Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
"from 1890 to 1990. The American dream of building wealth through homeownership is a FALLACY. That was the bubble thinking but its still fresh in our minds."
Robert Shiller, Economist Yale University, and co-inventor of the Case-Shiller Home Price Index
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
13y
David Krulac
This announcement really comes as little surprise and I do not think it means "investing" in real estate is a waste of time ... 'speculating' over the long term ... perhaps.
I see it as a reenforcement of why I evaluate properties based on their cash flow and model them using either a flat price or slight depreciation {inflation adjusted}.
After all, you wouldn't buy a business on the expectation you will sell it for more 10 - 20 years down the road. You would expect it to be cash-flow positive and make a certain return.
75% of all Treasuries are bought by the Federal Reserve via QE infinity to the tune of $85Billion per month. So not so much foreign investment in our debt.
Rehabber · Yuma , AZ · Member since 2013 · 36 posts · 2 votes
13y
David Krulac I was not aware that the Fed purchased 75% of all treasuries. When did that shift occur? Wait until the treasury doesn't have earnings to reinvest in bond purchases over and above the $85B/month, 25% foreign bond purchases decrease, and the numerous US long term liabilities become due.
At this point the fed will have two choices: 1) continue to inflate and monetize the debt and/or 2) Increase interest rates to entice investment. Either scenario bodes well for commodities.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
I don't mean this to sound obnoxious, but I really thought that the notion that the value of real estate has tracked inflation was well known and well accepted. This is why we tend not to think of a primary residence as an investment (if it were, you'd expect the value increase to outpace inflation) and why most investors consider appreciation (above and beyond inflation) to be "gravy".
The value of real estate to investors (in my opinion) is forced appreciation (flipping/rehabbing), cash flow and/or tax-avoidance/tax-reduction vehicles.
Rehabber · Glen Rock, NJ · Member since 2013 · 28 posts · 2 votes
13y
I think J Scott did a great job in defining how we as investors extract value and why we seek out real estate as an investment vehicle. It is not the actual property itself where we derive the value from, but how we uitlize that property. Whether it be rehabbing, cash flow, etc, it is all a way of producing a return, so even if property X's value stays constant, investors create wealth by how they maniplulate the property and it's percieved value at any specific time. So in essence, Shiller's notion that inflation adjusted gains in real estate from 1890-1990 on a value basis are non-existent, he's right. If you bought a home 30 years ago with no intention of it being an investment, simply a place to live, then chances are it only provided you shelter and a hedge against inflation. However, I argue that if you bought that home with the intention of extracting value and returns out of it, then you absolutely could have and likely did realize gains from it.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
The value of real estate to investors (in my opinion) is forced appreciation (flipping/rehabbing), cash flow and/or tax-avoidance/tax-reduction vehicles.
I know you are happy and busy enough being involved in RE, but someday in the future I hope you will consider teaching. The high schools and community colleges of America need you! In addition to RE/finance/stat courses, I think you'd be a great instructor of political history and logic. I think you could both inspire and teach/reteach people to think.
I hate it when people come up with alternative careers for me, so take this for what it's worth.
Rehabber · Yuma , AZ · Member since 2013 · 36 posts · 2 votes
13y
@Jscott I understand your position and agree, however, I think the analysis becomes less clear based on how inflation is defined. I would argue that real estate and commodities such as gold/silver have outpaced "inflation" as defined by CPI and soon to be defined by Chain CPI. So when you say that real estate has "tracked" inflation and the rest is gravy, in order to accurately account for the "gravy" the CPI or another way of defining inflation, must be accurate. Using a number (CPI) that the government has a vested interest in understating seems flawed and would most certainly lead to an overstatement of "gravy"!
That being said, many recent articles highlight the fact that the increased disparity of wealth in the US is the result of inflation. I tend to agree and believe that the cause of this disparity and therefore the argument for investing in commodities is quite simple: the middle class and poor do not own commodities and earn wages that are stagnant at best. As more dollars are pumped into the economy, the price of commodities increase (this includes cash flows from those commodities that are adjusted for inflation), while the purchasing power of the fixed wage earners decreases.
Medford, MA · Member since 2013 · 40 posts · 2 votes
13y
I agree that a lot of people who buy homes think of it as an asset, rather than a place to live. Like many said, i believe it's simply an investment that protects your money from inflation, and being worth less, almost like freezing the value of your money. In terms of speculation, it's interesting how people the 'value' of a house is perceived at a certain number. The value of a house is only real when sold, before that it is simply speculation.
A house can be valued at 300k but selling for 250k. Although it is worth 300k and selling for even lower, it's real 'value' appears when it is actually sold. As many of you know, a house can sit on the market for a long time and not be bought. Wouldn't this mean it's not actually worth that value, or just that people are not buying.
During the boom a lot of speakers on the podcasts stated that houses were selling less than the construction price. They were 'valued' at a certain amount, but people still did not buy, even if it was below construction price. Of course there are those smart ones who saw this and bought the houses as fast as they could.
Norwood, NJ · Member since 2013 · 47 posts · 5 votes
13y
People compare real estate to stock and bond, what wrong with it? oh, house, you can live in comfortably, shelter from rain, cold and other harms away. While other investment are just on the paper (maybe except one or two, for instance, gold ring, bling bling though)
Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
13y
RE only keeps place with inflation!? Oh my gosh! Duh ...
I'll gladly take an asset that keeps pace with inflation. There are not many places to hide. Bank deposit accounts - nope. Stock market - nope. It's still lower than it was 12 years ago in real terms.
if you mean buying a residence, I strongly disagree. A residence is nothing but an expensive doo-dad. If you include all the taxes, etc that I listed in my first post, you almost always find a residence is a net expense. Now, for many people, it is a form of forced savings. They have a payment. They stay there, keep up with the payments and maintenance and 30 years later they have a nice asset.
While I agree with everything you said 100%, if you think of it in terms of the average person who knows nothing about investing in anything, I think "investing" in a primary residence is a pretty good idea. Assuming they have enough cash saved up for repairs/maintenance, have a steady job and can comfortably make the mortgage payments, they end up with an "asset" that keeps pace with inflation. What other investment vehicle is there that requires basically no knowledge and can keep up with inflation? Some might argue stocks or index funds but in my opinion that is largely untested over a long period of time (100+ years) like real estate.