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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What a quarter-million dollars gets you in the western capital.
Alexandre de Betak and his wife are focusing on their most personal project yet.
CIOs can take steps now to reduce risks associated with today’s IT landscape
3 min
As tech leaders race to bring Windows systems back online after Friday’s software update by cybersecurity company CrowdStrike crashed around 8.5 million machines worldwide, experts share with CIO Journal their takeaways for preparing for the next major information technology outage.
IT leaders should hold vendors deeply integrated within IT systems, such as CrowdStrike , to a “very high standard” of development, release quality and assurance, said Neil MacDonald , a Gartner vice president.
“Any security vendor has a responsibility to do extensive regression testing on all versions of Windows before an update is rolled out,” he said.
That involves asking existing vendors to explain how they write software, what testing they do and whether customers may choose how quickly to roll out an update.
“Incidents like this remind all of us in the CIO community of the importance of ensuring availability, reliability and security by prioritizing guardrails such as deployment and testing procedures and practices,” said Amy Farrow, chief information officer of IT automation and security company Infoblox.
While automatically accepting software updates has become the norm—and a recommended security practice—the CrowdStrike outage is a reminder to take a pause, some CIOs said.
“We still should be doing the full testing of packages and upgrades and new features,” said Paul Davis, a field chief information security officer at software development platform maker JFrog . undefined undefined Though it’s not feasible to test every update, especially for as many as hundreds of software vendors, Davis said he makes it a priority to test software patches according to their potential severity and size.
Automation, and maybe even artificial intelligence-based IT tools, can help.
“Humans are not very good at catching errors in thousands of lines of code,” said Jack Hidary, chief executive of AI and quantum company SandboxAQ. “We need AI trained to look for the interdependence of new software updates with the existing stack of software.”
An incident rendering Windows computers unusable is similar to a natural disaster with systems knocked offline, said Gartner’s MacDonald. That’s why businesses should consider natural disaster recovery plans for maintaining the resiliency of their operations.
One way to do that is to set up a “clean room,” or an environment isolated from other systems, to use to bring critical systems back online, according to Chirag Mehta, a cybersecurity analyst at Constellation Research.
Businesses should also hold tabletop exercises to simulate risk scenarios, including IT outages and potential cyber threats, Mehta said.
Companies that back up data regularly were likely less impacted by the CrowdStrike outage, according to Victor Zyamzin, chief business officer of security company Qrator Labs. “Another suggestion for companies, and we’ve been saying that again and again for decades, is that you should have some backup procedure applied, running and regularly tested,” he said.
For any vendor with a significant impact on company operations , MacDonald said companies can review their contracts and look for clauses indicating the vendors must provide reliable and stable software.
“That’s where you may have an advantage to say, if an update causes an outage, is there a clause in the contract that would cover that?” he said.
If it doesn’t, tech leaders can aim to negotiate a discount serving as a form of compensation at renewal time, MacDonald added.
The outage also highlights the importance of insurance in providing companies with bottom-line protection against cyber risks, said Peter Halprin, a partner with law firm Haynes Boone focused on cyber insurance.
This coverage can include protection against business income losses, such as those associated with an outage, whether caused by the insured company or a service provider, Halprin said.
The CrowdStrike update affected only devices running Microsoft Windows-based systems , prompting fresh questions over whether enterprises should rely on Windows computers.
CrowdStrike runs on Windows devices through access to the kernel, the part of an operating system containing a computer’s core functions. That’s not the same for Apple ’s Mac operating system and Linux, which don’t allow the same level of access, said Mehta.
Some businesses have converted to Chromebooks , simple laptops developed by Alphabet -owned Google that run on the Chrome operating system . “Not all of them require deeper access to things,” Mehta said. “What are you doing on your laptop that actually requires Windows?”
