When the government starts to print money, buy a house to double or triple your money?

Question

It seems it is so obvious, but is it true?

When the government starts to do "quantitative easing" or print money, then the price of a house can go from $1.2 million to $1.5 million easily, or to $1.8 million after 2, 3 years. That's because money has shrunken in value.

And the going up in price is almost unavoidable.

So if we put 20% down, i.e., $240k to buy a $1.2 million house, and it goes up to $1.5 million within a year, we have just doubled our money from $240k to extra $300k equity (the gain). In 2, 3 years when it goes to $1.8 million, we have now tripled our money from $240k to $840k?

And if it is cash we are holding, it shrinks in value. But now, when a beef noodle changes from $7 to $12, now your $1000 changes to $2000 or $3000. (leveraged), so now the 50% price increase in beef noodle seems like a mickey mouse to you.

That sounds so much like a no-brainer.
But is it true?

Answer 1

Home prices peaked in 2007 and then started to decline because of the 2008 Global Financial Crisis. In 2008 the Fed began Quantitative Easing. Median home value lost about 30% of their value over the next 3 years and it took another 6-7 years to surpass the 2007 high.

That period demonstrates that it's not true that:

When the government starts to do "quantitative easing" or print money, then the price of a house can go from $1.2 million to $1.5 million easily, or to $1.8 million after 2, 3 years. That's because money has shrunken in value.

Not even close to the truth. Home prices climb because Quantitative Easing involves the Fed purchasing longer-term securities in order to increase the money supply. This lowers interest rates which encourages lending, investment and home buying demand.

And if it is cash we are holding, it shrinks in value. But now, when a beef noodle changes from $7 to $12, now your $1000 changes to $2000 or $3000. (leveraged), so now the 50% price increase in beef noodle seems like a mickey mouse to you.

This is another fantabulous exaggeration. Beef noodles (and other consumer products) have never increased 40% during periods of Quantitative Easing. In the past 35 years, inflation has barely topped 5% three times. When QE began in 2008, we had deflation for two years - consumer prices declined.

Regarding your statement that:

So if we put 20% down, i.e., $240k to buy a $1.2 million house, and it goes up to $1.5 million within a year, we have just doubled our money from $240k to extra $300k equity (the gain).

Apart from these fallacies, you have failed to take into account possible initial repairs, mortgage interest, taxes, insurance, maintenance, and unexpected repairs. Add utilities to that list if the house isn't rented.

Your conclusion that it's a no-brainer that "When the government starts to do "quantitative easing" or print money, then the price of a house can go from $1.2 million to $1.5 million easily, or to $1.8 million after 2, 3 years" is factually incorrect.

Answer 2

It depends on a lot of factors. In addition to the taxes & maintenance expenses already mentioned, you have to deal with the fact that house prices are driven by supply and demand. Looking at this century, buying a house in say Detroit would give you far different results than buying one in San Francisco. So can you reliably predict your local real estate market?

Adding to this, if you local currency is being seriously inflated, that's almost certainly a sign of serious economic problems. Lots of people will be out of work, and those who are working are probably getting much less, in real terms, than before inflation. Those depending on fixed-income investments will have seen their incomes shrink. Even those owning stocks are likely to be worse off, because the companies will have smaller markets. Thus in real terms, housing prices are likely to drop.

The only situation where you're likely to benefit is if you actually live in the house, and you purchased it with a fixed-rate mortgage. As long as you remain employed, and particularly if your wages increase with inflation, your fixed monthly payment will be a smaller part of your real income.