Wednesday, November 22, 2017
 
Guru Economist Asserts Real Estate is Bad Buy, and Readers Scoff at Him

NEW YORK, NY July 18 (DPI) – A prominent economist known for his respected real-estate index came out this weekend with the surprising claim that real estate – in its broadest definition, including farmland – is a bad long-term investment. But readers made it clear that all that matters is personal experience, and their experiences were decidedly positive, even life-changing.

The column by economist Robert Shiller was simply more evidence that data can be selected and presented in virtually any way to support a premise – in this case, Shiller asserts that over decades the return on land ownership is just over 1% per year.

That may be true when all forms of property are included in the data set – but readers of major news sites are generally owners of urban and suburban residences, and they live in markets long famous for their price appreciation. A sampling of reader comments:

The people who made money off their homes have time to read the NYT and write comments. The people who lost money on their their homes are too busy working a second job. :) If one buys (let’s not use the word ‘invest”) in a prime location, odds are, it will turn out well. But not always. I bought in an exclusive CA beach community, but then circumstances forced me to sell within four years. It was a bad market then. I lost 20%. However, over the long haul the house has done well. Zillow has it at twice what I sold if for now. While location may be everything, so is timing.

My parents bought their 3 bedroom house in the SF suburbs in 1956 for $21k. They paid off the mortgage in 1986 and sold the house 20 years after that, in 2006, for $700k. Thanks to prop 13 their taxes stayed the same for most of the time they owned that house. When they moved into an assisted living facility their monthly payment was about $6k. The house provided a safe pleasant place to live, at a reasonable cost, with very little risk of loss, for 50 years and then covered their living expenses for most of the rest of their lives. I realize that they were lucky to live in California and in the Bay Area, but it highlights the same rules that apply to most real estate investments – where the house/investment is located and how you intend to use it can make all the difference.

It seems the analysis is missing a big point. Both farm land and housing can be rented out. You get income from them, in addition to capital appreciation.

 

Moreover, Shiller was skewered by a reader who located online the economist’s personal home ownership history. That comment was the highest recommended of all 126 reader comments:

If Mr Schiller were to believe his own research one would assume that he would rent rather than own a home. Surely a Nobel laureate like Professor Shiller could do better than the fraction of a percent per year return he suggests accrue to real estate.

But, alas, a four-minute survey of the online tax rolls show he owns a home. How irrational. Moreover, according to Zillow he purchased the home in 1989 for $62,000 and it is now estimated to be worth more than $800,000. A rather good investment. It always seems strangely amusing when economist fail in their personal lives to follow their own “research based” prescriptions.

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