in the long run).

Personally I see value in that; before I bought what is now my home, I used to rent and I'm glad there were landlords out there to make renting possible. The landlord invests a large sum of money, takes on risk etc. so others, with smaller capital, different needs (e.g. a need for greater mobility), or a different investment style can have their needs met while still having a roof over their heads.

The Austrian school teaches us that value is subjective. I'd be cautious telling others what is value and implying objectivity; that's what Marx did.

FWIW, the primary beneficiaries of rising housing prices are local governments who collect property taxes based on the value of the property. With housing prices at an all-time-high, cities all over the planet have been able to borrow a lot of money. And when housing prices start falling, cities will go bankrupt. The only question is how many.

165 sats \ 2 replies \ @kr 6 Mar

it’s amazing how few people even take the time to calculate the returns on buying vs. renting a house.

for many, buying a home is almost an automatic reflex that is triggered at age 30.

Don't pay a premium for other peoples' hopes and dreams. Because that's what you're bidding against when you buy a house.

83 sats \ 0 replies \ @kr 7 Mar

well said

Yeah I was taught early in my professional life that a home is not an investment it’s something that provides utility. Shelter

I've been studying this stuff pretty heavily for about 3 years so far and I feel the author has made quite a few wrong assumptions that ultimately lead to the wrong conclusions.

First of all, the idea of 2% inflation is a joke. The dollar had an average inflation rate of 3.92% per year between 1971 and today. And that's assuming the CPI is to be believed. Governments manipulate the numbers all the time. Real inflation is a lot higher. This discrepancy can really distort the calculations from reality. We should at least assume price inflation will be at least as high as the average over the last 50 years.

The author attributes rising housing prices to things like artificially limited supply by government mandate, sweat equity and renovations. But in reality, while these things can affect the value slightly, they are NOT the primary driver over the long term.

When you invest in a home, you expect the price to rise because shrugs it just does.

The actual driver of rising house prices is the very same price inflation that makes the real cost of living more expensive. Money printing cough. This also means building materials used to construct new houses will be more expensive and therefore you're always selling your house in the same market people are building new ones. It never makes sense to assume your house will be worth much less than the cost of building a new one next door because at lot of people would rather just buy it and move in rather than waiting to build.

Location is important, but only in the sense that people want to live near work, schools and shops. It's rare for house prices to fall dramatically unless they are located in small towns where the primary industry closed down for some reason.

Now that we understand the principles the calculations start to look very different.

She said she had 20% down so if we assume the home loan is $563K at 7% interest and she can only afford to pay the minimum interest only repayments of about $4000 per month.

As a rule of thumb, I would expect the house price to double roughly every 10 years (give or take). So let's assume in the year 2033 it's worth $1.1M. But you still only owe the bank $563K so you're net equity has increased by 563K and you only made the bare minimum repayments. Add another 10 years and by the year 2043 your net equity is (2.2M-563K = 1.6M).

And this is all pretty much worst case scenario. In reality, you probably would have refinanced at a lower interest rate, borrowed against your equity and bought other investments along the way. Still only paying the interest on the original loan.

The second flaw in her assumptions seems to be that rent stays the same over these 20 years. In reality, rent is a direct function of the property value. So the actual rent she'd be paying on the same house in 2033 would be more like $5,900 per month and in 2043 it would be $11,800 per month.

Of course, as Bitcoiners we know all of this is a result of the broken fiat system. It pays to understand this stuff.

I think this analysis is oversimplified. Remember that when you make thirty years of mortgage payments the dollars you are paying back in year 15 have far less buying power than if you were paying back market rent which was increasing each year. That's irrespective of interest rate lockins when you bought your home. It's a fiat driven, debt based corrupt system, but those who played the game are winning. Retirees who bought a home 30 years ago are far better off than those who rented for those 30 years. I'm not saying it's fair, and I'm not saying it will continue like this for the next generation. The system is collapsing, and that's a good thing.

I bought a house 8 years ago. My interest rate was ~1.5% for a long time; it has gone up to 3.3% now (I'm not in the US, we typically lock in interest rates for periods of 2-5 years). That's much lower than inflation. So it was essentially a free loan; a fiat short.

The property valuation has gone up more-or-less in line with the stock market, but compared to investing in let's say the S&P 500, I've lived rent-free for 8 years. In my mortgage payments, only a small fraction has been interest (which is the real housing cost); the majority has been principal repayments, which is effectively moving money from one pocket (bank account) to another (equity). Moreover, I've earned rent by renting out rooms to friends. It's been a money-making machine for me.

The only asset that would have generated better returns is Bitcoin. But there are benefits to owning a home that can't be expressed in monetary terms: being the boss. No one can kick me out of here, I can plant things in the backyard, I can modify it, build sheds, infrastructure, develop the land etc. To me, these things give life meaning.

Exactly. You really hit a home run. Congratulations. Even people who didn't do as well as you still likely came out ahead.

Great read!

People treating housing as an investment was a response to rampant money printing. Same with overfinancialization. Now everyone must become a little investor to keep up with inflation.

houses are for living, not for investing. Change my mind

Elon musk, no longer owns a house for a reason

most of the cost of a house is in the planning permission granted to it not building the house or securing the land a fiat system

0 sats \ 0 replies \ @Chep 7 Mar

"Only a banker would consider a mortgage a luxury" Something I overheard the other day🤔