Land and Homes should not suck useful capital out of our economies. Where could you spend more money and benefit less people per dollar? Our capital is better deployed in businesses where many more people benefit from many less dollar input.<p>This is why the SP500 craps on real estate. Because it should. Hell, the only reason real estate has had the peaks it has, is because it was subsidized by the financial sector. And as you can see, that blip of misvaluation did much more harm than good.<p>Business make the world better than houses do. Businesses are where you get people the best benefits. More expensive houses, to the point of unaffordable are the enemy. If you have allocated a huge portion of your assets into a non productive asset (a house), then you are part of what is wrong with the world. Stop expecting your "only benefits you house" to pay the same as "benefits 10x + more people" businesses.<p>P.S. liquidity, capital surplus recycling, less bid/ask spread, less fees, less counterparty risk (eviction, destruction). The capital markets pretty much crap on the real estate markets. And they should.
You're doing it wrong? Cashflow? I am slowly making my way to independent wealth BECAUSE of land/home investments. But it is because they are in production of providing good homes to people (multi-family residential), not farming (large part of the short article) nor waiting for the turf itself to appreciate.<p>Even the investment in farmland is not taking the production of the business into account. Wouldn't that be similar to investing in some servers, but letting them sit and hoping they appreciate in value, rather than being involved in what the servers are doing?<p>This article seems so at odds with land/home investment, I am wondering what Schiller's real motivation is with it, or if it is taken out of context...<p>What am I missing?
Counterpoint:<p>10-year REIT returns: 7.59% annually<p>10-year US stock market returns: 7.54% annually<p>Looks similar, except that remember: 2006 was the peak of the real estate bubble. This would be like judging 10-year US stock returns by starting at the year 2000 - it'd be negative.<p>Since its inception in 2004, VNQ has returned an annual return of 10.04%, approximately 3% higher annual return than the stock market.<p>I don't think this should be the case - buying property and sitting on it shouldn't give you a higher return than investing in the real economy. But, with our anti-development government policies, this is what ends up happening.<p>Sources:
<a href="https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0986" rel="nofollow">https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...</a>
<a href="https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0970" rel="nofollow">https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...</a>
Land is valued according to the surrounding economic activity. Land on average is not valuable (just look down the next time you're on an airplane).<p>Land in fast-growing cities goes up in value quickly. Land in dying cities goes down in value. Investing in land (and any associated cash-producing activities like buildings) is primarily a bet on the outlook for economic activity in the surrounding area.<p>Long term farm prices is a poor proxy for real estate investing generally.
I honestly do not get it. How can you make any assumptions about an investment when you only consider prices then and now? I mean, this land has produced goods for a hundered years, why aren't those counted to the three times the investment itself has increased in price . This is true for other inverstments too, but still you have to include that in your calculation. An oil field is even worth less after you have extracted the oil, still it might have been a good investment.
This article misses one crucial point: leverage. People can afford to buy a property many times their current savings with a mortgage based on their income, because the government in effect guaranties the credit risk in the US or subsidies it in other countries.
For most citizens this is the only way to obtain wealth. If you are already wealthy then, yes, land might not be your best investment choice, but chances are you aren't (see Piketty).
Sorry, I've never been able to reconcile these claims. On the one hand, any retirement-investment seminar is going to give the stat that real estate on average has returned just a little above inflation.<p>OTOH, pretty much everyone's social group is full of people who bought a home that has significantly appreciated in value if they've held it 20+ years (and also saved them a ton in housing costs). What gives?<p>- Is there a huge chunk of homes pulling down the average?<p>- Is the home appreciation understating the return, after you account for interest/maintenance/tax costs?<p>- Is our recent experience dominated by anomalously large returns that aren't likely to continue?<p>- Is it an artifact of the calculation, which excludes relevant things like the imputed rental income (and not having to pay current rates)?<p>Does this statistic really translate into "don't worry, you won't be priced out of any booking metro area"?
Taxes complicate things.<p>In Canada at least, homes that you live in are not subject to capital gains taxes. So if my home increases in value, it was a tax-free investment.<p>On top of this, I'm reducing my expenses. My rent used to go up every year, following inflation. My mortgage is a fixed amount, and I pay a very stable fixed amount of it every two weeks. Once inflation is factored in, I will pay less and less over time to live where I do.<p>Extra money you earn is taxed. Extra money you save isn't. When taxes are high, this factor is important.<p>Overall, I suspect I could make a bit more money investing and renting- but not all that much more. I consider the difference a little fee I pay to never have to deal with some shitty landlord again.
