Real estate still better than stocks

One difference is you can diversify in the stock market, whereas in real estate the average person buys only one home, and sinks most of their life savings in it, and does so in a highly leveraged way. So when it goes down 20%, it hurts a hell of a lot worse than a few bad investments in the stock market.

Yes, you could diversity, you could have bought stock in the largest company in the world, GE, in 1995, and still would be better off with NYC real estate.

LOL....there's 100 yrs of history that demonstrates that equities return, on average, 11%, and real estate half that.

You're an idiot.

"might decline 10, 20 percent"

That's a bit like saying, when it's 90 degrees in August, that by December temperatures "might decline 10, 20 degrees".

We'll be down, peak to trough, 50-60% in NYC. Could be more. Tokyo was down 75% in the 90's. 50-60% is a conservative estimate.

Talk about what matters....liquidity. One is liquid, the other, not so much. For people that need mortgages and live with a 3 month reserve of cash, it should be a no brainer.

Well Admiral, how old are you that you can talk about 100 year history? If you had moved to NYC in the past 10 or 15 years other than the past 2, you would have been better off buying your home than buying stock in some of America's greatest companies like Coca Cola, General Electric, GM, Citibank, shall I go on? Who is the idiot? You could have bought Kellogg, they make cereal, how safe is that, in 1992 at $36 and only be at $43.50 today. If you bought an apartment in Manhattan ... If you had bought some of America's greatest technology companies that fueled a whole new means of communication and media ... Intel, Microsoft, Cisco, you'd be underwater in the past 10 years. Talk about peak to trough, America's richest company Microsoft - peak, nearly $60, today under $20. GE, peak, nearly $60, today, $11. Wal-Mart, nearly 10 years ago, to today, you would have lost $20 per share. Or take a former retail darling, Woolworth which is today Foot Locker - In 1979 if you invested you'd be within 10% of today. How about Sears and Montgomery Ward? I'll take my advice from you.
And positivecarry, yes, liquidity, so you could have sold your home and then what, bought GE as an alternative? And paid rent increasing year after year after year until this year?

Good arguments!

BSLOTKIN, you make some much stronger arguments that Admiral.
To date, NY Real Estate is probably down about 18% from its peak, maybe 20%.
The S&P 500 are down about 47% from their peaks.

Ah, driving with the rearview mirror...

bslotkin,

if you had bought an apartment in nyc in 1998 and sold in 2007 you would have done very well--certainly much better than in coca cola stock. but since we are talking about an illiquid asset with no diversification and comparing to one stock, why make it coca cola? why not compare it with, say expeditors international, a stock in which you would have made ten times your money over the same period?

in 1999 everyone thought it was a great idea to be in tech. "internet companies beat brick and mortar." and it is certainly true that if you had invested in tech stocks though the 1990s you did great--as long as you sold before they crashed. you can't invest by looking at one cycle and buying the thing that boomed. rearview investing like that is the "buy high, sell low" style that always yields the worst possible returns.

happyrenter is right.

Same stupid argument were used to say "you should buy RE" in 2007... and dotcome stocks in 2000... and tulips.

At the top of the a bubble, the returns ALWAYS look great.

Hey there BSLOTKIN: Do you know of any residential RE property that produces revenue for the owners (especially those that can only afford one primary residence and one mortgage) who live in them? Companies are created to realize revenue and earn profit and creating jobs and paying dividends to shareholders in the process. In other words, investing in companies backed by a revenue stream is always more beneficial than investing your entire saving to buy a place to live in if the cost of renting makes more sense than owning (that substracts from your income to pay interests to bankers). Hope for appreciation, or "hope" as a strategy in any manner, is just that: hope.

-Do you know of any residential RE property that produces revenue for the owners (especially those that can only afford one primary residence and one mortgage) who live in them?

Well, for starters, it means you don't have to PAY rent. A penny saved is a penny earned.

-Companies are created to realize revenue and earn profit and creating jobs and paying dividends to shareholders in the process.

Great, so take those great American stocks that have all done all so well (let's leave out great companies and their stocks like Enron, Worldcom, Healthsouth ... this is just in the recent generation) and add to them the measly dividends they pay, and then re-adjust your perspective. Is the dividend from that great American company General Electric going to adjust for a price that was $60 and is now $11?

-Hope for appreciation, or "hope" as a strategy in any manner, is just that: hope.

