EXACTLY WHAT I HAVE BEEN SAYING FOR YEARS

Here I was, minding my own buisness, reading the WSJ's RealEstateJournal.com and read Why You Should Think Twice About Investing in Real Estate: "With homes getting cheaper, it's tempting to invest. But if your sole goal is making money, it's mighty hard to justify", when this paragraph popped out:

"According to home-finance corporation Freddie Mac, U.S. house prices climbed 6.2% a year over the past 30 years, versus 4.3% for inflation. Beating inflation by 1.9 percentage points a year is (pun intended) nothing to write home about. To make matters worse, after the current decade's blistering performance, even slimmer returns may lie ahead."

What I have been saying for a long time in the debate bewteen Stock returns (10.2%) vs Real Estate returns (6.2%) and visa versa is that there is no debate because of the incredible power of real estate compounding appreciation. Here, what I am pointing out is that with 80% leverage, your 20% equity would grow at a compounded rate of 31% per year! End of story. And, few of us would feel queasy about using 80% leverage in real estate compared with any leverage in the equities market.

What also makes the above Freddie Mac stat compelling is that in those 30 years, the national median home price has not had a YOY decrease over the previous year. Now, I will claim that it's actually quite easy to beat a national, state or local historical appreciation number if you know what you're doing and buy right.

Btw, the National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005. Even with the sharp drop in sales last year, the median price of an existing home sold in 2006 managed to rise a slight 1.1 percent. But that was far below the double-digit gains during the boom years. The median home price had risen by 12.4 percent in 2005. Another year passes and prices did not decline, since 1930. Thanks to Noah for the link.