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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: the_wheel who wrote (69793)	9/15/2006 11:16:35 AM
From: GraceZ	Read Replies (2) \| Respond to of 110194

I didn't mean to imply that the average person is capable of making a net present value calculation or even willing to. Most are not, most people move through the economy making short term simple calculations (a lot of them wrong) but they do make long term plans based on their inflation expectations, their lifetime expected earnings. Houses aren't bought on a whim, for most this is the largest financial decision they will ever make. When either of these conditions changes (inflation expectations and lifetime earnings) in a large way people adjust their long term financial plans. They may be doing this unconsciously along with the market around them. Because they aren't equipped to measure the change in the net present value of a house doesn't mean that it didn't change, it did. If anyone would take the time to run through the math behind my original statement they'd easily see that the net present value of housing does change with different inflation rate scenarios. Most people buy houses for the services that house provides and they do assign a value to those services, they don't buy it as primarily an investment vehicle even though you'd almost never find a buyer who has no opinion about the future value of such a large purchase. One could speculate that the seller has a different opinion of the future value. The first time I read gpowell on this subject I had much the same reaction everyone here had and then I did the math. I realize that we live in a math challenged society but the calculation isn't that difficult.