Why Real Estate a Consumer Item, Not an Investment
We keep saying: housing is not an investment; it’s a consumer item. Here comes an old friend with new evidence:
“The idea that housing doesn’t go down turns on its head when you actually calculate in the real-world costs of interest, taxes, insurance, etc. For instance, before those costs are counted, it looks like 16 out of the 17 top real estate markets in the 1990s were in the black. Once you add them in, however, it turns out that not one of the top property markets went up. They were all negative.
“In the 2000s, up to May 2007, you get something similar…three markets that, in unrealistic terms supposedly shot up 18%, 33%, and 36% during that period, are all actually net losers…down 10.5%, 13.4%, and 28.2%. As in negative. The gains were phantom stats from the fantasy world of no-cost property ownership.
“Running through the rest of the list, the other major markets did still make money. But instead of the astounding triple-digit gains property owners love to point to as proof that this bubble was the real deal, you find out that only two of the markets – net of costs – actually crossed the 100%-gain mark (instead of 10 markets). And annualised, only two markets were even a little above 10% gains in property values.
“Not bad, but not a miracle by any stretch.
“Two more of those top markets just barely squeaked past the annualised 8.5% gains in the S&P 500 for the same period. All the rest of the top 17 markets looked at in this article did worse than the S&P. During what was supposed to be the biggest property boom of all time.
“Again, this isn’t to say there wasn’t a bubble. Just that it truly was an event completely devoid of sanity.”
Bill Bonner
http://www.dailyreckoning.com.au/real-estate-a-consumer-item/2007/10/26/