In the Long Run, Sleep at Home and Invest in the Stock Market

NYTimes ^ | 8/19/05

[cambridge]

The housing boom of the last five years has made many homeowners feel like very, very smart investors.

As the value of real estate has skyrocketed, owners have become enamored of the wealth their homes are creating, with many concluding that real estate is now a safer and better investment than stocks. It turns out, though, that the last five years - when homes in some hot markets like Manhattan and Las Vegas have outperformed stocks - has been a highly unusual period.

In fact, by a wide margin over time, stock prices have risen more quickly than home values, even on the East and West Coasts, where home values have appreciated most.

[CONTINUES...]

[cambridge]

[First attempt at posting an article, so apologies for errors!]

Good article on the current housing boom and the real value of property for most people - as a shelter, not an investment. It's not a boom everywhere, but where prices have been rising fast you've got to think i) salaries will eventually catch up, or ii) 50-, 70-, 100- mortgages will be introduced, or iii) we're overdue for a correction. Look forward to any contrarian views.

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[cambridge]

Thanks!

[Fiddlstix]

You're welcome J

[Porterville]

Were it sucks people dressed up pigs in tuxedoes... sucker shined the land. You can't fake where it is truly good. By near the ocean where there is limited product. As long as interest rates are low it doesn't matter. After they hit 8% things will change.

[cambridge]

"You can't fake where it is truly good"

No, but you can price yourself out of the market, and there are only so many Malibus the US can hold. People buying property as a home don't have too much to worry about. It's the people racking up debt to make a quick profit who are in danger. Much of the wealth-efect spending in the economy is fueled by rising real estate prices, and if they fall and negative equity kicks in then it'll be a shock.

Me, I'm still trying to work out what are any good post-crash bets.

[Porterville]

So is everyone else. It is best to buy the cheapest house in a good area, fix it up, and rent or sell. But it should be done rationally.

[wtc911]

Sit on the sidelines for now and save your cash to pick up somebody else's over-reach down the road. The bargains will be there.

[cambridge]

No property, just many different funds, so the article read like a vindication. I'm 35, so I want to get all my retirement $ settled within 10 or 15 years, so I don't have to work myself out in my 50s and 60s.

[sine_nomine]

"I'm putting my money into shotguns and canned goods."

The key issue is piling up debt for speculation. It reminds me of people who refinanced to put the cash into tech stocks.

I plan on using the equity to enlarge the home, in a few years. Any comments from the experts? I would appreciate it. I plan on adding a luxury bedroom and bathroom. In the next few years I will also redo the kitchen.

[Leo Carpathian]

In the long run, investment in the real estate is more tangible and safe, than piece of speculative paper, blown up by unscrupulous brokers.
Lost money on IBM stocks way back, learned lesson (never again) bought some real estate, now beats my ex IBM salary. Bubbles come and go, there is only so much of land, especially good one!

[soloNYer]

Housing prices, like the stock market, goes up and down. I know there are many who believe the doom-and-gloom press, whose only interest in the housing "bubble" is to latch onto a potential economy problem and maybe even contribute to it.

As an investment, leverage is the attraction. I've seen too many articles comparing rates of return in stocks compared to real estate (ie index gained 10% while real estate appreciation rose only 6%), but somehow they overlook that 10K invested in the stock market with a 6% gain will equal profit of 600, but the same amount invested in real estate as a down payment on a 100,000 home, with the same 6% gain equals a gross profit of 6,000. Yes, there are other costs to real estate, but with tenants paying the mortgage, separate utilities and preventative maintenance, the stock market still can't compare.

[angkor]

I knew a guy up in New England who went from a humble job as an accountant to a real estate investor, eventually building entire housing developments.

But when interest rates went against him in the late-80's, the whole thing came crashing down.

I heard he went back to being a humble accountant.

[cambridge]

Housing is more tangible and safer, but - the article claims - not a better long term investment than a basket of stocks.

QUOTE:
When Marti and Ray Jacobs sold the five-bedroom colonial house in Harrington Park, N.J., where they had lived since 1970, they made what looked like a typically impressive profit. They had paid $110,000 to have the house built and sold it in July for $900,000.

But the truth is that much of the gain came from simple price inflation, the same force that has made a gallon of milk more expensive today than it was three decades ago. The Jacobses also invested tens of thousands of dollars in a new master bathroom, with marble floors, a Jacuzzi bathtub and vanity cabinets.

Add it all up, and they ended up making an inflation-adjusted profit of less than 10 percent over the 35 years.

END QUOTE

Housing is a house, not a golden ticket.

[cambridge]

"As an investment, leverage is the attraction"

The kind of leverage available now - loans where only the interest is paid, or even where nothing is paid for a certain time - is part of the problem.

[scripter]

Read later.

[expat_panama]

...speculative paper, blown up by unscrupulous brokers...   ...investment in the real estate is more tangible and safe, than piece of speculative paper...

I make it a point to deal with honest people and to read before I sign.  Just the same, I've heard of other people's problems with unscrupulous realtors as well as with unscrupulous brokers.  When I find myself part owner of a bad business, I can sell my shares in seconds.   The owner of a bad piece of land has to work a lot harder-- maybe even paying more closing costs than the land is worth.

Lots of people feel good looking at land.  They say all this fancy-dancy stocks'n'bonds mumbo-jumbo is down right scary-- but only an idiot is a slave to his 'feelings'.   When you bought your land, you didn't just take the realtor's word for it-- you demanded a deed. 

Paper and numbers are important in these days, and the grownup way to compare investments is by checking (1) how much money goes in, (2) how long you wait, and (3) how much money comes out.  There really are some people that can do better by buying and selling deeds, just as there are others can do better with stocks.   This article is pointing out that over time (say, in decades), most stock traders do better than deed traders.   The writers did this by comparing money in, time waited, and money out.   They just skipped the part about the 'feelings'.

[cambridge]

Very sober review - thanks!