Right, and if in the past 10 or 15 years ago you bought a place, and looked at the value today, even with a 20% drop that people have realized recently, and compared that to investing in these great American companies ... how would you feel if you bought American Express stock in January of 1997 and be break even (whoops, forgot the dividends) or one of America's greatest publishers that still has one of the original family members as Chairman and CEO - McGraw Hill, 10 years ago and lost 7.5% over that time frame? Or if you invested alongside the billionaire Rupert Murdoch? You could have bought one of America's greatest international symbols of might, Boeing, back in 1996, and only be break even with dividends barely covering your carrying costs. Disney, talk about another international symbol, another great brand ... 1996. It had been as high as $43 and is now under $20. DISNEY!

I don't know what the future brings. But the past 10-15 years. The best alternative is pretty clear.

-Do you know of any residential RE property that produces revenue for the owners (especially those that can only afford one primary residence and one mortgage) who live in them?

Well, for starters, it means you don't have to PAY rent. A penny saved is a penny earned.

-Companies are created to realize revenue and earn profit and creating jobs and paying dividends to shareholders in the process.

Great, so take those great American stocks that have all done all so well (let's leave out great companies and their stocks like Enron, Worldcom, Healthsouth ... this is just in the recent generation) and add to them the measly dividends they pay, and then re-adjust your perspective. Is the dividend from that great American company General Electric going to adjust for a price that was $60 and is now $11?

-Hope for appreciation, or "hope" as a strategy in any manner, is just that: hope.

Right, and if in the past 10 or 15 years ago you bought a place, and looked at the value today, even with a 20% drop that people have realized recently, and compared that to investing in these great American companies ... how would you feel if you bought American Express stock in January of 1997 and be break even (whoops, forgot the dividends) or one of America's greatest publishers that still has one of the original family members as Chairman and CEO - McGraw Hill, 10 years ago and lost 7.5% over that time frame? Or if you invested alongside the billionaire Rupert Murdoch? You could have bought one of America's greatest international symbols of might, Boeing, back in 1996, and only be break even with dividends barely covering your carrying costs. Disney, talk about another international symbol, another great brand ... 1996. It had been as high as $43 and is now under $20. DISNEY!

I don't know what the future brings. But the past 10-15 years. The best alternative is pretty clear.

bslotkin,

your response is to repeat the same argument that was already refuted. manhattan real estate did great for the past ten years. but would you be thrilled if you owned a house in an exurb outside phoenix? stick with your buy high, sell low strategy--it helps the rest of us.

My argument wasn't refuted by a single person, not you or anyone.
My strategy isn't buy high, sell low. Just the opposite. Looking at real estate purchases here in NY 10-15 years ago - low - and compared that with today - 10-20% off high. I know nothing about Phoenix, but I compare to all these great equities that everyone touts that have been break-even if lucky and more often money losing. Are you a stock broker?

bslotkin,

is your argument that real estate in manhattan was a good investment for the past ten years (at least up to 2007) or that it will be a good investment for the next ten years? do you even understand that those are two very different things? the past is past and there is no debating the returns of various investments in the past. the issue i thought you were addressing by saying that real estate is still better than sticks is whether it is a good idea to own or to buy real estate now, not whether it was a good idea to own or buy real estate in 1997.

the time to invest is before a huge price appreciation, not after. unless you believe that the fundamentals of new york real estate support price appreciation for the coming years, the appreciation of the asset class in the past means nothing.

You're talking buy and hold of blue chips versus buy and hold of a apartment. Can you hedge a stock position, and get our whenever you want? Yes? How about your home? Only if you shorted HOV when you bought your house. For your situation, it's buy and hold. Some people on this site are professionals in real estate and some in equities. Some of us have done better than the average.

they need to update this chart ;-)

http://www.forbes.com/2005/05/26/cx_sc_0527homeslide.html?thisSpeed=65000

Well, if I said in 1997, let me keep renting but lets put my money into a safe AAA company GE, or better yet, let me buy the Dow 30, I'd be kicking myself every day ... every day as my home price that I owned would have declined from the peak in 2007 to today, I'd be kicking myself because my investments in stocks would have been rendered a non-producing asset. Every day I'd be panicking, not because the home I own is declining in value back to 2004 levels which would be 7 years after the 1997 levels, but because GE that icon of America is down to levels from early 1995 and seems questionable and because JP Morgan Chase, that wonderfully-run American financial institution is at late 1995 levels, or that if I bought America's greatest brand Coca-Cola in mid-1995 I'd be break even.
Real estate right now sucks, but the alternative could have left me poor and not even owning a home.

