Wednesday, April 23, 2014

Housing is a store of value, not an investment

Catherine Rampell for WaPo puts the long term real compound annual gain from housing at 0.3%. For the 100 years up to 1990, i.e. before the housing bubble, Robert Shiller has put it at 0.2% per annum, 33% less!

Here is Rampell:

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

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Housing's ability to retain its value has made it an attractive target for securitization as mortgage-backed securities which have been highly liquid and trade in large denominations just like US Treasury securities, facilitating transactions.