Author Topic: Real estate vs. stocks  (Read 1353 times)

a532942

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Real estate vs. stocks
« on: August 11, 2018, 06:32:21 AM »
I found this interesting article that claims that for some countries, real estate has outperformed stocks in the long term (not in the US). Considering that you own the house you live in, and owning a house gives a lot of emotional security stocks don't, wouldn't housing be a better investment?

https://qz.com/1170694/housing-was-the-worlds-best-investment-over-the-last-150-years/

I see two problems with this:

1. Unless you invest in real estate via some fund, it is much harder to diversify (buying a share is much cheaper than buying a house).

2. House prices have become unreasonable overpriced in the last few decades due to excessive regulation; at some point, the dam will fall, and the results will be catastrophic for people whose only assets are their homes.

MustacheAndaHalf

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Re: Real estate vs. stocks
« Reply #1 on: August 11, 2018, 09:06:28 AM »
It would be interesting to see how country level defaults played into the numbers.  France, at the top of the list, went from Napoleon (before the 150 year period) to defeated in two world wars - which doesn't do good things for those who own company stock.  I wonder how collapse of economies played into those numbers.

radram

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Re: Real estate vs. stocks
« Reply #2 on: August 11, 2018, 10:19:39 AM »
According to this article, real estate outperformed stocks the past 145 years, when taking rental income and dividends into account.

https://www.biggerpockets.com/renewsblog/real-estate-vs-stocks-performance/

Interesting to note that about half of the performance in real estate is rental income. Also interesting to note that this article references the SAME research as the OP's article does.

In order to outperform stocks, your real estate needs to collect half of it's gain on rents, while paying $0 in property taxes. Your primary residence will not do either of these things. It is indeed quite a stretch for the OP's article to even mention a primary residence, since the research is only looking at real estate for purposes of investment.

This strengthens my position even more that you should count your primary residence as a liability, not an asset.

Thank you for finding this great talking point article.

theolympians

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Re: Real estate vs. stocks
« Reply #3 on: August 11, 2018, 12:12:09 PM »
I  skimmed the article. I think it is easy to confuse "housing/real estate"---there are many parts to consider. Are you talking about just your house, that you live in, considering it a stable long term investment. Are you buying rental property? Are you directly investing in real estate projects, or in a REIT?

I would argue each is a different apple. In general terms, "real estate" can be a good investment. In general terms, the "market (stocks, etfs, bonds) can be a good investment. The devil is always in the details: which stock or etf, or which property to buy, or which Reit. The article lauds the "research" and data collection, which might be the real purpose of this article. Ultimately the article doesn't give any actionable info in my option; other than in macrocosmic terms "real estate is a good investment". Which brings you back to square one.


tralfamadorian

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Re: Real estate vs. stocks
« Reply #4 on: August 11, 2018, 12:50:07 PM »
Great thread discussing this same paper (the research cited at both biggerpockets and the article) here.

CorpRaider

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Re: Real estate vs. stocks
« Reply #5 on: August 13, 2018, 09:22:17 AM »
I think Profs Dimson and Shiller have come to different conclusions based on the data they have gathered.  Dimson thinks accounting for "sustaining capex" (all the tons of $$$ you have to spend on a house to maintain it/upgrade maintain functionality) is likely to be very material and basically impossible to access in data.  At least that was my interpretation of his commentary.

powskier

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Re: Real estate vs. stocks
« Reply #6 on: August 13, 2018, 04:46:35 PM »
It would be interesting to see how country level defaults played into the numbers.  France, at the top of the list, went from Napoleon (before the 150 year period) to defeated in two world wars - which doesn't do good things for those who own company stock.  I wonder how collapse of economies played into those numbers.
France shed vast amounts of blood and was on the winning side in both World Wars. Either study up on history or pay closer attention to the words you use. Both are recommended.

steveo

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Re: Real estate vs. stocks
« Reply #7 on: August 13, 2018, 05:25:25 PM »
I live in Australia and I own my house. Property has probably outperformed the stock market.

In stating that I don't particularly like real estate as an investment especially outside of my house. I already have a tonne of money invested in my house (over a million) and more property to me just means I'm not diversified enough. I also think property can be more work. I invest in stock indexes and I do nothing.

maizeman

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Re: Real estate vs. stocks
« Reply #8 on: August 13, 2018, 07:05:47 PM »
According to my old hard copy of Triumph of the Optimists, between 1940 and 1949 French equities returned -7.6%/year in real terms (call it -55.6% over a decade). From 1930-1949 French equities returned -5.8%/year for a total decline of -69.7%.

French bonds returned -21.7%/year in real terms between 1940 and 1949, for -91.4% total over the decade.

As you can no doubt imagine, 1940-1949 looks even worse in countries like Germany, Italy, and Japan.

When people talk about the USA being an outlier in terms of economic returns over the last 150 years, they rarely seem to realize that the main reason our historical stock/bond data looks so different from other countries is simply that we were fortunate enough to avoid having a major war fought in our heartland during that period.