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>There are few asset classes that have outperformed super-prime real estate in the last 60 years. Consider that the median home in Palo Alto sold for less than
by gozur88 10y ago
>There are few asset classes that have outperformed super-prime real estate in the last 60 years. Consider that the median home in Palo Alto sold for less than $20,000 in 1956, versus $2.5 million today — an appreciation rate of 12,500%. Compare that to an approximate 5000% return for the S&P 500 over the same period (much higher with dividend reinvestment, but you’d need to pay taxes on said dividends, making this calculation challenging).
Normally when you're comparing asset classes you don't compare the average of one class to the absolute best possible case in the other. The last fifteen years have been, IMO, a bubble-fueled aberration, and places like Palo Alto are ground zero for that bubble. I'll bet the S&P 500 compares much more favorably to average real estate appreciation over the same time period. Also, why the 60 year time frame, as opposed to, say, 50 or 100?
If the idea is to put people in houses we should do what the Koreans do. They have a contract type called "jeonse", or "key money". It's kind of an intermediate between renting and owning - essentially you give the owner a large lump sum (but not enough to buy the property) for two years. You don't pay rent, and you get all your money back at the end of the contract.
You benefit by getting a place to live without paying rent. The owner benefits by having the use of your money for two years (which he may be using, along with his own money, to buy the place).
It's easier to go rent-->jeonse-->buy than rent-->buy. I'm not really sure why we don't have something like this in the US already, particularly when you can't get a decent return on your savings.
- buzzdenver 10y agoNot sure jeonse would work in low interest times. I could rent out my $200k condo for $1,000 per month, but making $12k per year on the jeonse (assuming it is 50%, $100k) seems way too optimistic.
- hx87 10y agoPresumably jeonse prices would move like bond prices--when interest rates go down, their prices go up, and vice versa.
- buzzdenver 10y agoAre jeonse-s traded somewhere ? I'm missing your point. You can get a Home Equity Line of Credit for around 3%, so it's just not worth it to use jeonse. Compare these: 1. I get $100k jeonse for 2 years for my condo that is worth $200k. 2. I rent out my condo for $1,000/month, and take out a $100k HELOC for 3%. So every year I pay $3k interest and have $12k rental income, $9k win for me. Clearly #2 is the superior option.
- tardo99 10y agoPicking Palo Alto is some extreme cherry-picking there. I assume the way an investor in 1956 would have known to buy there is the proximity of Stanford. What type of return would you get if you did the same thing in Berkeley or near USC in Los Angeles?
- gnopgnip 10y agoA better comparison would be REITs to the S&P500. This comparison ignores financing, maintenance, taxes, repairs, and insurance costs of owning property.
- gpsx 10y agoIn the long term, I think housing should appreciate like inflation, otherwise people are quickly priced out of owning a home. Granted, this is what we are somewhat seeing in Palo Alto, but this is probably a step function due to changing conditions in the area over that time, such as the creation of Silicon Valley. Also, just because the _median_ home price increases that much does not mean an individual home's price increased that much. Again this could be changing conditions in the area.