Bill Rapp here with the Heartfelt and Hot in Houston Blog, and this is our newest segment: The 2020 Housing Boom Is A Perilous Economic Signal!

Back in the 1980s, the long-forgotten “classified ads” for cars used to specify whether or not the auto for sale had AM/FM radio. If a tape deck, this was prominently noted. Hard as it is to imagine now, the tape deck that would signal an ancient car today was a sign of luxurious modernity in the 1980s. How things change. The 2020 Housing Boom Is A Perilous Economic Signal!

As Andy Kessler has pointed out, your ownership of an Amazon AMZN +0.1% Echo combined with a monthly, $4.99 subscription to Amazon Music AMZN +0.1% gives you access to unlimited amounts of music worth billions of dollars. Nowadays Alexa is available in cars. Imagine that. While the well-to-do used to thrill at a tape deck that they could use to fast forward and rewind to get to favorite songs on one cassette tape, nowadays anyone can request nearly all the music ever recorded by voice command in their cars. Kessler would quip that “you’re a billionaire now.”

So how did we get here? How did the luxury that was an in-car tape deck so quickly come to signify relative antiquity? How is it that almost literally anyone can command the world’s music in their car without touching or looking at their stereo?

It’s all about savings. Paraphrasing John Stuart Mill, progress is the remuneration of abstinence. Entrepreneurs power progress, but they’re quite simply not entrepreneurs without access to savings. Entrepreneurs require those with means to do without, to delay consumption, so that they can rush the future into the present.


Think about it. Why did a retailer in Amazon create the Echo, as opposed to a communications company like AT&T? Why did Netflix NFLX 0.0% revolutionize how we watch movies at home, as opposed to now defunct Blockbuster? Why are Amazon and Netflix increasingly the most powerful players in television and movie content creation? It’s all about savings yet again. Wealth that goes unconsumed is sometimes matched with different thinkers looking to reshape how we live, work, listen, and watch.

Which brings us to a recent column by CNN markets reporter, Paul La Monica. He wrote of housing as an “undeniable bright spot” that’s “holding up” the U.S. economy. La Monica gets it backwards.

Housing is consumption. It’s the opposite of abstinence. Nothing against putting a roof over one’s head, but the simple truth is that housing is not investment. The purchase of a house isn’t going to help hatch the next Microsoft MSFT -2.8%, or the next Grail meant to discover cancer well before it spreads.

While the act of saving expands the capital base for entrepreneurs eager to change how we do things, the purchase of housing logically shrinks it. When we buy a house we consume, as opposed to save, thus limiting the amount of resources that entrepreneurs can potentially access. Progress stalled.

So what’s driving the economy-sapping rush into consumption over investment? An obvious clue would be the dollar. The dollar is weak. When it’s in decline there’s a natural rush into the consumption of hard assets least vulnerable to the dollar’s decline.

Considering the weak dollar in terms of actual saving and investment, the latter is the act whereby we delay consumption of dollars now in the hope that our investing will result in more dollars to spend in the future. But if the currency is weak such that future dollar returns may not buy much more, if at all, why delay consumption now?

Some plainly aren’t, as evidenced by the booming housing market. We’re scarily seeing a repeat of the 1970s and 2000s when a falling dollar made housing the top asset class. Worse is that top realty executives are starting to exhibit hubris. Recently one exulted that housing supply at present is like the supply of “toilet paper” back when the lockdowns began. Oh dear….

Those in the realty business mistakenly believe that housing consumption drives the economy. So does La Monica. Both are incorrect.

Consumption doesn’t power economic growth; rather it’s a consequence of it. Think about it. Savings and investment are what boost productivity, and it’s obviously our production that enables consumption. Call consumption the harvesting of past economic growth.

Looking into the future, a booming one will be a consequence of relentless information creation born of even more relentless experimentation. Most of that experimentation will result in the proverbial dry hole, which is the point. It’s one Bezos understands well. So did Bill Gates. So does Elon Musk. Nearly everything they try or tried comes up short. But the commercial leaps set the stage for the proverbial gushers. Wild consumption of wealth that already exists slows the experimentation.

It’s something to think about now. Nothing against housing. It’s an essential market good. We must have roofs over our heads. But the consumption of what shelters us will not rush the future into the present. Housing’s exuberance is a perilous sign, not a positive one. The 2020 Housing Boom Is A Perilous Economic Signal!


The inspiration for today’s edition came from this original article:


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