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With housing we've been a huge macro bull run for the last 50 years here in CA. But, it's not going to go on forever. I'm not saying it's gonna crash, but In

With housing we've been a huge macro bull run for the last 50 years here in CA. But, it's not going to go on forever. I'm not saying it's gonna crash, but In the long long run, the rate of return on housing will always be equal to inflation. In addition, You probably want to take into account taxes and depreciation/repairs/costs.

aliston 8y ago
There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.
- Retric 8y ago
  Depends on how you measure inflation, but economic growth over the long term tends to be overstated. Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value. Further, many areas like Detroit have seen a reduction in land values over significant time periods.
  - aliston 8y ago
    I don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful. The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation. Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.
    - Retric 8y ago
      Stock dividends work just fine in a static economy. A field that produces X produce for 100 years is not exponential growth even with a steady x% annual ROI. As to land look up an acre of Iowa farmland. It’s not worth that much in comparison to a an acre near a city. But to see that growth you need to predict were massive migration and infrastructure investments take place while subtracting taxes.
      - aliston 8y ago
        So your view of the stock market is that the only sustainable returns are from dividends? Capital investment, new market opportunities and technologies, ipos and so on are just unsustainable short term noise?
        Retric 8y ago
        Companies fail. Without dividends the long term value of all companies is zero. In the short term, like my lifetime, growth stocks are great. But, you need dividends at some point or what does stock ownership actually provide?
      - aliston 8y ago
        Regarding Iowa farmland... https://www.extension.iastate.edu/agdm/wholefarm/html/images/c2-70fig1.gif https://www.extension.iastate.edu/agdm/wholefarm/html/images... But to your broader point, predicting where growth will occur, is literally the definition of investing. Investment is the allocation of capital towards areas of growth. Luckily, the global economy has generally grown over time, which means that generally investments such as real estate tend to grow as well, and faster than inflation. I’ve gotta say, I appreciate your thoughts and perspective, but you’re going to miss out on a lot of growth if you only believe in investing in utilities companies and TIPS.
        deleted 8y ago
        [deleted]
        8y ago
- pascalxus 8y ago
  Incomes pay for housing. Therefore housing prices must always track incomes in the long long term because you can't pay more than 100% of your income to housing: it's impossible. Incomes tend to go up at roughly equivalent to inflation.
sjg007 8y ago
I think a natural disaster will have a major effect on prices or a refinery leak or something. Apart from that I think it is limited. The market might top out if the IPO and VC money slows down.

aliston 8y ago

There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.

Retric 8y ago
Depends on how you measure inflation, but economic growth over the long term tends to be overstated. Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value. Further, many areas like Detroit have seen a reduction in land values over significant time periods.
- aliston 8y ago
  I don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful. The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation. Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.
  - Retric 8y ago
    Stock dividends work just fine in a static economy. A field that produces X produce for 100 years is not exponential growth even with a steady x% annual ROI. As to land look up an acre of Iowa farmland. It’s not worth that much in comparison to a an acre near a city. But to see that growth you need to predict were massive migration and infrastructure investments take place while subtracting taxes.
    - aliston 8y ago
      So your view of the stock market is that the only sustainable returns are from dividends? Capital investment, new market opportunities and technologies, ipos and so on are just unsustainable short term noise?
      - Retric 8y ago
        Companies fail. Without dividends the long term value of all companies is zero. In the short term, like my lifetime, growth stocks are great. But, you need dividends at some point or what does stock ownership actually provide?
    - aliston 8y ago
      Regarding Iowa farmland... https://www.extension.iastate.edu/agdm/wholefarm/html/images/c2-70fig1.gif https://www.extension.iastate.edu/agdm/wholefarm/html/images... But to your broader point, predicting where growth will occur, is literally the definition of investing. Investment is the allocation of capital towards areas of growth. Luckily, the global economy has generally grown over time, which means that generally investments such as real estate tend to grow as well, and faster than inflation. I’ve gotta say, I appreciate your thoughts and perspective, but you’re going to miss out on a lot of growth if you only believe in investing in utilities companies and TIPS.
      - deleted 8y ago
        [deleted]
      - 8y ago
pascalxus 8y ago
Incomes pay for housing. Therefore housing prices must always track incomes in the long long term because you can't pay more than 100% of your income to housing: it's impossible. Incomes tend to go up at roughly equivalent to inflation.

sjg007 8y ago

I think a natural disaster will have a major effect on prices or a refinery leak or something. Apart from that I think it is limited. The market might top out if the IPO and VC money slows down.