[refurb]

You're looking at it the exact right way. Risk is a two sided-coin. If the local housing market does well, you can make out like a bandit. If it doesn't, you can lose a lot of money.

No different than owning $500K worth of share in a public company.

Nothing wrong with buying a house, but people should be careful not to have their net worth all tied up in a single asset (house or not). The one rule I've heard is 90 minus your age. When you're young is OK to have a high percentage of your net worth in a house, but not when you're getting close to retirement. Too risky.

[cowls]

I disagree, this view is too simplistic.

It's very different to owning shares in a company. You have to either buy a house or rent. You cant opt out entirely, whereas you can with shares.

By choosing to rent, you are betting on the housing market being stagnant or falling, if house prices shoot up and you opted to rent, you will need to now pay higher rents or a bigger mortgage.

So there is risk in renting too

If you decided to rent in london instead of buying 3 years ago, you'd be tens of thousands down

[to3m]

Why will rents go up, when they could have gone up already?

[andymitchell]

If house prices cross a threshold where first time buyers can't afford to get onto the property ladder, they're forced to rent - driving up competition for stock & thus rental prices. (This appears to be affecting more & more people in the UK).

[to3m]

These people pulling the ladder up behind them might be in for a rude surprise.

A sketch of my argument: as we are sometimes reminded to bear in mind, prices are driven by market conditions and affordability, not costs. If prices shoot up, why will the rent increase? Is it not already set to the highest value the market can bear, or something very close to that? We'll assume it must be, because it would be silly to do anything else (and the tenancy market is liquid enough). But then, if prices are at the right level already, how will people pay for increased rent?

If salaries increase as well, then this is just ordinary inflation. House prices go up, rents have go up, salaries go up - well, people have been warning about this for years! On the other hand, if prices increase, and rents go up, and salaries don't, how are people going to be able to afford to pay for any of this? The obvious answer, of course, is that they won't.

[JoeAltmaier]

Prices are what the market will bear. If everybody's costs go up, or supply is limited, then rent can sure go up. Renting is an inflexible demand - unless you want to go homeless.

[cloudwalking]

Because every day there are more people and more jobs but not more land.

[fennecfoxen]

> When you're young is OK to have a high percentage of your net worth in a house, but not when you're getting close to retirement.

That said, if you actually own your home in retirement you've significantly mitigated against the risk of getting priced out by rising rents if the regional economy heats up. That could be a problem on a fixed income.

[refurb]

That's true.

However, the risk is that you have a 60 year old, nearing retirement with 90% of his/her net worth locked up in an asset. They are counting on being able to sell and use the equity for retirement.

If you own your home outright and have a nice chunk of cash in retirement funds, then you're fine. Of course that also means you're very diversified (some cash in real estate, some cash in the market).