If you bought a house during a period of higher prices, but sold another at the same time – it’s a wash. You gained some on the house you sold but may lose some when you next move.

If you were a first time home buyer and overpayed because of the bubble, time and lower interest rates are your friends. Of course, if you couldn’t afford the payments (like many in the USA), you still can’t afford the payments and there are no more suckers left in the pyramid scheme to buy your overpriced piece of crap.

If rents had in fact been going up in step with home prices, this argument would at least be internally consistent.

I think Wolf might have said what he meant more clearly if he had just said that the price of your house doesn’t matter until you move and even then your loss is somene else’s gain. Pretty accurate but economists aren’t usually quite so insouciant about redistribution, the first part isn’t quite true and gets less true the further prices fall and similarly while house prices are not net wealth, it’s not clear to me that the swings exactly match the roundabouts.

abb1, $400k @ 6% is more expensive than $300k @ 8% because the future payments cost more. For example trying to pay off your mortgage before retirement is harder.

Yes. I lived in Kentish Town for two years. It’s plenty posh compared to the vast majority of East London or South London, which are conspicuously absent from the list. I have mates in Kilburn, Hammersmith and the “shabby half” of Islington, and while they’re not Knightsbridge, they’re not Hackney either. That’s not to say there aren’t pockets of deprivation in all those places, for sure, but they’re very gentrified compared to lots of London.

“The only way to win is not to play.”

If we could find the people who intentionally designed this system to drain wealth from the middle classes, maybe we could hang them from lampposts and feel a little better about it all.

Think of a bailout plan where the banks agreed to reduce mortgage values to the current value of the house and then were fully reimbursed by government. That would have inflationary effects on the overall economy (not to mention a lot of moral hazard for the future), but the homeowners would no longer be worse off. The issue is all the speculative debt that was accumulated during the bubble, even by ordinary homeowners. People were forced to be speculators in this bubble.

The reason why housing feels like net wealth is that it’s just about the only way that a private individual can get meaningful amounts of leverage on an investment; if you’ve bought a house with a mortgage then you’re in the position of a subsistence farmer who has to pay a tithe in cash and suddenly the nominal value of your house does actually matter quite a lot (to you, that is; these things all even out at the level of the whole economy).

Anyway, at the risk of derailing the thread, John’s comment also points to some of the issues which regularly appear on the political agenda with regard to property taxes (at least in Scandinavia). Understanding the logic behind property taxes is beyond most non-economists and politicians have taken to defending the little guy against the wicked economists. As a consequence nobody dares to deal with the effects of the massive rise in house prices in Denmark and Sweden.

You can think of a house as providing a flow of services (shelter, comfort and so on). A landlord sells these services to a tenant, but a homeowner is like a subsistence farmer, both producing and consuming the same services.

So if the house price is just the capitalized value of rental services, a change in the value of the services and in the price of houses should make no difference to homeowners.

But it’s a confusing way of putting the point made worse by the fact (noted by several commenters already) that the market value of houses has gone up much faster than the rental value of the services they provide.

All in all, not the clearest sentence Wolf has written, but the basic point is right. The gains and losses from changing houses prices pretty much cancel out, so there’s no general reason to applaud rising prices or deplore falling prices.

I don’t know gingeryellow, have you been to Hammersmith, Kilburn, North/West Kensington, Kentish Town or the shabby half of Islington? Posh is different ;).

Leverage is a cute cuddly puppy in a rising market that allows you to realize huge profits from even modest increases in the price of the underlying asset. In a declining market, though, it turns into a ravenous wolf with slathering fangs – that bite.

That’s why I’ve rented for the last 10 years. I had no confidence that I’d keep a steady income stream when the downturn came, and I didn’t want to get caught with a house I couldn’t sell in a place I couldn’t afford to live.

That strategy might have lost me money over the long run. It would depend on things I can’t really know about, like buyers. But this year I’m sleeping easier because of it.