So much bullish sentiment

[SecondCor521]

It does intrigue me that the success rate goes up in firecalc the more conservative I get. 20/80 is 100% while 60/40 is 99%. But I can't resist getting some return for my heirs. I could go to a liability matching portfolio, but that seems overkill to me. I need $1.1M in today's dollars to fund all of my budget minus travel/blow that dough. I will have $800k in bonds when I retire (actually it's all in a stable value fund in my 401k yielding 2.1%). I figure that's close enough to safe with some upside for the kids.

The behavior you mention depends on the time period you select. For shorter time periods (10 years or so), bond heavy portfolios have relatively higher success rates than stock heavy portfolios. Personally I am looking at 30- to 40-year periods, and for those longer periods, stock heavy portfolios have higher success rates than bond heavy ones. The success rate for a 20/80 portfolio over 30 years is not as safe as 60/40 or even 80/20 using standard FIREcalc inputs.

As I've mentioned numerous times, my extra money is all in stocks. I figure my kids will inherit those funds in 30 or 40 years and may not even use the money then, so with that time horizon and risk capacity stocks are the way to go. I'd expect stocks to beat 2.1% over that timeframe, even if they happen to be temporarily down when I die.

is this it?

Looks like a reversion to mean is highly likely in the near future. IMHO.

It seems as though one would have to adjust for interest rates. A $250K home with a 7% mortgage is much less affordable than a $250K home with a 2.5% mortgage.

 

[Montecfo]

Real wages have been trending up since 2013-2014, and took off starting in 2017. That is >12% "real" - above inflation.

https://fred.stlouisfed.org/series/LES1252881600Q

They look pretty flat in fact, growing at less than 1 percent annually (pre-pandemic) from.end of 2016 forward.

I don't think those Q1 2020 numbers mean wages are rising.

 

[Markola]

The behavior you mention depends on the time period you select. For shorter time periods (10 years or so), bond heavy portfolios have relatively higher success rates than stock heavy portfolios. Personally I am looking at 30- to 40-year periods, and for those longer periods, stock heavy portfolios have higher success rates than bond heavy ones. The success rate for a 20/80 portfolio over 30 years is not as safe as 60/40 or even 80/20 using standard FIREcalc inputs.



As I've mentioned numerous times, my extra money is all in stocks. I figure my kids will inherit those funds in 30 or 40 years and may not even use the money then, so with that time horizon and risk capacity stocks are the way to go. I'd expect stocks to beat 2.1% over that timeframe, even if they happen to be temporarily down when I die.







It seems as though one would have to adjust for interest rates. A $250K home with a 7% mortgage is much less affordable than a $250K home with a 2.5% mortgage.

For sure and I think those rising home prices do reflect generally falling interest rates during this period.

 

[NW-Bound]

is this it?

Looks like a reversion to mean is highly likely in the near future. IMHO.

Houses in my neighborhood have been sold like hot cakes. They got multiple offers, and were snatched up in less than 1 week. Neighbors all shook their head in amazement, and were all happy to feel rich.

My home values are a small portion of my total worth, so I felt indifferent. But for the curiosity, I just looked up the history of the latest sold home, which is only 3 houses away from mine. From 1998 to 2005, its selling price went up 2.49x, for an appreciation of 13.9%/year. From 2005 to 2020, the price went up 1.18x, or 1.1%/year. That later number is quite crummy, because 2005 was right in the middle of the housing mania. And that number is even lower when closing costs are included.

Over its entire life (1988-2020), the above home appreciated a puny 3.4%/year. It still shows a gain against inflation over the 32-year period, which is 2.22% average. And this is in a growth area. I am sure many areas of the country fare far worse. Stocks beat real estate, but of course this is nothing new.

 

[OldShooter]

... Over its entire life (1988-2020), the above home appreciated a puny 3.4%/year. ...

I am too lazy to check, but my guess is that this might be pretty close to the household income growth rate.

Often in these debates, I think people overlook the fact that over a long period residential housing costs cannot substantially exceed household income growth. Housing will never crowd out eating, for example.

 

[corn18]

Still more room to run:

 

[chassis]

Still more room to run:

Agree.

And my view is that inflation today is closer to the Fed’s 2% symmetric target than many realize. Early case I can envision is Fed raising rates, or talking about it, before year end 2021.

 

[Lsbcal]

From Reuters:

Bullard said, labor markets still have a “long way to go” before they are healed. And even with inflation set to rise, the Fed won’t preemptively tighten policy in response. Inflation has underrun the Fed’s 2% target for the last decade, and has pledged to allow it to exceed 2% for some time to reestablish its credibility.

link: https://www.reuters.com/article/usa-fed-bullard/update-1-feds-bullard-sees-inflation-rising-mum-on-qe-taper-idUSL1N2JO1M0

Always difficult to tell how much of this is already discounted in the bull market.

 

[SecondCor521]

For sure and I think those rising home prices do reflect generally falling interest rates during this period.

Probably so. I just thought there was the implication that since the house prices in that graph were historically high (the orange line), that they must therefore be primed for a fall. Based on some sort of reversion to the mean type logic perhaps.

Prices may fall, and may fall based on that logic. But it seems to me that if one proposes that logic, one would have to look at affordability metrics (which would include the effects of interest rates, tax policy, and prevailing wages) rather than just raw price.

I am keenly interested in this dynamic as I have a DS25 who is probably going to be a first time homebuyer later in the year in a market that seems to be relatively hot now.

 

[Montecfo]

I am too lazy to check, but my guess is that this might be pretty close to the household income growth rate.

Often in these debates, I think people overlook the fact that over a long period residential housing costs cannot substantially exceed household income growth. Housing will never crowd out eating, for example.

Over a long period of time housing prices usually rise at the rate of inflation plus 1-2 pct.

 

[Koolau]

I am too lazy to check, but my guess is that this might be pretty close to the household income growth rate.

Often in these debates, I think people overlook the fact that over a long period residential housing costs cannot substantially exceed household income growth. Housing will never crowd out eating, for example.

I think I mentioned elsewhere that this is the very first year we have seen the assessment on our place go DOWN. I figured they'd just "up" it cause they need the money, but I guess they actually are looking at values which have stagnated this past year. YMMV

 

[OldShooter]

Over a long period of time housing prices usually rise at the rate of inflation plus 1-2 pct.

OK, you made me look. Pew Research points to a real growth range of household income consistent with that 1-2 % range. (https://www.pewsocialtrends.org/2020/01/09/trends-in-income-and-wealth-inequality/)

It was interesting to me to see the variability of household incomes, though. Possibly that explains some of the volatility of house prices and misleads people to think they are better investments than they are. Really, in the big picture the only way to make money in residential real estate is via the easy availability of leverage.