So we all knows about “the Bubble” right? Sure, we’ve all heard of it; it says that homes are ridiculously overpriced. But how do we go about determining this? Obvs, we look at graphs.
One of the most popular ways bubble backers like to define the inflated market is by comparing the amount of money American homes are valued at to the gross domestic product. As we can see, that gap makes a pretty convincing bubble, yeah?
Then there’s this graph. It inflation-corrects the sale prices of existing homes from 1890 to right now, and it shows that for most of the century, things were pretty even. There were small booms and a big bust during the Depression, but mostly, it was pretty even. Then the dot-com boom came around and…well…it looks a lot like what happened in Japan a few decades back.
But that’s national, and as anti-bubblists like(d) to say there is no national market. And if you look at this chart of home prices in various American cities since 2000, you’ll see that Boston had a relative steady rise, and has been enduring a fairly easy decline since at least 2005. So has the bubble broken? What’s an Econ Cat to think?
My best advice is to think about a home the way your grandparents did. Instead of looking for an investment, find a property that you like, you can comfortably afford (read: reasonable downpayment, fixed rate), where you want to live. Then forget about turning a profit of the place and use it for it’s designed purpose: living your life.
Maybe – in a strictly numerical sense, and ignoring inflation – you’ll lose money in the end. But factor in the comfort of shelter, the convenience of Boston, and the sheer enjoyment of taking a faceless property and turn it into a home. If I weren’t an Econ Cat, I’d say that’s the sort of thing you can’t put a price on.
And maybe, once every blue moon, you can sit back with a bottle of wine and remember that instead of tossing away a rent check each month, you’re slowly and steadily building an asset.