Is this the answer to the housing problems?

[Contributor]

With normal inflation, the 20K$ then in 1961 will be $183,534.20 in 2022. Houses in CA did better than the inflation rate, as usual. One of the better investments.

Profit in today's money would be $2,482.745.80 in those 61 years. Or gain of $40,700.00 per year average.

See here.

-Don- Reno, NV

While that may be true if you apply the rate of inflation as the returns on the $20k, it is a "not real" comparison unless the buyer payed cash for the house. I prefer to look at it this way.

In 1961 a person has $2000 dollars to invest. Two choices are buy a house (20% down with loan at 3.8% interest rate) or invest in the S&P 500 index. Location of house greatly affects the return, not so for the S&P.

So $2k invested in 1961 and left alone would be worth $730,388 today.



That's not bad considering there are no monthly mortgage payments, maintenance cost (roofing, AC, furnace, etc).

When considering the returns on a house investment, one needs to add all of the money spent on interest payment that went to the lender, the money spent on maintenance and the risk that the neighborhood went to pot. The folks in the bay area won on the location but it's a crap shoot for others.

 

[Larry N.]

When considering the returns on a house investment, one needs to add all of the money spent on interest payment that went to the lender, the money spent on maintenance and the risk that the neighborhood went to pot.

AND must also consider rent expenses for that investment period since they have to live somewhere and don't own a house, unless you're talking about a property they rent out, which changes the balance a lot also.

 

[Contributor]

AND must also consider rent expenses for that investment period since they have to live somewhere and don't own a house, unless you're talking about a property they rent out, which changes the balance a lot also.

No rent to consider, I'm assuming the person putting down $2k down payment is making mortgage payments. So the person invests $2k in the S&P 500 and instead of making mortgage payments he pays rent.

 

[Larry N.]

invest in the S&P 500 index.

That's just an average* computed from 500 companies (which to invest in to get that average), so you can still lose. But...

If you're starting in 1961 you must also adjust for income tax deductions which, early on, can be substantial. Of course this is income-dependent, filing status dependent, etc. etc. And there's no certainty that rent and mortgage payments will be the same, either.

So while you have a nice theory, which could play out the way you list, given specific circumstances, real life results are likely to be a lot different, and not the same for all folks. But the point of nice increases either way is well made, and the fact that the two approaches will be (among other things) location dependent, is also well taken. Inflation rate, early payments (if made) and other things, even refinancing, can play a part too.

And moving several times during the period can affect things, too. We (from 1969) lived in six different houses that we bought in four different metro areas in four states, and each sale boosted our equity nicely, though could just as easily gone the other way with different timing and/or different locations/house choices.

And on the investment side, you have to make the right market choices. I had some stock that became zero value almost overnight, in addition to some that increased nicely, so the specific investment choices will play a big part too, and someone could "lose their shirt."

Interesting thread...

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* Well, a little more complicated than that (see Wikipedia), but it IS 500 companies.

 

[UTTransplant]

The stock market performance since 1961 doesn’t help a young family hope to buy a house in 2022. Average wage doesn’t come close to what it takes to buy a house. Many people under 40 see no hope to ever buying. And a dissatisfied population is not good for the country.

 

[Contributor]

The stock market performance since 1961 doesn’t help a young family hope to buy a house in 2022

It helped my nephew.

I was speaking with my younger sister about financial matters about 2 weeks ago. She told me that when her son was born in 1992, she started an investment account for him. She put in some seed money of a few thousand dollars and added $100 more every month, she said that she did the dollar cost averaging method, money in no matter what the market was doing, good or bad and bought some blue Chip stocks. Her son was married 3 years ago and his gift was the account - it was over $400k.

Not that he needed it, he graduated from St Mary's University in San Antonio with a BS in Math and then has Masters in Math from the University of Arizona. His wife also has a masters in Math from UofA. They bought a nice home in the Phoenix area.