Surreal Estate

The other day my younger brother called me and said:

- "We should buy a house. Anywhere. The real estate market is going up. It is going and going. And it is going up - ariba, ariba, papah!"

I could picture my brother climbing up on his desk in the middle of the trading floor where he works - overlooking the dramatic Manhattan skyline - and making silent house music movements with his entire body, imititating the elevating flight of an eagle to express his excitement.

I was now getting slightly agitated myself as well, and decided to inquire further.

- "Really, it's going up? How do we know?"
- "People say it is going up"
- "People who?"
- "People, you know"
- "But how do the people know? Is there is a real estate index we can take a look at? Because, you see, when we say that the stock market is going up, we really mean that an index on the market is going up."
- "An index?"
- "Yes, an index is a a complex mathematical formula called the average. You take the stock prices and calculate their average, but you call it an index instead, and now everybody will look at it and talk about it. And they'll say the S&P 500, or the Dow Jones is going up, for instance."
- "Mmh. No, there is no index in real estate market that most people would know of. And I really do not know why. But trust me on this - it's going up anyway"

Why Would it Not?

I hung up, thought about it for a moment, and I could think of at least three reasons why real estate should never go up, and why owning a flat or house is a liability, rather than an asset. Here are the reasons:

1. Life wears away - so does the house we live in. In fact, the real price of the house will depreciate every year since it needs constant repairs

2. The bank wants its money - most houses are bought with mortgages, and you have to pay interest on the mortgage which is what any reasonable person would tell you an extra cost

3. The government wants its money - on any property, you will have to pay property taxes

Given all this, it is hard for me to see how the value of any property would increase, but I guess people know the best

References

Homeowners' Dreams