Readers: Stocks & Mutual Funds Better Long-Term Investments Than Real Estate

Readers who voted in the non-scientific poll last week differ from  those who took a recent Gallop poll, their summary:

This year, the housing market has been improving across the U.S., and home prices have recently been rising after a steep drop in 2007 during the subprime mortgage crisis. This current improvement in prices may be why more Americans now consider real estate the best option for long-term investments. In 2002, during the real estate boom that preceded the mortgage crisis and before gold was offered as an option in the question, half of Americans said real estate was the best investment choice.

Stock values have also been improving in recent years, aided particularly by the bull market in 2013. The 24% of Americans who regard stocks as the best long-term investment is also higher now, up from 19% in 2012. Still, Americans are modestly more likely to say real estate is the better investment today, perhaps because of the recent volatility in the stock market.

So right now Americans think real estate in the best long-term investment.  Here are the results from readers:.

Q: Which of the following do you think is the best long-term investment?

1. Stocks 27 [35.06%]
2. Mutual funds 26 [33.77%]
3. Real estate 15 [19.48%]
4. Savings accounts/CDs 4 [5.19%]
5. Gold 3 [3.9%]
6. Bonds 2 [2.6%]

Real estate trailed in third.  History isn’t on the side of home ownership as a means of long-term investing:

From 1890 — just three decades after the Civil War — through 2012, home prices adjusted for inflation literally went nowhere. Not a single dime of real growth. For comparison, the S&P 500 increased more than 2,000-fold during that period, adjusted for inflation. And from 1890 to through 1980, real home prices actually declined by about 10%. (USA Today: Why your home is not a good investment)

There are plenty of reasons to buy a home, but a long-term investment isn’t one of them, especially if you’re black:

Home ownership has been an important vehicle in creating a solid white middle class, but it has not done the same for most black homeowners, because blacks and whites buy homes in very different neighborhoods. Research shows that homes in majority black neighborhoods do not appreciate as much as homes in overwhelmingly white neighborhoods. This appreciation gap begins whenever a neighborhood is more than 10% black, and it increases right along with the percentage of black homeowners. Yet most blacks decide to live in majority minority neighborhoods, while most whites live in overwhelmingly white neighborhoods. (Forbes: How Home Ownership Keeps Blacks Poorer Than Whites)

The young are cautious about buying:

Young people have delayed life decisions, including moving for jobs, forming households, getting married and having children, said Peter Francese, an independent demographer and consultant in Exeter, New Hampshire.

“There is a lack of belief that there is something better in another state,” he said.

Slower household formation is lowering home ownership. Just 36.2% of Americans under 35 owned a home in the first quarter, compared with 41.3% in 2008’s first quarter, the Census Bureau reported April 29. (Financial Post: Young and unwilling to relocate: How Millennials may be holding back the U.S. labour and housing recovery)

Many in St. Louis still push for owner-occupied redevelopment, even though rental housing appears to be in greater demand for the foreseeable future.  Besides the young, Baby Boomers entering retirement are faced with being home owners or renters:

• US News & World Report: 10 Reasons to Become a Renter in Retirement
• MarketWatch: When it’s better to rent a home in retirement
• Forbes: Should You Rent Or Buy A Home In Retirement?

Hopefully in the coming years those who rent housing won’t have the negative stigma expressed by home owners. I know many renters who are active in their neighborhoods.

— Steve Patterson

A Look at the Butler Brothers Warehouse

For over six years now I’ve had a decent view of the 17th Street facade of the massive Butler Brothers warehouse also bounded by Locust, Olive, & 18th (map).

So when a neighbor posted a link to  ‘718,000sf Butler Brothers Building Set for Residential Redevelopment’ on our condo association listserve I was very interested to hear the development plans. Is residential development imminent? Nope.  The owner has simply listed the property with a different commercial brokerage.

This was the peak of the condo boom downtown, developers were grabbing buildings as fast as they could. The sheer size of Butler Brothers, however, presented overwhelming challenges to potential developers. The Ely Walker building, on the opposite side of my building, was just being finished as lofts by Orchard Development Group of Chicago.  Ely Walker was very large, but not as big:

Originally known as the Ely and Walker Dry Goods Company Building, this seven story building is second only to the Butler Building in overall size. (National Register Nomination — Washington Avenue Historic District)

Part of the marketing in 2007/2008 was also trying to sell the building to a developer like Orchard or Pyramid, but the bottom was falling out. In April 2008 Pyramid went under and in September the stock market crashed. Since then buildings have been rehabbed, now as smaller rental units. Orchard couldn’t sell all the condos in the Ely Walker so their marketing switched to rental.

