I know people living in London where prices are insane who secure a mortgage without ever intending to pay the full term. They buy a property, live very conservatively in the hope the prices go up and use that extra boost to move out of the city.

If prices on an investment rise more than inflation 90% of the time why wouldn't you buy it?

I feel bad for the people renting in London. Most people I know there simply can't afford buying as it is prohibitively expensive (>300k pounds I think?)

That's for England. London is more like >GBP500k.

https://lginform.local.gov.uk/reports/lgastandard?mod-metric...

A ~14 year bull market, interest rates, and the last decade+ of appreciation on real estate. Everyone is flush with cash and borrowing money against a home is free.

If you already own a home that appreciated to $800k+ then trading in to buy at $1M doesn't seem as bad.

Prices seem silly to me here too (Australia) but a lot of it seems to be a combination of the perception that house prices just always go up, so you have to "get on the ladder" as they say and trade your way along. Each step doesn't seem to be a huge investment in itself. If you don't hop on, then you get left behind.

But that means moving all the time. Yes you will trade yourself to the best house in the end and perhaps to a much better neighborhood, but moving can be a bit traumatizing...

One option is to move as you change jobs.

But tax law here also makes loss-making investment properties attractive to people, and borrowing against equity is another thing. Interest-only loans (as interest is a deductible investment expense), plus other expenses (all the better if it's in a nice holiday destination so flights and hotels to "inspect the property" are deductible), resulting in a minor loss on rent, which is offset against your primary salary and other investments.

Negative gearing like this allows people to basically zero out a house on the balance sheet and move on to buying another. Let it appreciate for a few years and you're ahead. Be a major voting base and politicians won't dare ruin your gravy train.

Inflation/printed money + stock market prices going through the roof.

If you don't have significant capital in investments, you're getting hosed.

If the buyers' dogma is that the housing market will always go up, it is a great deal to buy/build very expensive houses. They will always appreciate.

Reality will disagree at some point.

What's confusing me is the seeming lack of location-based price gradient.

According to the estimate-o-matic tools, the house I'm in is worth about 425k. There's basicaly nowhere in this market I could take 425k and get a house meaningfully bigger or better. Not in the new-developed neighbourhoods where the maps say "eventually a grocery store is planned, but until then it's a 10km drive", not in old neighbourhoods where it was built in the 70s and the floorplans top out at 1500 square feet.

I've been trying to sell my family on the Rust Belt, but so far no dice.

Now is the time to begin the discussion on shorting real estate.

Attempting to time the market is a great way to go bankrupt. The market can remain irrational longer than you can remain solvent.