Michael Burry, who knows a thing or two about the housing market, says that buying a home is usually a mediocre investment.
“I calculated the long-term after tax return on residential real estate over a 50 year adult life is about 4.5% after tax including expected maintenance costs,” he said in a Substack post on Monday.
He said that’s a similar return to what a “good bond” offers, but housing has “lagged the S&P 500 badly” over the past 25 years, despite experiencing “remarkable” appreciation during that timeframe.
The median sale price of a home sold in the US has jumped by about 140% since 2001, from around $170,000 to $403,000, per the Federal Reserve Bank of St. Louis.
The S&P 500 has surged more than 400% over the same period, from below 1,500 points to above 7,500 points today.
In his Substack post, Burry wrote that houses have become bigger and bigger over the decades, making older homes worth less on average, unless they’re on valuable land.
“I’ve looked at this every which way,” he wrote. “The main thing in buying a house is the utility one gets out of owning it, the lifestyle and lifecycle benefits.”
In other words, people are unlikely to make much money on their homes, but they might still want to own one to have a stable place to live and raise their families, build communities, enjoy a neighborhood with nice amenities, and grow old in comfort.
Burry is best known for his prescient bet against the mid-2000s housing bubble, which was immortalized in the book and movie “The Big Short.” He pivoted from running a hedge fund to writing about his personal investments on Substack late last year.
He’s one of several high-profile commentators to underscore the appeal of stocks as investments.
Wharton professor Jeremy Siegel parsed over 200 years of market data to write “Stocks for the Long Run,” and found that US stocks gained an average of 7% a year after inflation.
Warren Buffett has touted stocks over other assets such as cash and bonds, which he views as more vulnerable to inflation, and gold, which doesn’t generate cash flows or pay dividends.
The legendary investor has also spoken positively about real estate over the years, but he’s noted transactions can be complex and stocks are much more liquid.
“Rich Dad Poor Dad” author Robert Kiyosaki famously says a person’s home is not an asset but a liability, because instead of generating income for them, it imposes costs such as mortgages, taxes, insurance, and maintenance.
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