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by aoeusnth1
3675 days ago
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Rents must be tied to drops in pricing in the long run. If rents don't drop with the price of houses, investors would swoop in to buy the high ROI housing, and existing renters would make home purchasing a higher priority as opposed to buying stocks, paying off other debt, or spending their disposable income. Also, having a uncertain monthly expense is not nearly as much of a risk as having 100% or 200% of your networth tied to a volitile and usually zero-sum housing market. The counterfactual of owning a diversified portfolio of stocks and bonds is much better from an investment perspective. |
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They do, all the time.
> existing renters would make home purchasing a higher priority
They can't, there's such a low supply of housing in the entry-level price points
> uncertain monthly expense is not nearly as much of a risk as having 100% or 200% of your networth tied to a volitile
Most people do not own the vast majority of their home. Worst case scenario, they buy a house, it goes down a lot in value, and they do a strategic foreclosure and declare bankruptcy. Considering the average American has little to no savings and therefore nothing to lose in bankruptcy, there's really not much a downside. In fact they may even profit from it tremendously in other ways, such as wiping out their credit card debt at the same time.
The ones that do have any sizeable amount of savings are 40+ years old today and have benefited in insane amount in housing prices over the past two decades. Their home values will never go down anywhere near the amount they have gone up.
Compare this to a guaranteed, unavoidable loss with ever increasing rent prices. If rents actually do drop with housing prices over the long run, it certainly hasn't mattered at all for decades given the long term trend of the American housing market.