Housing Demystified
アップデート済
Residential housing is a huge asset class so I wanted to analyze it in simplistic format.
I broke up this chart showing the period during the mid-1960's through early 1980's when inflation & interest rates took off and the period during the 40 year long downtrend in interest rates; which ended a couple of years ago. So we have another break in this chart that begins July 2020; most are calling for another period of high interest rates and high inflation. (Only time will tell...but it's no secret that interest rates broke out from the 40 year long downtrend and inflation usually comes in multiple waves)
I also included a log-linear regression channel to help show the long term trend lines.
What I took away from this chart:
1. The common saying that grandparents & parents tell their grandchildren & children..."if only I had kept that house I bought back when I was 25 years old; it would be worth a fortune now" is 100% correct. Residential real estate should be in everyone's asset class just as soon as you can "realistically" afford to purchase it.
2. The period of time where we see a reduction in housing prices or they flatten out has increased in timeframe so someone purchasing their 1st home needs to understand the importance of staying put for a 7-10 year timeframe, especially given the selling costs related to real estate sales.
3. Visually this chart looks to be in a very healthy uptrend
4. Interest rates, while important in computing affordability, has not had as big of an impact in regards to price over time. Under both scenarios prices rose over the long term.
5. The largest drop in housing prices was 20%; otherwise 5-10% or a small flattening period can be experienced.
What's not on this chart:
1. Housing prices are very local so some areas will experience greater downturns while other areas will maintain more stable or rising prices.
2. Perhaps the most important macro point...the myriad of charts showing how right now is the worst time in history to buy a house; in regards to house affordability.
3. The price of your house is not calculated daily, monthly or yearly so most people do not lose sleep over the value of their home unless it becomes unaffordable and you must sell it quickly.
Takeaway: There is no reason to think you are doomed if you buy a house right now. A house is a home and as long as you have stability and can afford it at today's prices then it should always be a consideration. If you are looking for a rental property or Airbnb...make sure you can afford it based upon no occupancy for 6-12 months AND you have plenty of reserves in the bank for repairs.
Lastly, one or the other or perhaps both will happen over the coming years. Either prices come down or wages go up to solve the affordability issue but at some point in time it will no longer be considered the worst time in history to buy a house. Affordability will come back in line with "the norm".
I broke up this chart showing the period during the mid-1960's through early 1980's when inflation & interest rates took off and the period during the 40 year long downtrend in interest rates; which ended a couple of years ago. So we have another break in this chart that begins July 2020; most are calling for another period of high interest rates and high inflation. (Only time will tell...but it's no secret that interest rates broke out from the 40 year long downtrend and inflation usually comes in multiple waves)
I also included a log-linear regression channel to help show the long term trend lines.
What I took away from this chart:
1. The common saying that grandparents & parents tell their grandchildren & children..."if only I had kept that house I bought back when I was 25 years old; it would be worth a fortune now" is 100% correct. Residential real estate should be in everyone's asset class just as soon as you can "realistically" afford to purchase it.
2. The period of time where we see a reduction in housing prices or they flatten out has increased in timeframe so someone purchasing their 1st home needs to understand the importance of staying put for a 7-10 year timeframe, especially given the selling costs related to real estate sales.
3. Visually this chart looks to be in a very healthy uptrend
4. Interest rates, while important in computing affordability, has not had as big of an impact in regards to price over time. Under both scenarios prices rose over the long term.
5. The largest drop in housing prices was 20%; otherwise 5-10% or a small flattening period can be experienced.
What's not on this chart:
1. Housing prices are very local so some areas will experience greater downturns while other areas will maintain more stable or rising prices.
2. Perhaps the most important macro point...the myriad of charts showing how right now is the worst time in history to buy a house; in regards to house affordability.
3. The price of your house is not calculated daily, monthly or yearly so most people do not lose sleep over the value of their home unless it becomes unaffordable and you must sell it quickly.
Takeaway: There is no reason to think you are doomed if you buy a house right now. A house is a home and as long as you have stability and can afford it at today's prices then it should always be a consideration. If you are looking for a rental property or Airbnb...make sure you can afford it based upon no occupancy for 6-12 months AND you have plenty of reserves in the bank for repairs.
Lastly, one or the other or perhaps both will happen over the coming years. Either prices come down or wages go up to solve the affordability issue but at some point in time it will no longer be considered the worst time in history to buy a house. Affordability will come back in line with "the norm".
ノート
Just realized I forgot to include the small decline from 2017-2020. 
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