Tag Archives: Business

Cheap Houses or Pricey Shares?


Interesting comments here from an article in The Economist this past week.  They touch on the relative value of real estate vs equities:

“Anyway, to take a more cheerful line, the fall in the housing markets is creating some bargains. A recent postshowed that US house prices look cheap relative to gold. The chart shows that they also look a much better bet than the stockmarket, on a long-term view. Judging by the latest plunge in pending home sales, it doesn’t appear that many bargain-hunters are interested.”

Given the 30%+ decline in housing and the incredible rebound in equities I can’t help but wonder if true value investors aren’t in agreement with the conclusions above.  Despite all the attempts to manipulate the real estate market, the government has largely failed in attempting to stabilize prices.  In other words, it’s undergone a much more natural price discovery process.  The equity market, of course, has been intervened in at every step of the way and the government has undoubtedly succeeded in propping up this market.  Various valuation metrics are at odds with regards to equities, however, it’s difficult to conclude that we’ve done anything other than engage in the same old tactics that helped create the unstable environment that existed before the equity market crash.  Given this risk and what I’d call a more natural price discovery process, it’s not unreasonable to conclude that real estate looks like a better relative value vs the broad equity markets at this juncture.

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Filed under Economy, Home Sales

The Housing Decline in Perspective



By Chart of the Day

The US real estate market continues to struggle. For some perspective, today’s top chart illustrates the US median price (adjusted for inflation) of a single-family home over the past 41 years while today’s bottom chart presents the annual percent change in home prices (also adjusted for inflation). Today’s chart illustrates that, prior to the financial crisis, the inflation-adjusted median home price rarely declined more than 5% in one year (gray shading). It is also very important to note that due to a large number of distressed properties, a high unemployment rate and stagnant wages, the inflation-adjusted median home price has declined 7.9% over the past year — an annual decline larger than any that occurred during the 35 years prior to the financial crisis.

– Does the real estate plunge continue? The answer may surprise you. Find out now with the exclusive & highly regarded charts of Chart of the Day Plus.

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Filed under Housing