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Politics : Politics for Pros- moderated
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From: LindyBill4/29/2005 9:51:38 AM
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Our housing bubble continues unabated. A friend of mine put her Leeward condo on the market last friday. She got an offer yesterday at $25,000 more than she was asking. It included all closing costs.

Sophistical arguments, a continuing series
marginalrevolution.com
By Tyler Cowen on Economics

Are you worried about a housing bubble? Go buy that house anyway.

Let's say you buy and the price of housing then goes up. Surely you are happy.

Let's say the price of housing, including your house, falls. Well, in absolute terms that is not so bad either. You can simply stay put. Even better, you might buy another house. Consider the polar case where houses fall to a nickel a piece. Yes you wasted 600K on an overpriced big box. But now you can buy your favorite mansion for a dime.

In technical terms, consider the changing price as a budget constraint rotating around a fixed status quo point (you can always stay in the house you bought). The rotating budget constraint will put you on a higher indifference curve.

So go ahead and buy that house. Yes, you might be better off by waiting for the price to fall. But don't worry about bursting bubbles, you won't end up worse off.

And let's assume you won't have to move anytime soon.

So buy, buy, buy. And don't stop at homes
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