The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy by Wiedemer David & Wiedemer Robert A. & Spitzer Cindy S

Author:Wiedemer, David & Wiedemer, Robert A. & Spitzer, Cindy S. [Wiedemer, David]
Language: eng
Format: azw3, epub
Publisher: John Wiley and Sons
Published: 2012-08-30T16:00:00+00:00

What Really Drives Real Estate Prices?

It’s easy to think that real estate prices should always go up over time. But there are real fundamental economic drivers behind rising real estate prices, and without those fundamental drivers, the only way to push up prices is by inflating a bubble. What fundamental economic drivers moved real estate prices up in the past, and what changed to create an overblown real estate bubble?

Centuries ago, most people lived on farms, with more or less everything they needed within close proximity, even if a great deal of labor was required to keep it going. This arrangement changed dramatically in the nineteenth and twentieth centuries, with three fundamental economic drivers giving us a period of long, sustained growth in real estate prices that continued nearly uninterrupted for generations:

1. Population growth. As Will Rogers once said, “Buy land. They ain’t making any more of the stuff.” The amount of land on this Earth does not increase. So when population grows rapidly as it did in the nineteenth and twentieth centuries, it is a simple matter of supply and demand for real estate. Demand goes up, supply stays about the same, and therefore prices rise.

2. Urban migration. Increases in population and changes in the economy led to the growth of cities as people moved away from farms and competed for living space in relatively small areas. Again, the forces of supply and demand made real estate prices rise.

3. Wage increases. Technology and economic changes led to improvements in productivity, and massive productivity growth drove a corresponding growth in people’s incomes, giving them more money to spend on their homes. That was more good news for real estate prices.

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