Well, remember that 1999 was dotcom bubble as well. So timing is a factor. I wonder if the mid range or the bottom of the market (ca. 1999) benefited from similar price appreciation - would check but code is done compiling, back to work!:).

Some time ago i did this math by choosing random bay area properties in Zillow, find the oldest last sold price and arrive at CAGR to the current zestimate.

Mostly it was in the band of 6-8%. This is less than S&P 500 and considering the mortgage rate was >6% before 2006 its not much. One exception to this is properties bought in the 2008 recession which had 12-18% CAGR.

The house is being listed at $21.8 million. That doesn't mean it's going to sell for that. There have been a number of stories recently about very expensive homes sitting on the market for years and having to be reduced in price substantially.

I'm not sure I understand all the comments comparing this RoR to the S&P or some other benchmark. S&P stocks are highly liquid, so the price you see is the actual price you can get at any given moment. Not so with housing. The actual selling price could be higher or much lower depending on who is ready, willing and able to make this purchase in the next few months.

With housing we've been a huge macro bull run for the last 50 years here in CA. But, it's not going to go on forever. I'm not saying it's gonna crash, but In the long long run, the rate of return on housing will always be equal to inflation. In addition, You probably want to take into account taxes and depreciation/repairs/costs.

There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.

Incomes pay for housing. Therefore housing prices must always track incomes in the long long term because you can't pay more than 100% of your income to housing: it's impossible. Incomes tend to go up at roughly equivalent to inflation.

Depends on how you measure inflation, but economic growth over the long term tends to be overstated.

Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value.

Further, many areas like Detroit have seen a reduction in land values over significant time periods.

I don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful.

The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation.

Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.

Stock dividends work just fine in a static economy. A field that produces X produce for 100 years is not exponential growth even with a steady x% annual ROI.

As to land look up an acre of Iowa farmland. It’s not worth that much in comparison to a an acre near a city. But to see that growth you need to predict were massive migration and infrastructure investments take place while subtracting taxes.

Regarding Iowa farmland...

https://www.extension.iastate.edu/agdm/wholefarm/html/images...

But to your broader point, predicting where growth will occur, is literally the definition of investing. Investment is the allocation of capital towards areas of growth. Luckily, the global economy has generally grown over time, which means that generally investments such as real estate tend to grow as well, and faster than inflation.

I’ve gotta say, I appreciate your thoughts and perspective, but you’re going to miss out on a lot of growth if you only believe in investing in utilities companies and TIPS.

Investing is creating productivity, speculation is predicting market trends. The can both make you rich but they are different things.

PS: I chose farm land specifically because it’s value relates to it’s use as a productive asset. In Gerlach, Nevada you can get land as cheap as $157 per acre. Now, if we start running out of space for solar panels it might be worth something some day but for now it’s really not.

So your view of the stock market is that the only sustainable returns are from dividends? Capital investment, new market opportunities and technologies, ipos and so on are just unsustainable short term noise?

Companies fail. Without dividends the long term value of all companies is zero.

In the short term, like my lifetime, growth stocks are great. But, you need dividends at some point or what does stock ownership actually provide?

I think a natural disaster will have a major effect on prices or a refinery leak or something. Apart from that I think it is limited. The market might top out if the IPO and VC money slows down.

That's not taking into account that a $5m property from 1999 will have required significant refurbishment, property taxes and maintenance to even retain it's value let alone increase.

Would have been better off buying the S&P

No, assuming 9/99 - 9/18.

https://dqydj.com/sp-500-return-calculator/

     Annualized S&P 500 Return (Dividends Reinvested)	6.141%

But I don't know what improvements were made to the house or what they cost... also didn't calculate the ongoing maintenance costs..

Not sure on the property tax situation in SV, but a common assumption is 1% of the houses's value annually. So with that considered, it is probably close to a wash with the S&P 500. And whatever upkeep as well, as you said.

Because of Prop 13 tax increase year to year is limited to inflation or 2% increase (whichever is lower). So yes, you start with ~1% of the house value but with 7% average increase in property value and limited to 2% increase in tax value you end up banking most of that property value increase.

But also don't forget to subtract rent (the value of actually living in and enjoying the house or one of equivalent value). It'll probably work out to the same or a slightly higher ROI

No, the SP&500 has a lower rate of return from 1999 to today. With dividend reinvestment it was 6.1%.

Also you can't live in the S&P500.

It’s hard grow tomatoes in the backyard of the S&P500.

The S&P doesn't have expenses. A house does, on the order of 1% annually.

Except with property you have the utility value of having a place that keeps rain off of your head and with the S&P you have the utility value of.. getting to be obsessive about numbers on a screen every moment of every day. Whether that difference is worth the extra points is an individual call.