What I'm getting at is that property prices have outpaced inflation for a long time (as would be expected in the accumulation phase of a long-term debt cycle), so a) we may have a false sense of what property should return; and b) the normal course of events would be for this trend to mean revert or stagnate at some point. It might not, but if it were to revert to long-term value (relative to household incomes), property prices would have to halve a few times.That’s true of essentially every good or service.
Personally, I think the mistake people make with property is assuming returns over the past 50 years are representative .. Over the long-term, property cannot appreciate faster than inflation. Otherwise, in 200 years, property is simply unaffordable for everyone.
I can’t see why anyone would bother connecting house prices to commercial REITS as represented by VNQ.
With a yield of 4% and approximately 30% of funds from operations being retained, the expected return of REITs should beat TIPS assuming rents and property values increase in line with inflation.
We should expect returns from property to be inflation + rent .. In California, I think residential property yields are around 3.4% .. In London, they can be as low as 1-2%, as property prices have risen and property's become less affordable .. Then there are costs of managing and maintaining property .. This is why I think TIPS are a better comparison for expected long-term returns. I think people who base their asset allocation decisions on 20-40 year backtests (which includes a fair bit of academia) may have grossly distorted ideas of what various asset classes should behave like over long-term economic cycles.
Statistics: Posted by Logan Roy — Sun Apr 14, 2024 5:34 pm — Replies 44 — Views 3357