The market has recovered somewhat, though not for new high-end condos. The existing resale market is coming back, prices have mostly recovered.   That said, nobody is building new for sale loft condos.  The market is good for rental units but with a building this size I’m not sure about such a large number of units coming on the market. Figuring out the right price range(s) and construction/permanent financing will be tricky, seller financing is an option though. Tax credits will be part of the picture:

The property is listed in the National Register of Historic Places and is presently approved for State and Federal Historic Tax Credits to support redevelopment costs.

Well, not exactly. The building isn’t listed individually on the national register, but it’s a contributing structure in the Washington Avenue Historic District. As a contributing building any redevelopment might qualify for historic tax credits. Like prior years, some in Jefferson City want to cap historic preservation and low-invome housing tax credits.

Let’s go for a walk around the building…

As an immediate neighbor I hope the building sells quickly and gets redeveloped, but I’m not going to hold my breath in the meantime. If the proposed streetcar on Olive moves forward I think interest in this property will as well. There’s plenty of room for structured parking inside, but the streetcar would connect it to the CBD, Midtown and CWE.

— Steve Patterson

Rare Original Compton Heights Mansion

The last occupant of the large home at 3262 Hawthorne was born on August 5, 1908. No, the home hasn’t been vacant for years, he died in January at the age of 104. The home was built in 1893. Here’s his obituary:

Bokern Sr., Eugene A. 104, Fortified with the Sacraments of Holy Mother Church on Thursday, January 17, 2013. Beloved husband of the late Lucille (nee Lynch); loving father of Robert F. (Joyce), Gene Jr, John F. (Shirley), Edward C. (Nina), and the late Karen Sue Watkins; 19 grandchildren, 30 great grandchildren, brother of the late Robert and Francis Bokern; dear cousin, uncle, and friend to many. Services: Visitation Monday, Jan. 21, 4-8pm. Funeral at HOFFMEISTER COLONIAL MORTUARY 6464 Chippewa at Watson, Tuesday, Jan. 22, 10am. Interment Calvary Cemetery. Friends may express condolences at: www.hoffmeistercolonial.com – (Source) 

Last Sunday the house was open to lookers even though an offer had just been accepted, see listing & many photos here. A friend I ran into at the open house said he saw the place shortly after the owner had died. It was “stacked high with papers”, he said. On Sunday all the stuff, including old carpets, had been removed. Ideally the original windows will be retained, appropriate reproductions would be very expensive and cheaper windows wouldn’t alter the look significantly.

Apparently the owner had lived there since the 1940s, with few updates. Old boiler with radiators for heat, no central air conditioning. The kitchen and bathrooms were antiques. Fairly original houses like this are very rare, the buyers will have many decisions to make. Do they clean the stone exterior to look like it did in 1893? Or perhaps just a light cleaning so some of the old patina remains?

— Steve Patterson

14th & Washington Ave: 2007-2013

A bank is now located at 14th & Washington Ave. Well, not exactly, a Commerce Bank ATM & surface parking lot now occupy this corner. In February 2007 the vision was much grander:

Metropolitan Development Enterprises is planning to build a $67 million, 22-story condo tower in the heart of the Washington Avenue loft district. The tower is the largest new-construction residential building proposed for downtown.

Chicago-based Metropolitan was expected to present plans to build the mixed-use building at 1400 Washington, on the site of Erlich’s Dry Cleaners, at a Tax Increment Finance Commission meeting Feb. 22. Metropolitan has requested $12 million of TIF for the project. (St. Louis Business Journal)

Surface parking is a good short-term land banking strategy. Now the land can bring in revenue until funding is fully in place for the next phase at this corner. I just hope that next phase begins within the next 5 years.

— Steve Patterson

New Senior Housing A Bright Spot In East Saint Louis

Like every municipality, East Saint Louis Illinois has had ups and downs, unfortunately, the downs have far outnumbered the ups.  A project is nearing completion now that’ll be a big up, building on other ups (MetroLink light rail, new housing at Emerson Park station) of the last 10-12 years. Jazz at Walter Circle is a green modern transit-oriented senior housing development:

The public-private partnership that financed Jazz @ Walter Circle breaks new ground in closing funding gaps for affordable housing. For the first time, the deal integrates HUD mixed-finance development regulations with NMTC multiuse regulations. Public actors such as the East St. Louis Housing Authority (ESLHA), the city of East St. Louis, the state of Illinois, and HUD collaborated with project developer and owner Eco Jazz, Inc.; the national real estate firm Dudley Ventures; the NMTC firm Hampton Roads Ventures; and a not-for-profit affiliate of the ESLHA to reach a deal. In addition to residential space, Jazz @ Walter Circle will house a community center, office and retail space, a grocery store, and community gardens. The project will be the first LEED Gold certified building in East St. Louis, where 35 percent of the population lives below the federal poverty level.(HUD)

LEED Gold in East St. Louis? Yep! Not only is it green, it is architecturally attractive and has good urban form.

I’ll do a full review once the ribbon has been cut, but so far I’m pretty impressed.

 — Steve Patterson