The idea occurred to me the first time I read that statistic. If appreciation is the same rate as inflation, it's the only logical conclusion. I haven't seen it anywhere else so I can't point you in a direction. But it sounds like the professor mentioned above would agree.
Well.. let me amend that. I've spent 15 years studying real estate and for the past 3-4 years I've been studying inflation and its causes. That study has led me in some unexpected directions. But it's the combination of understanding how inflation works with watching real estate prices that the relationship became obvious. Real estate is one of the few ways the regular person can protect himself from the constant drain of inflation. The next questions to ask would be: where does inflation come from? who benefits? is it in the public's best interest? why do we use the "core" rate instead of the regular rate? why did we change the way CPI was calculated during the Clinton era? Why is inflation targeted at 2%? What does the Fed really mean when they say they are "fighting inflation"?
hahahaha.. sounds like you are just waiting for an 'inflation rate' thread It seems clear that RE is a great way to build wealth. First, it forces people to save (or build equity), next it is highly leveraged, and if done right - rental income offsets ownership costs. I do not fully understand the argument that there is just 'no land left'. In many places within 100 miles of where I live, there is plenty of RE available. In growing urban centers, sure... demand forces RE to be built up (multiple floor sky scrapers). In any event, supply and demand does not account for appreciation. Building costs have risen, but without data, I would assume that they have only appreciated with inflation. In real dollar terms, they might have fallen as effeciency has increased through the years. FireWalker: You say that RE investors make a leveraged inflationary return. However, they have to pay the market interest rates against the amount they borrow (4%-8%) - which does not offfest the rise in inflation (2%-5%). Can you help me understand your reasoning better?
Your not accounting for the rent which traditionally, though not recently outpaced the carry cost. (ie interest cost)
The fact that you don't understand the argument doesn't mean it's wrong. Perhaps you are unaware that in many urban centers it is extremely difficult, if not impossible, to get zoning. In other words, supply is extremely limited in some urban centers. OldTrader
I would like to here more on your research, pay no attention to the frustrated juveniles. Please post more of you studies its great reading. Thanks
I think we need an inflation/deflation thread here in economics. This issue just keeps coming up, again and again. And I'm sorry, but there is absolutely NO clarity in my mind which of these will predominate - and I've read 'em all from Schilling to Dent, so at least I am a well read idiot on this issue.
If you think your house has really doubled in "value" since you bought it, you should try to sell it and buy 2 comparable houses in the same location with the proceeds. Its all an illusion. In the old days when money was real they used to say that all the gold that one man could carry in two hands was enough to buy a house and a plot of land. Maybe that is still true?
Real Estate is just like the DOM. You've got Bids and Offers for houses of comparable features. The long biases stem for the fact that you are more likely to hold on to the asset rather than take a sizeable loss. The majority of people do not sell their house for less than what they bought it at. Sellers would rather hold on to their house than sell it below what they bought it at since the house is doing more than just the usual "increase in value" (ie. roof over one's head). The flip side is that someone bidding is typically committed to buying a place. Since a decision to push forward with buying induces cost above and beyond the price of a house, you don't find many "fake bids". In other words, the bid size is largely filled with participants intending to buy at some current fair value. Most individuals do not think about inflation and/or interest adjusted returns of their house when they sell it. It is normally a matter of "is the price I am selling at higher than the price I bought it at?"... On the flip side, a seller will only sell below what they buy it at if and only if they must immediately vacate (ie more or less, a mkt sell order). If there is no immediate emergency, the seller is more inclined to hold on to the asset or gradually reduce the offer price as long as the reduced price is above the price at which they bought it at... Hence, the long biase. The myth of course is that prices increase at 5% annually which is not true since housing prices cannot compound year after year, otherwise, a house would be just another alternative, money-making machine. Interestingly enough, the cascading stops is the whole foreclosure where interest rates make a once affordable house unaffordable, a pseudo shake out of those who were already pushing the limits of what they could truly afford... REgards, MAK
All that money the Fed printed went from equity inflation (rising stocks) to real estate inflation. Real Estate hasn't gone up that much the purchasing power of the dollar has gone through the floor as Ben at the Fed drops money from helicopters.