10% per annum for 40 years (Real estates)

Discussion in 'Economics' started by bearice, Mar 18, 2011.

  1. I think World real estate profits are average 10% to 18% per annum compounded for past 40 years. What are your calculations?
  2. Doubt it was that high. Seems for years RE increased about the same as the inflation rate.. 3%-ish. That's all before the days of "bubblenomics", of course.

    At 18%, a $25K house in 1970 would have been $18.75Million in 2010.

    Assuming Zillow is reasonably close... I checked the value of the house I lived in as a child.... bought for $15K in 1960... now Zillow says "$171K".. that's about 5%/yr, including the "bubble years".

    Going forward... with the Boomers wanting/needing to downsize and our "structural" high unemployment, likely RE in general will do less well in the future.

    Also, should be another wave down in RE prices. Government pumping and intervention short-circuited the decline since the 2007 peak... leaving much of the RE market still about 40% overvalued.
  3. I always find it quite strange that people talk about U.S. property prices in the same way they talk about, say the Nasdaq bubble.

    In real terms property prices around the western world are not really up THAT much..

    Obviously in certain areas they are up hugely, but as an overall market they are not really on a par with stocks.

    In other words, I see no reason why they cannot continue higher over the next few decades (here in the U.K. at least). There is alot of bearish talk, but the prices have held up quite well all things considered.
  4. zdreg


    what about the tax benefits, the benefits of leverage, the cost of alternative rental, the cost of running a house and the benefit to your balance sheet of equity in the house. how would these calculations change the results,
  5. Real estate in my country (Western Europe) is up 1000% since the seventies.

    Great sure but then again Ford is up more then 1000% since the lows from 08 so I guess there is a time and place for everything.
  6. nLepwa


    You're forgetting the income from rents.
    People buying property here (Switzerland) usually expect property value to remain more or less the same and maybe appreciate a little. In the mean time they collect the rent with 1:5 leverage.

    I would be surprised, given the risks, if the average return over 40 years is less than 10%.

  7. zdreg


    it is no comparison since u are use different time periods and are using a very specific example - ford vs. a general class ie housing real estate.
  8. Rent doesn't apply if you're living in it. And if you're a landlord, you've got to deduct from rental income... likely debt service, taxes, repairs, periodic painting and carpet replacement.. + vacancy time.

    Much of the RE gains over they years in the US were when the demographics and economics were most favorable. But now we're experiencing, in part, the unwinding of that time. 10% per year in the US? Doubt it. (If rental income covered all overhead and you bought the place on leverage... might make 10% or even more on your original equity, however.)
  9. From a site, Free By 50 which uses Shiller's housing data.

    Home price appreciation

    1890 to 2007 3.44%
    1900 to 2007 4.22%
    1920 to 2007 4.03%
    1948 to 2007 4.87%

    Or roughly splitting up before WWII and after:
    1890 to 1939 0.75%
    1940 to 2007 5.45%

    Or the past 100 years, 1907 to 2007 : 3.78%

    If you break it down into decade chunks we get:

    1890's 0.53%
    1900's 1.40%
    1910's 3.30%
    1920's -0.70%
    1930's -0.45%
    1940's 8.16%
    1950's 2.67%
    1960's 2.57%
    1970's 8.12%
    1980's 5.86%
    1990's 2.84%
    2000+ 9.27%


    Post WW2, roughly 5.5 %. Inflation post WW2, roughly 4%.
  10. nLepwa


    Yes, you need to factor in the costs.
    I assumed the property was an investment (not living in it).

    I'd be interested in knowing the following:
    if you had $1M to invest 40 yrs ago, what would have been the best risk-adjusted investment? Stocks (including dividends) or RE (including rents and costs). Anyone knows?

    Of course I'm not interested in a particular stock or a particular property but in the US market in general.

    #10     Mar 18, 2011