Are Rising Home Prices a Good Thing?

Home prices in central Indiana averaged 4% higher as 2014 wound to a close (compared to twelve months earlier).  Sounds good, right?  Um… maybe.

Let me ask, is it a good thing that home prices are rising?  I mean, the talking heads on the nightly news would sure have you believe it.  Politicians too.  But is it?  Let’s thinkaboutit…

For those owners who are considering putting their house up for sale, the answer would definitely be “Yes.”  They would be thankful if prices have risen during their period of ownership.  That’s simple enough to understand.  Now, they may trouble themselves over whether to hold on a while longer and try to catch the market top, just as people do with the stock market.  Few are good enough or lucky enough to catch the top, and many have watched in horror as a market has fallen- swiftly- and those sure gains disappeared into thin air.

On the other hand, for every seller there is a buyer— who (if they turned off the tv and thought about it) would prefer that prices were falling.  I mean, who the heck wants to pay more for something?  Nobody, right!?  Nevertheless, people tend to buy stocks when they’re on a mad rush higher.  Ditto houses.  But think about it, the time to buy is when prices are falling, not when they’re racing madly toward a peak.  What goes up must come down.  And house prices, like stock prices, act like a roller coaster.  Smart investors buy the dips and sell the peaks!

So, why does the media and politicians have a love affair with rising house prices?  Basically, it’s because rising prices buoy consumer sentiment.  They give people some level of confidence that things are getting better, economically speaking.  Truth is, what’s going on with jobs and wages has a lot more to do with the economic well being of most people.