Tuesday, May 22, 2007

Robert Shiller is Wrong

"From 1890 through 1990, the return on residential real estate was just about zero after inflation." - Robert Shiller

Let us examine this through direct comparison rather than average or medians . Anyone care to live in an 1890 original condition home? No garage, several hundred sq feet, maybe a tub and toilet, soapstone sink, wood stove?, coal furnace at 20% efficiency, etc. etc. ? 1950? How about 1970? Ahh now were are getting close. You'd still be looking at a smallish place and be lucky to get the 2 car garage. You might also find yourself with aluminum wiriing and that original aluminum siding and some nice formaldehyde insulation and asbestos lineoleum tiles and 1 1/2 baths, single pane windows, 60% efficient oil burner heating, etc. etc.

No, Schiller has it all wrong. The median 1890s house has not kept pace with inflation unless it has been subject to continious homeowner improvements to keep it nearer in quality and size and ammenities to the latest medians. Moving target.

8 comments:

chjts said...

first t smurst

Benoit™ said...

Last?

chjts said...

hi benoit

Anonymous said...

Sorry Dawg, but I got to disagree.

Small 1 room hovel with soap stone sink, lousy furance and no parking. Sounds like 90% of the condos for sale...

San Diego Renter said...

Hmm, sounds like I do live in an 1890 house. Except for the coal furnace part... I don't have any heat besides a fireplace (not that big a deal in San Diego). And it's not like I'm broke -- lots of people live just like me. I guess there are parts of the country where a typical middle class house is 1500+ sq ft with a yard and a garage, but it ain't here.

Bohica said...

Hey, I'm putting in soapstone countertops to offset the commercial/industrial look of the stainless appliances.
The stuff ain't cheap !!!!

Peripheral Visionary said...

There's a real case study based on a house in Amsterdam, whose value was tracked over four *centuries*, during which time many of the factors you cited--modern amenities, etc.--were not relevant. Over three and a half centuries (up until the 1970s), its annualized return, adjusted for inflation, was 0.2%. Over the last 22 years, it's tripled in value.

Full story:

From Dutch history, a real estate lesson

Anonymous said...

I disagree because it's all based on what's acceptable at the time. And that's what matters