If you live in one of the major American cities, the chances are that you’re not happy with the rising real estate prices. Combine that with the constant headlines of skyrocketing house prices and the widening gap of income inequality, and you’d think that we’re living in the apocalypse. However, don’t panic just yet. It turns out that real estate is getting cheaper. It just depends on how you analyze the data.
Everything Is Relative When It Comes to Real Estate
Surely, Albert Einstein never predicted that we would be comparing his Theory of General Relativity to that of the Bay Area real estate market, but that is what we are going to do today. If you look at housing prices in the Bay Area, the median home price in Palo Alto has risen from $1.3 million to $3.1 million over the last decade or so. However, let’s look at housing prices from another angle.
Measuring Wealth in Assets Instead of Dollars
As mentioned in this article by Alex Rampell from a16z, the key to understanding this radical idea is asset relativity. If we say that your base currency is that of tech stocks, then it turns out housing in the Bay Area is getting cheaper. Think about it. When more U.S. dollars are created through the process of printing money, then the final result is scarce assets becoming more expensive, in terms of dollars. When the currency quantity increases, those who own assets benefit and those who do not own assets do not.
What Is the Importance of Owning Assets?
“Wealth” comes in all shapes and sizes. It is not just a comparison of who has the most cash. According to Alex Rampell’s article, in January 2010, the median home price of a Silicon Valley house cost a little over 12,000 shares of the Silicon Valley Stock index. Today, that number is a bit over 6,000 shares of the same index. Based on this example, it is essential for one to build wealth through the acquisition of assets and the minimization of liabilities.