Unhealthy Financialization of Housing
What if your home isn't supposed to be a financial asset?
Recently, I went on a bit of an unhinged rant on Twitter because of a stupid article in Yahoo Finance. Since Twitter and Substack are fighting, you can go see the thread yourself here. It was a cathartic waste of time, which I needed as a break from real work.
But overnight, I got to thinking a bit more about one of the things I wrote:
This obsession with home equity and house value is unhealthy financialization. It's not an index fund; it's your home where you live. Can you afford the mortgage? Then live there. Can't afford the mortgage, then you don't have a choice, do you? 6/X
There is something actually important there with some real relevance to the real estate industry.
This is going to be one of those “deep think” pieces without a ton of practical applicability, but the topic is important and interesting. We should be discussing it more.
The Unhealthy Obsession about Value
Is there any other category of durable good in our lives where we care so deeply about its resale value? Nobody buys a washing machine, then tracks the value of washing machines on a daily, weekly, monthly basis. No one ever debates whether he should purchase that living room set because the price of living room furniture is falling. Nobody talks about a “refrigerator bubble.”
The closest thing to real estate in terms of durable goods where people care about value is a car. There, we will often find people talking about this model of car or that model of truck having high resale value, and that value does sway people to buy one car over another. But it’s nothing like houses. Outside of collectible cars, no one is buying a car thinking that he will resell it five years later for more money. Everyone knows that the value of the car drops by 30% the minute you drive away from the dealership.
With real estate, we routinely buy houses with the express expectation that their value will be higher in the future than today. Real estate agents advise people to buy a house as a durable good that is also an investment. We know that tens of millions of Boomers are relying on their primary residence as the funding source for retirement.
There is no other category of durable good that is also seen as an investment.
I think this idea of housing as an investment that has been inculcated in all of our minds is unhealthy and has led to numerous problems.
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