Lost Decade: Real Estate

[MichaelB]

I am pretty sure that Real Estate return is accurate since the Case Shiller index starts at 100 as of Jan 2000 and is currently at 141.3. The stock returns on your chart don't correspond with the Morningstar numbers (I suspect they ignored dividends and maybe some other things).


Shows the total return of 10K invested on Jan 1,2000 to Sept 1, 2011
Dow $13,117
S&P 500 $10,153
VFINX $10,047 (Admiral shares would higher)
Nasdaq Composite $12,201

Now it require $13,149 today purchase $10K worth of goods in 2000. So the only investment that beat inflation since 2000 was Real Estate. I guess the best horse in the glue factory.

Case Shiller is a weighted national index. The data by city shows that between 01/2000 and 09/2011, average real estate prices in 11 cities grew less than inflation, 4 kept even, and 5 rose more than inflation.

Detroit 73
Las Vegas 94
Atlanta 96
Cleveland 100
Phoenix 100
Charlotte 112
Minneapolis 114
Dallas 116
Chicago 118
Denver 125
Tampa127

San Francisco 133
Portland 136
Seattle 136
Miami 139

San Diego 153
Boston 154
Los Angeles 168
New York 170
Washington 188

Real estate in a couple of cities were profitable investments. The others never left the glue factory.

 

[MichaelB]

Good for you! Over a lifetime, I think what separates most successful people from those less successful ones is getting themselves in position to take advantage of
opportunities that present themselves. There is some luck in all that, but overall, if you can swing at some of the right things and some turn out for the good, and avoid some of the pitfalls, you will be way ahead of the game.

I was lucky that the stock market bull occurred in the 90's. But if I had not got myself in a position where I had money saved up to invest, and the basic knowledge to actually invest it, it would not have helped me one bit.


-ERD50

Living in a system that systematically creates opportunity for the many and being able to make choices is the critical factor for successful societies that then enable individuals to make positive choices to their benefit. To get ahead of the game you need to be in a game that gives you the tools, enables you to make choices and allows you to benefit.

 

[JOHNNIE36]

Very interesting reading. Got to wondering how my last house did so I pulled it up on zillow.com. We bought it in 1998 for $121500, but then we updated it. Put about $30K in it. Sold it in 2006 at the heigth of the market for $310K. Today zillow shows it at $151300. Talk about ups and downs. We hit it at the top of the market and no house in that area has ever sold for that kind of price, and may never again.

 

[Midpack]

The appraised value of our home is up 40% after 19 years, though down from it's peak around 2005-2006. But I don't really care now that I own a house. If we move and buy a comparable home elsewhere, while I may get less (more) selling - odds are the next house I buy will also be less (more). Unless one is underwater on a mortgage, it all comes out in the wash for the most part...no?

It appears to be a great time for first time buyers thanks to interest rates if not prices (though they may go lower in many places).

 

[tightasadrum]

The good part of real estate at the moment as an investment is that there are some good deals if you don't get emotionally involved in the purchase. I've got all the houses etc. I want otherwise I'd be checking weekly for distressed property. With the market in such turmoil, real estate has a lot of appeal for growth. The trick is buying it below market and be willing to hold it for the long term, to state the obvious. But there are deals right now if you want to deal with the labor and maintenance overhead of owning real estate. Passive investors should slowly back away.

 

[FreqFlyer]

I bought a condo in 2003 for 189 and sold it for 198 in 2006 AFTER I'd already bought a house for 292. The condo market was soft in 2006 so I'm glad I was able to unload the condo at a wash. Zillow shows the condo now to be worth only about $90 now (ouch!). I'm so glad I got out of it because we needed more space.

The bad news is our house is probably only worth 245 but at least we're in a space that meets our needs and don't have to deal with obnoxious condo neighbors, the HOA and assessments.

 

[PaddyMac]

We escaped So. Cal. in the summer of 2008, having done very well selling the home we bought in 1997. We thought we had missed the peak, but were fine with the price we got. Then the crash happened, and we were so glad we got out. The new owners have lost $200K so far. Our new house has slipped a bit but we plan to be here for at least 10 years, and just refinanced to a lower rate.

