Real Estate Investment 101
On the aggregate Real Estate Investment is a poor investment! PeriodSince 1972, the real quality-adjusted prices of existing houses has risen at just a 1.1% annual rate while the average real 30-year mortgage rate has been much more, 4.1%. So when including financing costs, the average homeowner has suffered a negative 3% real return on his investment (Chart 99). Consequently, homeownership is not the great investment that many
earlier believed, especially after taxes, maintenance and other homeownership costs are included.
The increasing average size over time increases house prices. So do more appliances, marble bathrooms, etc. The qualityadjusted
statistics remove this upward price bias by comparing the prices of the same house when it is sold repeatedly. Still,
the results have an upward bias since they don’t account for interim owners upgrading their kitchens, bathrooms, etc.
A Gary Shilling
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