We periodically report on macro trends in housing prices because our clients typically have a lot of their wealth invested in their homes.  And each time we have a case, one of the questions that comes about is:  Stay or go?

We recently happened upon some data that gives us insight into home values measured over roughly 20 years.  In the early 1990s Toll Brothers began to build luxury homes in central Chester County, about 30 miles Northwest of central Philadelphia and accessible to the city both by train and turnpike.  These were big homes ranging in size from 3100-6300 square feet on lots that were typically one acre.

What was unusual was that we identified seven homes on one street which had sold in the last nine months.  We confirmed that this was not a fire sale caused by the construction of a nuclear plant or abattoir next door.  Moreover the economy of this area is strong with low unemployment.  Median household income in the township where the homes are located ranges near $100,000 per annum.

The homes we examined were all built between 1995 and 1998.  Only one sold more than once during the last 18 years.  So, we looked at what they sold for when built and what prices they commanded in 2013 and 2014.

A.     7/2014 4/4 6300 1        650,000 1995/410,000
B.     7/2014 5/4 4800 2        570,000 1995/435,000
C.     2/2014 5/3.5 5200 1        590,000 1998/335,000
D.     11/2013 5/4 3100 1.2        555,000 1997/341,000
E.    10/2013 4/2.5 4200 1.2        557,000 1996/345,000
F.    10/2013 4/2.5 4500 1        579,000 1995/435,000
G.    10/2013 5/4 3500 1.3        565,000 1995/354,000


Four of the Magnificent Seven were sold in 1995 at an average price of $85.50 per foot.  In 2013-4 these houses sold for $124 per foot.  Over 19 years, the average return comes to 2.4%.  This trails the 2.7% average annual increase in consumer prices over the same period.  It rose from 162 to 245 for the Philadelphia region.

The lesson.  In June 1996 the S&P 500 closed at 670.  Nineteen years later it was just over 1600. So where the Toll Brothers manse increased by 1.45x, an index fund would have increased 2.3x.

Now, we acknowledge, you can’t raise a family inside an index fund.

An index fund does not allow $250-500,000 in gain to pass tax free.

And you can’t margin stock 90% anymore when you can still buy a house with less than 10% down.

But houses are not the investment they were from 1950-2007.  We are in a new age where real estate is not high-yield and risk free.  So, think clearly when choosing to keep a marital residence.