 

[tryan]

I am pretty sure that Real Estate return is accurate since the Case Shiller index starts at 100 as of Jan 2000 and is currently at 141.3.

Now if I could just figure out a way to buy the Case Shiller Index .... I'ld be alot happier then I am with the values of my properties over the same time.

 

[REWahoo]

Now if I could just figure out a way to buy the Case Shiller Index .... I'ld be alot happier then I am with the values of my properties over the same time.

Maybe Vanguard will offer a CSI fund...

 

[arebelspy]

Now if I could just figure out a way to buy the Case Shiller Index .... I'ld be alot happier then I am with the values of my properties over the same time.

Psssh. Who wants to stick with the average? Some areas have done much better than that. Buy in those areas. You can beat the market.

 

[tryan]

yeah ... silly me, now I just need to go back in time with all this great information

 

[clifp]

Psssh. Who wants to stick with the average? Some areas have done much better than that. Buy in those areas. You can beat the market.

Not easy to do if you live in Vegas or Detroit. Although hopefully next decade the laggards will catch up.

 

[arebelspy]

Not easy to do if you live in Vegas or Detroit. Although hopefully next decade the laggards will catch up.

True.

How do I short real estate again?

 

[Nords]

Psssh. Who wants to stick with the average? Some areas have done much better than that. Buy in those areas. You can beat the market.

Nah, I only buy stocks that go up. If they don't go up then I don't buy them.

 

[Jay_Gatsby]

One of my ex coworker is selling his house in DC suburb in MD. They bought the house for around 500k around 2002-3 and now asking 950k for that. I don't know if they will get it but also don't need to go down to 500-600k range to sell.

Yep, D.C. suburbs with fantastic schools are seemingly immune to the housing crisis. There is a significant turnover in high-paying jobs and no shortage of buyers. This is not to say that a "shack" in a good school district will automatically command 7-figures, but if that shack is close to the D.C. line in, for example, Bethesda/Chevy Chase, the land might be worth that alone.

My wife and I bought in a D.C. suburb and paid a hefty price for our house. We sometimes question whether we paid too much, but the comps in our neighborhood still support the price. We also have many things the comps don't have - good-sized front and backyards (both level), fully-finished basement with bedroom and bath, large rooms that "flow", and enough room on the property to build out if we want. Some things in the house still need to be upgraded, but we should get back out any money we put in, assuming such amounts are reasonable.

I don't look at our house as an investment per se, but I do expect a modest return on our house when we do sell it in 20 years or so.

 

[haha]

Now if I could just figure out a way to buy the Case Shiller Index .... I'ld be alot happier then I am with the values of my properties over the same time.

As I remember, your operations are in greater Boston, one of the areas that had a particularly strong Case-Shiller index return over the past decade.

Are you mainly in different neighborhoods from what the index for Boston uses, or does the index use mainly expensive homes rather than rental type properties? There must be some systematic difference that explains the discrepancy.

Ha

 

[MikeTN]

Ok, so home prices have not risen in the last decade, agreed. But the title of this thread refers to "Real Estate". If you bought commercial real estate with the Vanguard REIT Index fund in 2001, you would have experienced an average return of over 9% annually since 2001.

 

[free4now]

Bay Area condo bought in 1998 for $270k. Peaked when I sold at the top of the market at 600k. Today sells for $400k.

 

[free4now]

Remember that many of these homes that are the same price as a decade ago are significantly upgraded, with granite countertops and all those other excesses of the real estate boom. So the real effect is net negative.

 

[tryan]

As I remember, your operations are in greater Boston, one of the areas that had a particularly strong Case-Shiller index return over the past decade.

Are you mainly in different neighborhoods from what the index for Boston uses, or does the index use mainly expensive homes rather than rental type properties? There must be some systematic difference that explains the discrepancy.

I own north of Boston .... some in sothern NH.

My residence is off about 25%. The rentals closer to 40%. Glad I got out of what I could/did. But a little hindsight says I could'a/should'a dumped them all (kind of like looking at dot-com era stocks).

Not sure how Shiller does his data collection ... the market in saturated with REO's but nothing is being sold abosolute. Seems the banks have no reason to post a lost by selling at market value (so they wither-on-the-vine).

 

[eridanus]

The CME has housing futures based on the CSI.