Why are high home prices considered good?

[greenforest32]

Nearly every article I read about the housing 'market improving' or 'picking up steam' invariably implies that more expensive homes is a net positive thing.

Isn't it a bad thing if home prices increase from say 5x the median household income to 10x? Especially if household income is flat (or falling) during increases.

The following article seems like a good thing compared to home prices soaring to $500k+: http://www.nytimes.com/2013/03/10/us/at-florida-condos-too-young-to-retire-but-not-to-grab-a-deal.html?pagewanted=all

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I know I'm envious of such situations. If prices were that low here, the monthly house payment (including property taxes and homeowner's insurance) would be less than half of the market rate rent I pay now for an apartment.

Shouldn't lower home prices and thus lower housing costs (mortgage, rent, etc) for households and businesses be considered the real "recovery"?

[DC Al Fine]

I think a lot of this is due to homes playing two different roles:
1) A consumer good (shelter)
2) An investment

For people who have already bought a house, they want the price to go up because its usually the largest part of their investment portfolio, house prices going up is viewed differently from say food prices increasing because people view it as an investment.

[Sbane]

I think a lot of this is due to homes playing two different roles:
1) A consumer good (shelter)
2) An investment

For people who have already bought a house, they want the price to go up because its usually the largest part of their investment portfolio, house prices going up is viewed differently from say food prices increasing because people view it as an investment.

Basically this. If you already are a homeowner, you want property prices to go up. If you are not one, you want them to be low. The news media reports news from the perspective of the owners.

[opebo]

The key is ALL prices need to be increasing, as well as income.  Deflation simply doesn't work well in the 'market' economy.

[Link]

Shouldn't lower home prices and thus lower housing costs (mortgage, rent, etc) for households and businesses be considered the real "recovery"?

Well the problem is a lot of home owners are under water.  They are trapped in their homes.  If they at least get back to baseline they can move.  If you are underwater in a home in New Jersey and there is a job opportunity in Texas you can't move.

One reason the US works better than the EU is we are a mobile society.  Even though their is massive unemployment in Spain it is difficult for a Spaniard to pick up and move to Germany.  Trapping people in underwater homes in the US does the same thing.

Also a big part of the economy is psychological.  If you are underwater on your home you are less likely to spend money freely.  Getting people back to parity and even getting them to the point where they have some equity in their home will help consumer spending even if they don't tap that equity.

You can never have prices perfectly stable.  So of all your choices a little bit of inflation is a good thing.

[© tweed]

because home"owners" borrow against it and spend on other things.

[Torie]

Well this one is easy.  No!

[angus]

Nearly every article I read about the housing 'market improving' or 'picking up steam' invariably implies that more expensive homes is a net positive thing.

Isn't it a bad thing if home prices increase from say 5x the median household income to 10x? Especially if household income is flat (or falling) during increases.

I find it all a bit bizarre as well, despite the coherent, logical answers in this thread.

You have to ask why the house prices are so high in the first place.  A three-bedroom house that cost ten thousand dollars 50 years ago costs two hundred thousand dollars today.  If other household goods increased in price at the same rate, we'd be paying ten dollars for a dozen eggs, or six dollars for a loaf of bread. 

The myth peddled by the politicians is that it’s a supply and demand problem.  They tell us that there are too many people and not enough houses.  The truth is simpler:  reckless lending policies have caused the excessive price increases.  The government encourages home ownership for various reasons, most of them are not really valid, but the encouragement is successful.  But most folks don't have a huge wad of cash to buy a property, so they borrow the money.  Here's where it gets fun:  when you take out a mortgage, the money doesn’t actually come from somebody else’s savings.  It is actually just created, electronically, by your bank typing numbers into a computer.  When banks create new money, they get that money into the hands of people--all sorts of people, most of whom are not good risks--faster than homes can be built.  This shortage pushes up the costs of houses.  Also, it creates an environment in which lenders have no motivation to lend responsibly.  Rather, it creates an environment in which lenders are motivated not only to lend to any and all comers, but to encourage the borrowing.

Of course, the Credit Crunch of 2008 killed that, so now house prices languish.  It is reasonable that the folks getting rich off the inflated house prices, i.e., the ones who own the newspapers and television stations which are reporting to you that the market is picking up steam, don't like it when house prices fall back to reasonable levels. 

Just my 2 cents. 

[opebo]

Guys, saying that home prices have gone up too quickly is not the same thing as proving that their falling is a good thing.

If, for example, they've gone up a bit too much compared to the price of eggs we should strive for inflation in the price of eggs.  What should be avoided in every case is deflation.

[Beet]

Because the consideration of good is defined by the industry (Wall Street, the home builders, the realtors, REITs, landlords, owners, and other assorted privileged members of society). The struggling millennials who see the cost of home ownership increase by more in a single year than their entire savings towards purchasing a home in that year do not get to defined the meaning of good.

The government also remains wedded to the overused distinction between consumer goods and assets that should have been thrown out with the financial crisis. Just because something is an asset and not a consumer good, it does not mean it does not matter. In fact it's nothing more than a vast redistribution scheme from aspirants to owners.

[King]

It's the middle classes only opportunity to gain wealth in the current system.

[DC Al Fine]

It's the middle classes only opportunity to gain wealth in the current system.

Also, index funds

[Beet]

It's the middle classes only opportunity to gain wealth in the current system.

You mean the upper middle class, right? The only way to gain wealth through rising home values is by purchasing an investment home, which means you have to already be rich enough to own two dwellings at once. Owning a home with increasing value is only useful for upping the amount of debt you can take. You'll never realize the cash on your primary home unless you sell it. And even then, most middle class people spend years of their lives renting (or living at home, or going to college) when they're young, so if prices are appreciating during that time, they're losing out big time. They can't settle down yet if their careers are not settled and they aren't married, so in a lot of cases it makes no sense to pay the transaction and maintenance costs to buy a single family home (I the NY Times had an analysis that concluded, absent home price movement in either direction, buying is only preferable to renting if you live in the same place for more than 7 to 10 years). You're essentially engaging in a massive speculation on substantial appreciation. And even if you do make it on the gravy train, home prices can only rise from affordable levels to wealth-generating levels once absent a 2008-style crash. Once one generation has benefited from home price appreciation, the next generation is screwed.

With stocks at least the poor can participate, because you can buy stocks for $500. The disadvantage is that it's harder to leverage your money; the advantage is that if you don't leverage, at least you don't risk being underwater.