[grey-area]

Nobody cheers when the price of staples and groceries goes up...

Because nobody buys groceries with massive leverage over 30 years.

People buy houses because they count on inflation to raise the nominal value of the leveraged asset far more than the interest they pay, and usually in the long term that works out and they pay less than they would renting (not always, and renting has upsides too of course).

[AnthonyMouse]

> People buy houses because they count on inflation to raise the nominal value of the leveraged asset far more than the interest they pay, and usually in the long term that works out and they pay less than they would renting (not always, and renting has upsides too of course).

The problem of course being that for this to be true, housing price inflation has to be greater than general inflation, which implies that nominal housing prices increase faster than nominal wages.

Which is what has happened, but that isn't sustainable, and the math is pretty harsh.

If housing prices increase by a given percentage at the same time as they increase as a percentage of wages from 30% to 45%, then for them to increase by the same percentage during a period of time with the same level of wage growth, they would have to increase from 45% to more than two thirds of wages, which is implausible. To increase by that percentage again would leave them at more than 100% of wages, which obviously can't happen.

So the trend of housing price appreciation above general inflation is inherently temporary. It has to end eventually, if it hasn't already. Note that current housing prices were never really allowed to crash in 2008 and continue to be artificially propped up by low interest rates. So we may be preventing them from falling presently, but that doesn't mean they've got a lot of room to grow any further.

But people who already own property may want them to, or be expecting them to. Those people are likely mistaken.

[grey-area]

The problem of course being that for this to be true, housing price inflation has to be greater than general inflation

In real terms I agree house prices oscillate around zero growth (sometimes with decades long periods of higher or lower growth).

However, the leverage makes a difference. If you know bank policy is constant inflation, taking on large debt to buy an asset which tracks inflation makes sense in the long term. Over time the debt becomes less and less significant, and the asset price and yield tracks inflation/wages.

If you could borrow multiples of your wage at low interest to buy stocks for decades the same argument applies - the yield in future will outstrip the cost.