It’s a volatile real estate market out there. Prices have, in the past few years, shot through the roof faster than, well, faster than the last real estate bubble we had. And they have also come crashing down, when the bubble pops. How well you do buying or selling depends on whether it’s a buyer’s or a seller’s market. Or does it? Follow me through this scenario to see which part of the magic trick you missed.
Suppose I own a house that in this market could sell for a million dollars. It matters not how much I owe on it, if anything. It matters not what I paid for it, if anything. I sell it for a million dollars. Now, if I want a house in a similar neighborhood, or a similar size, you know, say an exact replica of the house I just sold, how much will I need to pay? Right, a million dollars. So how much have I gained through this supposed red hot market? Nothing.
Still not seeing it? Ok, let’s try it this way. Suppose I buy a house for a million dollars. Now suppose the market tanks. I sell my house for a measly $10,000. Calamitous, right? No. I’ve lost nothing. What would it cost me to buy an exact replica of the house I just sold? $10,000. Before the sale I had a house that the market valued at $10,000. After the sale and the buying of the other house I have a replica of the first house valued at $10,000. Samesies. What did I lose in this burst bubble market? Nothing.
In both scenarios I had a house and after selling it I’m able to buy a house that costs what I sold my house for. Moving from one market to another, moving from one sized house to another may change up things a bit but the bottom line is that whether it’s a buyer’s market or a seller’s market makes little difference if you’re both a buyer and a seller.
The key to understanding basic economics, it seems to me, is never leaving part of the equation out. Henry Hazlitt’s classic, Economics in One Lesson, which I commend most highly to you, upended the old saw that breaking things is the path to wealth simply by doing just that, showing the part of the equation we leave out. When we think we’re getting a free lunch, we can be certain we’re not looking at the whole thing. We know that because there isn’t such a thing as a free lunch. Wealth doesn’t come by invisible and unknowable forces but by creating it. That means working, producing, meeting the interests of consumers who will freely pay for what you provide.
Buying low and selling high is all well and good. But if you’re buying the same thing you’re selling and at the same time, you’ll not likely find yourself getting richer or poorer. Just be sure you don’t find yourself duped or deluded.