MarketWatch is Telling you That Real Estate is the Best Investment for the Decade — Here’s why Their Reasoning is Flawed

When mathematics and statistics are stretched beyond reality

Source: Andrea on Pexels.

Buying real estate has been the key metric for solid investing since the beginning of financial advising.

It’s an adage that has crossed into every single generation without scrutiny and with wide acceptance.

Marketwatch recently told its readers that, according to Ben Carlson of Ritholtz Wealth Management, “There is a real possibility real estate could be one of the most dominant assets of the 2020s.”

He lists four reasons to back that conclusion. Let’s go over them, one by one.

Millennials should buy their first homes.

This is an ironic point double dipped in the irony of the opening chart in the article.

Source: FRED, U.S. Homeownership rate.

This was the opening chart. The U.S. homeownership rate is sky-high. Yes, it might hold for the future. However, in the past, when we’ve seen homeownership skyrocket, we haven’t seen it follow up with equal acceleration in the same direction.

In fact, I could easily say this is a lie by omission — looking at mortgage debt outstanding gives us a far better picture of the asset class.

Source: FRED, mortgage debt outstanding.

While debt is never a clear metric of bubbles forming, putting into context the worst economic contraction in the history of our country since World War II sure gives us a lot to think about when we see this outstanding debt reach record highs. We’ve also laid witness to America’s longest economic expansion — which has now ended in the face of the global pandemic.

Interest rates are so low!

This is an obvious point that’s lying because of the lack of context.

Source: FRED, 30-year fixed-rate mortgage in the United States.

If you only looked at interest, you’d think it’s an amazing time to buy a home. You’d even think that it’s free money.

Interest, however, is paid first. Meaning, if you are getting a loan for a home, the first 15 years of payments are primarily going into interest, home maintenance, property tax, and insurance.

This would all be fine if the home prices remained fixed and stagnant. However, they haven’t.

Source: FRED, median sales of houses sold in the United States.

When you factor into a fully transparent mortgage calculator how much you will be paying in interest over 15 years along with the taxes, you’ll note how much wiser other investment alternatives begin to look. The banks have never been interested in running a charity.

There won’t be enough houses in the future.

This one’s purely speculation and a guess.

Where I live, the tech industry that’s primarily funded by venture capital money who bleed money year in, year out have fueled an economy of developers and millennials to fill vacancies all along Santa Monica echoing those effects back to the San Fernando Valley.

These are companies run on heavy hitters with deep pockets that fundamentally aren’t profitable or sustainable. Yet, bubbles last for long periods of time before they pop.

If you don’t believe me, we can take a look at either 2002 or 2008.

If we look at the data of monthly supply for homes, we’d see a rather commonplace narrative:

Source: FRED, monthly supply of houses in United States.

The supply of homes in the United States has oscillated at all points of time all around the place. Outside of the most recent factors involving banking and mortgage fraud in 2008, we see a rather stable supply. In fact, in the early 2000s, we had less in supply than today.

There will be a global transition to work from home.

Employers and employees will realize they don’t need to go to a physical location to do work.

The idea that technology and applications will replace everyday life and functions is a testament to how little most financiers actually understand the limits of technology today.

Companies like Amazon, while amazing, also have a gargantuan management problem.

This is with anything from fraud over purchases, to counterfeit items, to anything that requires the help of an actual human being.

I tried to rent a car through Turo a few months ago, and I didn’t realize until a day later that neither the air conditioning nor the horn nor a few other essential things in the car worked. When I told the host, he didn’t respond. When I contacted Turo, they shot me through five different representatives who didn’t know what to do. I had to drop the keys off at some house because the host refused to reply or answer my calls for over 30 hours. I haven’t heard from him or Turo since and it has been months.

These issues, while anecdotal, are part of a fundamental problem that isn’t going to be fixed through the use of applications or the internet anytime soon. Just like the dot-com boom wasn’t capable of rendering everything physical to the digital, the new technology boom of data aggregation and digital advertising isn’t going to solve the problems of tomorrow.

“There could still be a nasty transition period as employers and employees alike realize they don’t all need to live and work in big cities to be productive. Untethering employees from a specific location will allow them to move to more cost-effective areas and potentially change the housing dynamics for a large group of people.”— Ben Carlson

It’s just not going to happen. It has never been a measure in productivity, but, rather, one in realism.

To think that the outside world will become some blur in the face of growing multi-trillion-dollar technology companies is dousing your opinion in a heaping basket of ignorance.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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