(mid-1996 for KO)

BSlotkin you are right- everyone on here should refer to this:

Beware Doom and Gloom Thinking about the Current Real Estate Market
by Gary Eldred, PhD

The recent foreclosure crisis has caused some experts to say that this is a very bad time to invest in residential properties. The market is flat, they say, and sure to remain so for the foreseeable future.
Don't listen to them. Since World War II, home prices have frequently jumped by 10 or 20 percent a year. It is true that on occasion, prices have held steady for as long as three to five years. There have also been times when certain cities have experienced severe downturns in their local economies, causing prices to fall temporarily. During the early 1970s, for example, large layoffs at Boeing drove Seattle home prices down by 20 to 30 percent. Yet Seattle recovered and home prices there are eight times higher than they were in 1971.
So before you put faith in so-called experts, take a quick trip through their faulty predictions from years gone by:
• "The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
• "The days when you couldn't lose on a house purchase are no longer with us." (House Beautiful, November 1948)
• "The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." (Business Week, September 4, 1969)
• "The median price of a home today is approaching $50,000 . . . Housing experts predict that in the future price rises won't be that great." (Nations Business, June 1977)
• "The era of easy profits in real estate may be drawing to a close." (Money, January 1981)
• "In California . . . for example, it is not unusual to find families of average means buying $100,000 houses . . . I'm confident prices have passed their peak." (John Wesley English and Gray Emerson Cardiff, The Coming Real Estate Crash, 1980)
• "If you're looking to buy, be careful. Rising home values are not a sure thing anymore." (Miami Herald, October 25, 1985)
• "Most economists agree . . . [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, April 1986)
• "The baby boomers are all housed now. They are being followed by the baby bust. By 2005,real housing prices will sit 40 percent below where they are today." (Harvard Economist, Gregory Mankiw, "The Baby Boom, the Baby Bust, and the Coming Collapse of Housing Prices," Journal of Regional Economics, Fall, 1989)
• "Financial planners agree that houses will continue to be a poor in¬vestment." (Kiplinger's Personal Financial Magazine, November 1993)
• "A home is where the bad investment is." (San Francisco Exam¬ iner, November 17, 1996)
• "Your house is a roof over your head. It is not an investment." Ev¬erything You Know About Money Is Wrong, 2000)
• "But the real question is, how will [housing prices] look longer term? As I've said in the past, I do not think that housing values will be higher five to ten years from now." (Yale Economist Rob¬ ert Shiller, quoted in Newsweek, January 27, 2005)
Fortunately, the actual history of home prices and real estate invest¬ment returns has differed greatly from those recurring claims of "the end of real estate" as an investment. During the past 60 years, average home prices have multiplied 5, 10, and, in some areas, 20 times or more.

As our new century continues to unfold, we will undoubtedly look back to today's "high" home prices in cities such as Miami, San Diego, Boston, and New York. We'll say, "Boy, those were the days. Can you be¬lieve I could have picked up a three-bedroom, two-bath home in Clairemont for just $400,000?"
As always, today's a great time to invest in real estate - if you develop the right strategy. Foreclosures, REOs, distressed sellers, and of course, creating value remains a time-tested technique in down cycles. Just as promising, seek out those areas of the country (or the
world) that are steering clear of the overbuilding (and over-lending) that has temporarily dampened some widely-publicized markets. How can you capitalize on these emerging opportunities? Education and market knowledge.

Certainly, prudence pays off. Whereas, fear of action never places you on the path to wealth.

"As our new century continues to unfold, we will undoubtedly look back to today's "high" home prices in cities such as Miami, San Diego, Boston, and New York. We'll say, "Boy, those were the days. Can you be¬lieve I could have picked up a three-bedroom, two-bath home in Clairemont for just $400,000?" "

I think "would you believe folks once paid a million for THAT piece of crap" is going to be a lot more likely of a phrase...

"Fortunately, the actual history of home prices and real estate invest¬ment returns has differed greatly from those recurring claims of "the end of real estate" as an investment. During the past 60 years, average home prices have multiplied 5, 10, and, in some areas, 20 times or more. "

I think they said the exact same thing about tulips and pets.com, too...

I say Coca-Cola is a liquid asset.

"Fortunately, the actual history of home prices and real estate invest¬ment returns has differed greatly from those recurring claims of "the end of real estate" as an investment. During the past 60 years, average home prices have multiplied 5, 10, and, in some areas, 20 times or more. "

I think they said the exact same thing about tulips and pets.com, too...

So the average tulip lasts ... I don't know, I'm not a florist, but 5 days? 2 weeks? A month? Great comparison to REAL ESTATE. Even Battery Park City, which is man made, lasts tens of thousands of times longer than a tulip.

Pets.com ...another great comparison to real estate.

ps - for a guy who went to Yale, during the past 60 years, if average home prices have multiplied by 5x, that's 2.7% average annual increase. And you compare that to bubbles? You compare 60 years to the tulip that lasts a month? 10x = 3.9% per year; and 20x = 5.1%

won't we have a lot of churn in both equities and real estate, i.e. nothing going nowhere for a while