Since 1996, California Real Estate has underperformed the stock market (sale, rent)

[CA4Now]

Originally Posted by HappyinCali

if you had bought a generic house in San Mateo county for all cash in 1996, you would have done BETTER if you had instead put it in a generic S&P mutual fund...

Many people were hurt in the downturn of 2002, though, and some, who pulled out of the stock market or were near retirement age, never recovered.
The crash of 2002 - Jul. 19, 2002

And frankly, how many people bought a home for all cash in 1996? So it's not really a valid comparison.

[phantompilot]

Originally Posted by payutenyodagimas

agree 100%. they should compute the appreciation/return on the DP

You could but that just seems like a deliberate attempt to compare apples to oranges solely to make RE appear more favorable. Don't forget that you can also leverage equities via options trading - and you could even invest in companies that use leverage (like REITs) if you also wanted to play the real estate market instead of direct acquisition of real properties.

Even unleveraged, it is hard to beat the stock market. Even in the best neighborhoods of Silly-con Valley.

[phantompilot]

Originally Posted by 1AngryTaxPayer

I bought in 98 and my home has actually done better than my stocks but beach property just took off more.

But he's just talking about the index. And you're talking about a specific neighborhood. The equivalent would be buying one of the many tech giants in 1998.

Here's a little mental health tip though - do NOT go back and figure out how much money you would have today if you had just put the same payment into one of those stock.

[Electrician4you]

In 1996 while there were cash buyers they were a small limited amount of people. The whole survey is bs because it requires you to have a large amount of money and to buy the house cash. For a very limited amount of people that strategy did well although I bet quite a few had a mild stroke in 08. If you had the money to buy bla bla bla you can invest it instead and get more. Lather rinse repeat.

[nmnita]

Originally Posted by aslowdodge

One thing to consider is that the stock market is an investment and they compare it to real estate that people live in and not buy as an investment.
The numbers would look quite different if they counted only investment real estate that collected rents

another thing often forgotten when compare real estate to other investments: you may buy your home for say,$200,000 and it may only go up say, 10% a year if that much, but you have only invested the amount of your down payment and closing costs. So your profit is more than meets the eye.

[phantompilot]

Originally Posted by nmnita

another thing often forgotten when compare real estate to other investments: you may buy your home for say,$200,000 and it may only go up say, 10% a year if that much, but you have only invested the amount of your down payment and closing costs. So your profit is more than meets the eye.

Well, you have no profit until you sell the place. And then it will cost you about 15K (if the property sold for 220K, say) to realize that profit, in realtor fees and transaction expenses.

You still also have to invest the monthly mortgage payments, the insurance, the property taxes, and the maintenance.

So I would say that while it is true that the profit is greater than meets the eye just based on the downpayment, its also less than meets the eye when one accounts for the hidden costs.

[expatCA]

Originally Posted by nmnita

another thing often forgotten when compare real estate to other investments: you may buy your home for say,$200,000 and it may only go up say, 10% a year if that much, but you have only invested the amount of your down payment and closing costs. So your profit is more than meets the eye.

Down payment, closing costs, insurance, property taxes monthly payments (Less the deduction for Fed Taxes) repairs, etc.

[taimaishu]

If it was that easy, everyone would be rich off of stocks.

I know more people who have done well in the CA real-estate business.

For me, real estate has been up faster. I'm up over 100k in my property that I purchased 1 year ago.

I'm up over 100k in stocks, but it took 3 years.

And the thing with stocks is you don't make any money unless you sell or receive any small amount of dividends. So you will have money tied up in stocks with nothing to show for it.

With a rental, you can have money tied up in it, but at least you get rental income.

[ragnarkar]

Originally Posted by HappyinCali

Obviously leverage completely skews returns on individual purchases, but I thought the 4th chart in this article is really interesting. The S&P 500 index is up 8.03% on an annual basis since 12/31/1996 through today. The only area in the Bay Area that has beaten that return is San Francisco SFR. Everything else has underperformed.

Put differently, if you had bought a generic house in San Mateo county for all cash in 1996, you would have done BETTER if you had instead put it in a generic S&P mutual fund (obviously not accounting for fees and taxes)

Interesting point is how much worse RE has done in the US as a whole as compared to the stock market. But even CA RE has underperformed the market. Another myth busted - that the stock market is a casino and RE is the sure thing.

I think this shows that even though RE might seem really expensive, it really has increased slower than what is considered the easiest and most vanilla way for people to invest - a broad equity index. The issue with affordability comes from the fact that wages have not kept up with the expansion of corporate earnings (the driver of the S&P) and the price of housing. THAT is the problem. Not the price of housing

Housing appears to be fairly valued.

my main point is that when people say stuff like "My parents bought a house for 250k and mine costs 1.5 mil" they see those two prices and think bubble. While in reality, from pure price appreciation, it has barely kept up with the market.

The real cause of low affordability is not that houses are too high. It is that wages have grown slower than corporate earnigs (aka the S&P)

https://www.paragon-re.com/trend/bay-area-market-survey

I doubt that's the case in the Bay Area.

Also, even if the returns are below that of the stock market, you can potentially achieve higher returns using a mortgage as leverage, as long as the rates are reasonable. Try buying stocks on margin with 20% down, not gonna happen.

[saibot]

Originally Posted by nmnita

another thing often forgotten when compare real estate to other investments: you may buy your home for say,$200,000 and it may only go up say, 10% a year if that much, but you have only invested the amount of your down payment and closing costs. So your profit is more than meets the eye.

Originally Posted by phantompilot

You still also have to invest the monthly mortgage payments, the insurance, the property taxes, and the maintenance.

I just consider those the equivalent of "rent." People have to live somewhere. Those of us who are not fortunate enough to be able to buy a house with cash, either make mortgage payments or rent payments.

After 20 years in the same house, our mortgage + tax + insurance is $1600/month. Factoring in the $24k we put down would have added only $100 to the monthly payment at this point (and less as more time goes by). I can guarantee you we would not be renting a 3-bedroom house in south OC for that amount. Costs of maintenance have been minimal in our case as we've done very little "upgrading," and when things needed repairing, we repaired them ourselves.