3 ms·

> Real estate IS A LONG TERM investment, not day trading. US history over the last 3 decades suggests otherwise.

avgDev 4y ago
Are you just saying things or have you actually looked? Average home price in 1965 was $21k. Average home price in 2020 was $514k. Long term after every drop the prices have surpassed ATH. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS
- rsj_hn 4y ago
  Average house built today is 2,560 square feet[1]. In 1950, it was 980 square feet. plumbing/electrical/insulation are all different. Many would not enjoy living in a 1950 house, and a typical 1950 house would not sell for the price of an average house in 2020 [1] https://www.nahb.org/blog/2022/03/new-single-family-home-size-continues-to-grow https://www.nahb.org/blog/2022/03/new-single-family-home-siz...
  - avgDev 4y ago
    Not sure what point you are trying to drive across. The graph I posted shows a macro trend. My home was built in 1970s. I believe the initial price was around $40k. Current worth is $450k. It is hard to take all the different things into account.
    - rsj_hn 4y ago
      What I'm trying to do is provide some context. Start here: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS So from 1965 to latest, we went from 21K to 450K. Where is that coming from? 1. inflation 2. size of house 3. everything else - interest rate changes, increased value of land, etc. For 1, let's deflate: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS We get a multiple of 2.4. That is, $1 invested in 1965 gives $2.40 in 1965 dollars back, or a real gain of 140% over that 57 year holding period. But the average size of a new home went from 1200 to 2500 square feet, so it doubled. Thus on a price per square foot basis, the real gain is about 20% over that 57 year hold. So that is what "everything else" explains - a 20% gain over 57 years, which is good as an inflation hedge, but once you take into account that you should spend about 1% of the value of the house each year for maintenance, and then maybe throw in some property taxes, that bucket of #3 is basically zero gain and is probably a bit negative. So houses, on the national level, have been a good inflation hedge -- which is important, but that's about all they've been in this period from 1965 to 2022. Of course things very greatly by area. Buying a ton of almond orchards in silicon valley in 1965 would be very fortuitous. Buying an apartment complex in Detroit, not so much. If you want anecdotes, my parents bought a house for $80,000 in 1983 - Phoenix metro - and sold it for $250K in 2019. That's basically just inflation, and they put a lot of work into the house - remodeled kitchen, put in pool, changed the wiring, put in copper plumbing, new light fixtures, replaced carpet with tile in the living room, replaced wood fence with brick fence in the backyard, added new hardwood floors, replaced roof, double pane windows, paint, etc. Don't ask what the interest rate was back then, they needed to get some seller financing as the mortgage rates were obscene.
  - frumper 4y ago
    Homes built in the 1950s don't sell for discounts in my town. They might have added some attic insulation for a few thousand dollars, but the walls, plumbing and electrical is probably original. Some of our priciest neighborhoods are homes from the 50s and 60s.
    - rsj_hn 4y ago
      In your area, they don't use square footage as an important factor in determining the price of a house?
      - frumper 4y ago
        It is. Smaller square foot houses tend to go for more per sq ft. That said, my house is 1700 sq ft built mid 50s. We looked at many anywhere from 1500-3000k built in the 50s and 60s. But a 1700sq ft house built in the 50s doesn’t get discounted over a 1700sq ft home built in the 2000s despite old plumping, electrical and insulation. Homes in disrepair obviously are cheaper, but that’s just as true for 20 year old homes as 70.
        rsj_hn 4y ago
        So the post pointed out that home sale prices were increasing in time in terms of the performance of the asset class, and I pointed out that homes were growing in size, and you seem to have fixated on the age of the house rather than the fact that in 1950, the average home was almost 1/3 the size of the average home of 2022, and therefore you would expect it to be much less in price just on that basis alone. I am not sure why there is a cognitive barrier in understanding this. When you buy a home, the performance of that asset will not benefit from comps of much bigger homes that are sold in the future. Is this really confusing? Why am I hitting a wall here? You need to look at price per square foot data if you are going to be doing comps across time, because houses are always getting bigger, but the house you buy is not going to get bigger.
        frumper 4y ago

