House @ right price?
I wrote last week,(actually, just 2 posts earlier!! 😀 ) that unless there is significant amount of anomaly in asset pricing, prices of real assets will increase over a period of time. Prices of real assets “appreciate” over a period of time. Of course these prices are not removed from inflation. So there is no way of knowing whether the given appreciation is a result of inflation, a speculaive bubble or the real appreciation, unless you have been following prices over a period of time and keeping a track of all the happenings within that sector which shall affect the price movements. What about people like me, who are new to everything in this financial world, at the beginner’s level? Do I wait and watch prices of real estate for like 5 years and make decision? by then, tracking and following this sector would have given me some understanding and knowledge of the sector. Alas, in real world eveything else wont just freeze out while I am tracking real estate. Time will fly, prices will rise so also my needs will change. My income will change, my demand will vary and probably the kind of house and locality that I want to live in today will differ then. If I keep on tracking, without doing anything, as an academic interest definitely will serve me well, but if I actually want to buy a house in near future, I have to make decision within a limited time frame, or else, I might miss a deal which I’ll later think of as a lucrative one!
So the question is, how do I distinguish, whether rise in assets like real estate is a result of speculative bubble or a real appreciation?
One of my very good friends and I wrote a paper on monetary price indicators and asset price bubbles, back in 2005 for XLRI paper writing competition where it got shortlisted as well. I wish to revisit the concepts this week and look up on the latest in this subject. I intend to post daily about all these issues and I hope I shall gain a lot out of this week. Online blog’s just the right thing to revise all that I’ve learned, thought about and concluded…
Posted on September 23, 2007, in Macroeconomics, Real Assets and tagged asset price bubbles, CPI, inflation, monetary policy indicators, Real Assets, speculative bubble. Bookmark the permalink. Leave a comment.