Such an escalation of home prices is unlikely to repeat, especially from here after their frantic climb
2 min
Once upon a time, a young family bought a modest three-bedroom Cape, the worst house in the best location in a prosperous suburb. Many years later, during the housing frenzy of 15 years ago and after the kids had grown and moved away, they received an unsolicited cash bid—for 20 times what they paid. That became their nest egg, which provided a comfortable retirement.
It’s all true, but it might as well be a fairy tale. Such an escalation of home prices is unlikely to repeat, especially from here after their frantic climb. Over the long term, history shows the stock market has returned about twice as much as residential real estate. And it’s done so with far fewer headaches than the attendant expenses of upkeep, which have come as a shock to many recent home buyers.
Looking at the data assembled by NYU Stern School of Business professor Aswath Damodaran, stocks (as measured by the S&P 500) returned 12.47% annually from 1972 to 2021, versus 5.41% for residential housing (based on the Case-Shiller Index, through last October), a span that encompasses inflation’s liftoff after the dollar’s link to gold was severed. Looking at 2012-2021, which takes in the recovery from the housing bust that precipitated the 2007-09 financial crisis, stocks returned an average 16.98%, versus 7.38% for housing.
In a new paper prepared for the Brookings Institution, Robert Shiller, a creator of the housing index, and Anne K. Thompson found 72.4% of respondents in a survey said recent bidding wars had resulted in “panic buying that caused prices to become irrelevant.” That was attributed to the now-familiar story of buyers wanting more room, especially for a home office, in the suburbs. White-collar workers who could work from home were mostly unscathed or benefited from lower spending outlays during the worst of the pandemic.
Historically low mortgage interest rates further leveraged bidders’ buying power. With Freddie Mac’s average 30-year loan down to 3.05% in December, the monthly payment on the median-priced house of $408,100 in the fourth quarter, bought with a 20% down payment, would be US$1,385. With the jump in mortgage rates, to 4.67% as of March 31, that same loan would cost US$1,687 a month. The reduction in affordability is sure to slow home-price appreciation.
Shiller and Thompson found that recent buyers are realistic about near-term home-price trends, expecting some moderation, but may be “given to flights of fancy for the longer run.” Damodaran’s parsing of their data showed buyers at the peak of the previous bubble in 2006 didn’t recover fully from the ensuing bust for 10 years. That wasn’t the first time home buyers were stuck with losses. After the dip from the peak in 1989, prices didn’t recover fully until 1992. And those losing spans didn’t take into account transaction costs, which are huge for residential real estate.
It’s axiomatic that buying high lowers future returns. In human terms, stuff happens, from better job opportunities elsewhere—especially given the ability to work from anywhere for knowledge workers—to unfortunate circumstances such as death and divorce. The ability to pick up stakes with totally portable and liquid financial assets may provide more freedom in the near term, along with greater wealth over the longer span.
Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: April,
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Tech investor was one of the most outspoken supporters of Trump in Silicon Valley
2 min
President-elect Donald Trump named a Silicon Valley investor close to Elon Musk as the White House’s artificial intelligence and cryptocurrency policy chief, signaling the growing influence of tech leaders and loyalists in the new administration .
David Sacks , a former PayPal executive, will serve as the “White House A.I. & Crypto Czar,” Trump said on his social-media platform Truth Social.
“In this important role, David will guide policy for the Administration in Artificial Intelligence and Cryptocurrency, two areas critical to the future of American competitiveness,” he posted.
Musk and Vice President-elect JD Vance chimed in with congratulatory messages on X.
Sacks was one of the first vocal supporters of Trump in Silicon Valley, a region that typically leans Democratic. He hosted a fundraiser for Trump in San Francisco in June that raised more than $12 million for Trump’s campaign. Sacks often used his “All-In” podcast to broadcast his support for the Republican’s cause.
The fundraiser drew several cryptocurrency executives and tech investors. Some attendees were concerned that America could lose its competitiveness in emerging areas such as artificial intelligence because of overregulation.
Many tech leaders had hoped the next president would have a friendlier stance on cryptocurrencies, which had come under scrutiny during the Biden administration.
“What the crypto industry has been asking for more than anything else is a clear legal framework to operate under. If Trump wins, the industry will get this, and more innovation will happen in the U.S.,” Sacks posted on X in July.
The tech industry has also pressed for friendlier federal policies around AI and successfully lobbied to quash a California AI bill industry leaders said would kill innovation.
Sacks’ venture-capital firm, Craft Ventures, has invested in crypto and AI startups. Sacks himself has led investment rounds in many. He has previously invested in companies such as Slack, SpaceX, Uber and Facebook.
Sacks was the former chief operating officer of PayPal, whose founders included Musk and Peter Thiel . The group, called the “PayPal mafia,” has been front and center this election because of its financial muscle and influence in drumming up support for Trump.
