That growth isn't exponential. Mortgage debt isn't a bad thing, the equity you build through it means you essentially come out ahead or even, once adjusting for inflation.
In other words, real estate is a great way to preserve wealth.
Cantillion Effect. The closer you are to spending new money created through lowered interest rates, the more you benefit.
2021 marks the end of the 50 year interest rate dropping cycle starting in 1971 with the end of the gold standard, now that FED rates have hit 0%. If home prices are going to continue to rise, it's going to have to do that through an increasing money supply through increased government spending alone, which is farther away so they will either benefit less or not benefit at all.
If the money supply is constantly increasing like it has the past 50 years, you have an inflationary spiral where your goal is to spend as little as possible and squirrel away as much as you can in assets.
On the flip side, if the money supply is constantly decreasing, you want to get out of assets as much as possible and into cash for a deflationary spiral.
If interest rates begin to rise, the money supply might begin to shrink. That flips the incentives, and suddenly asset prices dive much faster than the interest rate would have you believe. You could have a $400k mortgage on a home worth $210k or less.
> In other words, real estate is a great way to preserve wealth.
I don’t disagree, and I concede the increase in home prices is not exponential but it is certainly a long way from tracking the 2% inflation rate.
The point I’m making is that the ever increasing cost of housing as a percentage of disposable income means that in real terms most people are getting poorer.
That's only a psychological benefit. However, it's still better if people invest into something can understand rather than something where they can be easily tricked.
In other words, real estate is a great way to preserve wealth.