Another interesting way to account for the effects of inflation on real estate is to compare the price of gold to the price of real estate.
You can do this by plotting $HGX (as a proxy for housing) against $GOLD at http://www.stockcharts.com (free charting service).
At the StockCharts site take these steps:
1. enter $HGX:$GOLD and hit ‘Go’
2. below the chart in the ‘Chart Attributes’ area change ‘Periods’ to ‘Weekly’ and ‘Range’ to ‘3 Years’ then hit ‘Update’
The chart shows the housing peak in mid-2005 and its subsequent decline.
If you are a member at StockCharts you can chart the housing/gold ratio going back more than 3 years. What you will see is that gold has been beating the snot out of housing since 1999/2000.
Real estate prices may not beat inflation over time, but real estate as an overall investment probably does once you figure in rents. Even in today’s grossly overpriced market, few homes are selling at more than 25 times yearly rent, meaning that they have a “rental dividend” of at least 4%. So the long-run average is probably closer to 6-7%. In comparison, I think the average S&P500 stock pays a dividend of around 2%. Plus if the real-estate is owner occupied, that dividend is tax free.
Real estate just falls short of inflation in appreciation IMHO. You’d have to factor in repairs and maintenance costs.
I have a plan to build a house that will be 0 maintenance (or very very low) – true log house with a metal roof. Just mechanicals and windows may need replacing every 10 years. The outer walls may need treatments 1, 3, 7 and every 10 years from then on. Roof may never need work (or 50-100 years) Touch wood (no pun intended) … I will build it sometime.
Cool.
Cow_tipping.
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