Are you just saying things or have you actually looked? Average home price in 1965 was $21k. Average home price in 2020 was $514k. Long term after every drop the prices have surpassed ATH. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS

rsj_hn 4y ago
Average house built today is 2,560 square feet[1]. In 1950, it was 980 square feet. plumbing/electrical/insulation are all different. Many would not enjoy living in a 1950 house, and a typical 1950 house would not sell for the price of an average house in 2020 [1] https://www.nahb.org/blog/2022/03/new-single-family-home-size-continues-to-grow https://www.nahb.org/blog/2022/03/new-single-family-home-siz...
- avgDev 4y ago
  Not sure what point you are trying to drive across. The graph I posted shows a macro trend. My home was built in 1970s. I believe the initial price was around $40k. Current worth is $450k. It is hard to take all the different things into account.
  - rsj_hn 4y ago
    What I'm trying to do is provide some context. Start here: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS So from 1965 to latest, we went from 21K to 450K. Where is that coming from? 1. inflation 2. size of house 3. everything else - interest rate changes, increased value of land, etc. For 1, let's deflate: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS We get a multiple of 2.4. That is, $1 invested in 1965 gives $2.40 in 1965 dollars back, or a real gain of 140% over that 57 year holding period. But the average size of a new home went from 1200 to 2500 square feet, so it doubled. Thus on a price per square foot basis, the real gain is about 20% over that 57 year hold. So that is what "everything else" explains - a 20% gain over 57 years, which is good as an inflation hedge, but once you take into account that you should spend about 1% of the value of the house each year for maintenance, and then maybe throw in some property taxes, that bucket of #3 is basically zero gain and is probably a bit negative. So houses, on the national level, have been a good inflation hedge -- which is important, but that's about all they've been in this period from 1965 to 2022. Of course things very greatly by area. Buying a ton of almond orchards in silicon valley in 1965 would be very fortuitous. Buying an apartment complex in Detroit, not so much. If you want anecdotes, my parents bought a house for $80,000 in 1983 - Phoenix metro - and sold it for $250K in 2019. That's basically just inflation, and they put a lot of work into the house - remodeled kitchen, put in pool, changed the wiring, put in copper plumbing, new light fixtures, replaced carpet with tile in the living room, replaced wood fence with brick fence in the backyard, added new hardwood floors, replaced roof, double pane windows, paint, etc. Don't ask what the interest rate was back then, they needed to get some seller financing as the mortgage rates were obscene.
- frumper 4y ago
  Homes built in the 1950s don't sell for discounts in my town. They might have added some attic insulation for a few thousand dollars, but the walls, plumbing and electrical is probably original. Some of our priciest neighborhoods are homes from the 50s and 60s.
  - rsj_hn 4y ago
    In your area, they don't use square footage as an important factor in determining the price of a house?
    - frumper 4y ago
      It is. Smaller square foot houses tend to go for more per sq ft. That said, my house is 1700 sq ft built mid 50s. We looked at many anywhere from 1500-3000k built in the 50s and 60s. But a 1700sq ft house built in the 50s doesn’t get discounted over a 1700sq ft home built in the 2000s despite old plumping, electrical and insulation. Homes in disrepair obviously are cheaper, but that’s just as true for 20 year old homes as 70.
      - rsj_hn 4y ago
        So the post pointed out that home sale prices were increasing in time in terms of the performance of the asset class, and I pointed out that homes were growing in size, and you seem to have fixated on the age of the house rather than the fact that in 1950, the average home was almost 1/3 the size of the average home of 2022, and therefore you would expect it to be much less in price just on that basis alone. I am not sure why there is a cognitive barrier in understanding this. When you buy a home, the performance of that asset will not benefit from comps of much bigger homes that are sold in the future. Is this really confusing? Why am I hitting a wall here? You need to look at price per square foot data if you are going to be doing comps across time, because houses are always getting bigger, but the house you buy is not going to get bigger.
        frumper 4y ago