Tran Harry – The Economy Needs A Fix

How cars and homes are essentially the same assets yet they are priced so differently.

A car is a tool for us to get from point A to point B in its most basic form. Sure there are some nicer cars out there such as luxury cars, heavy load pick up trucks, or extra large SUVS and they may command a higher premium for these types of automobiles, but in its core function it is a commodity product which provides the service of private transportation for its owner.

Now let me make my case for homes, but before so I want to point out how people have seen homes for the last few decades. People see homes as investment vehicles, for the common individuals and average Joe’s a home is the closest thing that they will ever own that is close to being an investment. These people don’t want to play it risky with stock trades, they don’t want to trade in Forex markets, or gamble in Vegas so they want to keep it safe with their investment and as such treat a house as an investment tool. They paid low for their homes and want to sell high by the time they retire so that they could live a nice relaxing retirement lifestyle.

But here is where things get a little funny because unlike a business and much more similar to a car, a home gets old, it gets used, it decays just like a car. A home doesn’t produce sellable products and it doesn’t provide a payable service that a business would. A home does carry a salvageable value like a car when you no longer want to own it. And this is where things get completely out of sync with all aspects of reality.

Why do homes gain value when cars, its similar counterpart lose value after you have gone through using it?

Well for some homes I would say that this case can hold true, take for example cities such as San Francisco, CA where geographic density and land limitations create a barrier for building new homes, as these cities get more popular for population migration more people will demand these homes. But for a place like Sacramento, CA where they are building more and more homes each day than there is a constant supply of homes being created to meet any new demands for housing. Home prices should not rise as a result of this. Through an artificial market force that was created by homeowners, mortgage lenders, real estate agents, and even our government with tools such as deductions do we have this philosophy that home prices should always be going up, and if you look at the truth behind a home you will easily see why this shouldn’t be the case except for a few rare occasions. Yes people need shelter and a home definitely provides that for people, but a home gets old, it rots, it decays, a home that was built 50 years ago is not as strong as a home built this year. A car built 20 years ago is not as strong and healthy as one built this year, and its useful life may come to an end soon. Unless that car or home is a classic collectors item such as if you live in an area with high housing demand and low supply of housing to accommodate, when you are ready to move away, or retire and need to sell that home to get cash than you need to face some harsh truths, you may not receive as much money as you paid into it, those repairs may have been worth it because a living with a leaky sink is no fun, but just like a car with a leaky cooling system you would want to fix it but the next owner will not pay for your fix.

Let’s stop holding onto lies and trying to defy the forces of supply and demand and start selling those homes, we all make poor investment choices from time to time, businesses close down, people get bankrupt, and some of them start over while others never recovery but this is the harsh reality that was always there, let the selling take place so we can move ourselves back to equilibrium again.