Whenever I talk to anyone who makes their living in the housing industry... it's always a good time to buy or sell or refinance or whatever. If interest rates are low, they might go up... if they are high, they might go higher. If prices are high, they might go higher, if they are low, they might be near a bottom. It's so confusing.
This leads me to the question of how good of an investment houses are... in the long term... I mean the REALLY long term... like a hundred years or so. We just kind of assume that houses are these great long term investments and are integral to "the american dream." Maybe so, but when I look at the inflation adjusted Case/Shiller index, it looks a bit different.
A few things I noticed right away:
- Until the mid 1990s, a house was about a 10% or so ROI over a 100 year period, with a couple of spikes at around 30% with corresponding drops. That's not that bad really, but not amazing either.
- The great depression didn't kill home values... they were dead BEFORE the great depression.... interesting. I didn't know that at all.
- Timing badly can take a long time to recover from.
- If you bought a house in 1895, you didn't recover until around 2001. WOW!
- If you bought in 1912, you recovered in about 1942.
- If you bought in 2006... I shudder to think... might be 2142 I guess? Then again we could just wait for the next real estate bubble and sell then...
- Of course if you bought in 1920s and 1930s and sold in 2006; you made about 110%... good for you I suppose.
I figure I'd be much more interested in buying a house when that blue line goes closer to 0. This is 2010 data, btw. I'll look for the 2012 data to visualize, but what I can say is that things have "stablized" well above the 1994 levels. I believe this is a result of lots of foreclosures and abandoned properties (Which the case/shiller index does not track) and as that story plays itself out we'll see more decline. It's also impacted by really low interest rates, since people generally think about how much they can pay a month, rather than how much a house "should cost" (something people don't really have an easy way to know).
Incidentally... this further solidifies my belief that houses are not assets, they are consumable goods. When we think a consumable good is an asset, dangerous things happen. With an asset, the more money you put in, the more valuable you think it becomes, causing you to put more money into it. With a consumable good, it's just kind of losing value over time so you don't really behave this way. Thus, when we think of consumables as assets we get really terrible bubbles: think, Tulips, beanie babies, etc. here... are Tulips REALLY assets? They are if we think they are, I guess.
Hermann
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