U.S. Housing - A Good Investment

Feb. 04, 2020 6:51 PM ETITB, XHB, HOMZ, NAIL, PKB, HOML5 Comments


  • U.S. housing prices are rising nicely, stock is in short supply, the homeownership rate is rising - looks good as an investment.
  • The Federal Reserve is unlikely to be changing interest rates this year, so there's little to disrupt this happy picture.
  • Residential real estate thus looks good as an investment sector.

This is sectoral, not specific

As we all know, the three things in real estate are location, location and, you guessed, location. So, it's not possible to provide an analysis in general terms such as this, which states that any specific real estate investment is a good idea. It's only possible to argue that the sector as a whole is worthwhile. Which it is.

We have a general shortage of supply in the housing market, yet the home ownership rate is rising. That's feeding through into a general rise in prices.

This can of course get out of hand as it did less than two decades ago. However, price rises - measured properly, by the monthly cost of purchase - are rising at about the rate of real income rises, something which is sustainable.

There is always the possibility that interest rates will change, altering those monthly costs. But other macroeconomic evidence tells us that the Fed is most unlikely to make a move this year. We, therefore, seem to have the right macroeconomic background for investing in residential property.


The most obvious measure of house prices is the Case-Shiller set of indices:

House price appreciation moderately accelerated in November as measured by the S&P CoreLogic Case-Shiller 20-City Composite Index. The not-seasonally adjusted index increased 0.1% and was up 2.6% for November 2018.


Case Shiller(Case-Shiller indices from Moody's Analytics)

We have price rises, yes. But the important thing to note about the detail is that real incomes are also rising at about this rate. That is, this is a sustainable rise in prices. We're not in the middle of some unsupportable boom that will necessarily reverse.


We have a continuing rise in the homeownership rate:

The U.S. homeownership rate rose to 65.1% in the fourth quarter of 2019, up from 64.8% a

This article was written by

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Tim Worstall is a wholesaler of rare earth metals and one of the global experts in the metal scandium. He is also a Fellow at the Adam Smith Inst in London and an writer for a number of media outlets, including The Times (London), Telegraph, The Register and even, very occasionally indeed, for the WSJ. This account is linked with that of Mohamad Machine-Chian: https://seekingalpha.com/user/52914142/comments

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