House prices and Wealth
Like everybody, I hear a lot about house prices going up and stuff.
People in my office who have bought some time ago are usually very happy
because prices have soared, so they feel richer. People who haven't
bought yet want to, so they can become rich too.
It all feels a little weird. The only thing that can make you rich is
your salary going up, or successful speculation. When house prices go
up, most people get poorer (read again: poorer).
I see 3 scenarios:
You don't own anything. The higher prices go, the least you can
afford if you bought a house. In the extreme, you get to a point where
you can't buy anything. So a higher price means you can afford less:
prices going up make you poorer.
You own the house you live in. Its value is going up. That doesn't
make you richer until you sell, it's the same as stock market
speculation so far. Usually, you'll sell to buy something else, that's
bigger (or closer to the city centre or whatever).As prices go up, so
does the difference between properties: suppose your house was
worth originally 100,000EUR, and the new house you want to buy was worth
150,000EUR. Prices went up 20%, so you're happy because your house is
now worth 120,000EUR. However, you're forgetting that the house you want
to buy as gone up 20% to 180,000EUR: you'll need to spend 10,000EUR
more to buy that house after prices went up. Prices going up made
you poorer.
You own a house that you rent out. This is the only case where house
prices going up will make you any money: sell! You're now richer, and a
speculator too.
At the end of the day, house prices going up is the same as inflation:
if your salary doesn't follow, inflation makes you poorer.
-----