The title is slightly misleading. This is an article dominated by the discussion of buying land, specifically farmland. I don't see a lot of discussion about buying a home has a disappointing investment.<p>With that said, I disagree with the author because he's failed to examine the long term security of buying land. Buying a parcel of land can pay off in ways not completely obvious in the present tense. It can be used as collateral on the purchase of a home. It can be used to build a future home on, or if all else fails, pitch a tent and count your blessings.
If I were still young, I probably would not invest much in real estate right now, at least not until a major downturn in prices.<p>It used to be very different. A year after I graduated from college I bought my first home in the mid 1970s, and it is still a good income-generating rental property. Back then, most of my friends and I all had the same goal: own our own home and one or two rental properties. Back then, this was a great strategy.<p>If I were 25 right now, I would probably rent in a beautiful city, probably not own a car, and seek other investments, and keep investing in my own training/education.
It's probably best to not think of buying property as an "investment" in the same sense that buying other monetary instruments is. You must pay to live somewhere, and by purchasing the property you live in, you do a more efficient job of capturing and minimizing that expense. In <i>most</i> places, the cost to rent is within spitting distance of the average monthly mortgage.<p>All things being equal, buying parks some of your money until some point in the future when you can recover it, instead of just giving it to somebody else to park.<p>In general, since the population of the Earth is growing, and we're not adding much more land to the planet (in fact, we may be doing the reverse), the inventory of available land shrinks and property is likely to increase in value at <i>at least</i> the rate of inflation, but often slightly higher over decades.<p>Not great if you think of it as investment, but far better than showing it as a raw expense.
What's disappointing about an investment that holds its value for over a century, keeping pace with inflation, and you can live in it and bequeath to your heirs without a forced sale?
Hmmm...let's see....Bay Area real estate has doubled since 2011, and has outpaced the S&P 500, even going back 30 years. So I guess all those people should feel like fools.<p>As they say, 'location location location' , which Shiller ignores, in favor of the quote that fits his thesis, 'they can't make more land'.<p>So tired of the generalizations and lazy thinking that passes for journalism these days, and even NYTs and Nobel Prize Winners are not immune
Wait, wouldn't a trend towards micro-apartments and higher density make urban land more valuable? I suppose the trick is buying urban land in just the right place if things get more dense.
The article is kind of dumb in that it ignores rental income. If the title was "investments where you get no income tend to be disappointing" then he'd have a point.<p>Real estate actually tends to be the best investment for most normal people. It's fairly easy to understand and doesn't go bust like tech stocks. It keeps up with inflation unlike bonds or bank accounts. You can borrow and leverage up without margin calls unlike almost all other investments.<p>I've got a friend in London with a normal job who just bought a few flats for like £90k mortgage, £10k down and the equity in them is now well over £1m. No other regular investment performs like that with little risk.
I guess it depends. I have two homes and I rent one out. It's almost paid off and I get $2,550 a month in rent for it. For me it's worthwhile and if I do this a few more times I could potentially be close to financially independence.
Most Americans buy homes, not farmland. In that respect, the UK's "Safe as Houses" is worth a read.<p>Summarising many studies on the matter, across countries and over long time horizons, houses appreciate at the cost of inflation. Short-term swings are primarily driven by credit; a bet on house prices rising is a leveraged bet on credit quantity increasing, <i>i.e.</i> rates falling.<p>[1] <a href="http://www.newyorker.com/magazine/2006/10/30/safe-as-houses" rel="nofollow">http://www.newyorker.com/magazine/2006/10/30/safe-as-houses</a>
An excellent, and sobering article from Shiller.<p>It is rather unfortunate that such mythology and conventional wisdom around real estate being a wonderful "investment" has built up, to the extent that it's now challenging to have a sensible discussion with anybody on the topic. Who knows how many young adults have been pressured into real estate by their families, partners, and others, rather than following their passions in other areas.<p>I've bought and sold a number of homes over the years, and I prefer owning to renting, for practical reasons. Still, it's frustrating that everybody encourages one to put much more money that is necessary into a home.<p>Right now, I live in a 50-year old property with an original bathroom and flooring. In talking to architects, contractors, neighbors and the like, nobody really seems to get the concept of renovating these items, bringing them up to modern standards and catching up on deferred maintenance, as opposed to overcapitalizing. The general assumption seems to be that this kind of thing is an "investment", and therefore the more money spent, the better, despite mounds of evidence to the contrary.
