Buying Is Just the Beginning. What Does It Really Cost to Own a Home?

Investment Analysis Clubs Macro Economic Trends and Risks
21

That’s also because they aren’t comparing apples to apples. When people do the rent versus buy calculation, they are rarely looking to rent the same thing that they would buy. They would buy a 3 or 4 bedroom single family home, but they would rent either an apartment or a townhouse. Most of the time at least.

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22

Economist Robert Shiller: Over the past 100 years, real US housing price appreciation is 0.7% per annum (i.e., less than 1%). Inflation for the last 100 years has averaged 3.30%.

I think you missed that I was talking “real” (i.e. inflation-adjusted values) rather than nominal values. I was comparing 1% for housing to 6% for the S&P 500. Adding the inflation rate of 3.30% to both numbers doesn’t change the answer.

Also, don’t forget that 0.7% real over 100 years is the average, so about half the homes in the US did even worse than that. At least a person holding the S&P 500 is guaranteed to get a return close to the value of the index.

intercst

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23

This is like the car debates.

Guy goes on a few showroom floors. He avidly reads the stickers for gas milage. He memorizes the prices. He does all sorts of comparisons between models. Then he spends more for what he likes and regardless of the figures involved.

These are great discussions except no one really behaves this way.

Then our car-buying friend’s third wife has to have a new car.

24

Looks like it could be something like 50 years of near 0 percent followed by 50 years of 2 percent. Or maybe even 60 years of near 0 followed by 40 years of 3 percent. Now the decision is will it stay at 3 percent or will it go down to about 0 percent for the next 30 years.

25

Unlikely. There is an upcoming generation that will want new homes, and the boomers will be leaving a lot of larger homes available to enter the housing market. So I do not see housing going down in value unless there is a substantial economic downturn, which is unlikely. A modest downturn is not unreasonable but it won’t last long. Not counting the UAW strike because there is no way to know how that will ripple through the economy.