I think this makes the point that real estate is a stock investment. You buy it today to turn it into rental income of some form. But the study did confine itself to farmland. That portion of real estate has always been the slowest to grow and for many reasons. There simply aren't as many people interested in owning (the same tracts of) farmland as there are homeowners in a town/city.
Real estate has been my best investment sector to date. I bought 33 acres of raw land in rural NC in 1997 and sold it 7 years later for twice what I paid for it. I rolled that money over into another piece of land so the profits would not be taxed and sold it in 2007 for twice what I paid for it. I was heavily into REIT's for a time when I was getting 20% returns for 4 straight years and sold before they tanked. Given all the crashes since 1997 in the stock market my brokerage account has not done nearly as well as my real estate investments. The problem is the right pieces of property are few and far between so they are much harder to find. Timing of when to get into and out of REIT's is also very tricky. I don't have the skills to be a landlord. My personal house has not done nearly as well in regards to appreciation. My business real estate has also not done nearly as well in appreciation. So over all I find it best to be diversified in my investments. It is never good to have too many eggs in one basket.
I can't speak for most people, but I was young and ignorant enough to get talked into buying a home that I couldn't afford during the housing bubble. I managed to make it 5 years before having to foreclose. It was a terrible money pit and I'm in a much worse financial situation now than I was before I bought the house.<p>Before i bought the house everyone talked about how great of an investment homes were, but nobody talked about how expensive home ownership was and how much deeper in debt you need to get in order to fix a house up.<p>The funny thing is that I could buy a house but couldn't get credit or loans to fix the house up. Worst possible situation you can be in.<p>Even though the bank and realtor were liars and pushers, I don't blame anyone but myself for falling for it. I hope you take this in mind before you buy your first home
Land and homes are the only leveraged asset available to the average American. Even at only 1.1% per year, if you take out a mortgage and put 20% down, you get 5.5% real return.<p>The S&P is something like 7%. It's not insanity if you can fund an investment with close-to-inflation debt and 20% or less deposit.
Why should an industry that has existed for thousands of years have a high premium?<p>Why would you want the houses of the world to cost more, so less people could have them?<p>Low house prices and low land prices allow humans to actually use them. Stop seeing what is good, as bad. Dirty capital class casuals.
Does anybody know here when people started to think of their home as an "investment"? I mean, regular people, if that makes sense, ordinary families and such.<p>I feel like it requires somewhat of an intellectual leap to see home ownership as a form of investment.
This article has 0 information.<p>The return on investment on a house is not just the cost of the house but also the rent money you have saved by staying in your own home. In fact without that you cant get +ve return even in upscale real estate investment.
The popular perception that land is a good investment comes from the wealth of the 1950s allowing tons more people to have fond memories of vacationing somewhere picturesque and then the interstate highway comes along making those areas logistically practical. Even if you have a pile of hazmat sitting on it land that's within a ~20min drive of the ocean is not going down in value.<p>Add to that the tax incentive structure and buying a house that's sitting on a huge chunk of land that can be subdivided years down the road if desired makes good sense for many people.
Meanwhile in San Francisco, house prices have increased an average of 6.6% for the past 60 years.<p><a href="https://experimental-geography.blogspot.com/2016/05/employment-construction-and-cost-of-san.html" rel="nofollow">https://experimental-geography.blogspot.com/2016/05/employme...</a><p>If he's taking the national average, which will include plenty of low-demand areas around America, then his comments are not very enlightening for most of the readers of the NY Times who tend to live in high-demand.<p>Add to that, you still have to pay to live somewhere.
why don't we take period 1971 to 2016 - a brave new world of modern economics (fast forward gold standard, wars and other barbarities). standard and poors grew from 100 to 2,100 (i.e. about 20 times). farm land price grew from 200 to 3,000 (i.e. 15 times) and it grew straight like an arrow, except for a small hump in 1980's. unlike stock market unicorns. nothing disappointing about this!<p>this is a 5 min back of an envelope calculation, correct me if i am missing something.
TLDR version:<p>For home prices, a good part of the answer comes from supply and demand. As prices rise, companies build more houses and the supply floods the market, keeping prices down.
Entry load of 6% (real estate commissions)<p>1% penalty every year (property tax)<p>Exit load of 6% (commissions again)<p>That is why real estate tends to be a worse investment long-term compared with the financial sector.