Investment Real Estate

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Priced in Gold reader Shaun C. recently wrote me asking for a chart of investment farmland in gold, and suggesting some sources of data.  This was very intriguing, as I have been considering investments in timberland and farmland for myself.  After a little research, I prepared the following charts, which will be updated quarterly on an Investment Real Estate chart page.  They suggest that farmland is the best place for real estate investment money in the near future, but once the "bottom is in", timberland may be the way to go.

These charts show total returns for various forms of investment real estate in index form.  Over the last 20 years, farmland has returned 70%, timberland 52%, and commercial real estate 0%.

In the period from 1992 to 2001, timberland was the best performer, with returns of 5x the original investment compared to 2.8x for commercial property and farmland.  Since 2001, however, commercial real estate has given back all of those gains, timberland 87%, and farmland only 61%.

Compare these performances with US Homes, as measured by the Case-Shiller CSXR index, which is currently 60% below it's 1992 level.

Farmland has held it's value for most of the last decade; the majority of it's losses have occurred since 2009.

National Property Index from 1978 to Present:

 

NCREIF Timberland Index from 1987 to Present:

NCREIF Farmland Index from 1992 to Present:

Last Week of November, 2011

The end of November saw more losses for currencies, especially the Japanese Yen, which dropped 4%.  Bonds were lower, while equities climbed.  Commodities were mixed, with copper rising 4.8%, the largest increase of the week.  Coffee and cotton were lower.  Coffee, down 4.4%, was the second biggest loser after long bonds, where TLT was down 4.9%.

One commodity not tracked in this table is Platinum, which made a new all time low this week.  As further signs of global recession appear and deepen, this industrial metal may see further weakness, but I feel that any price below parity with gold represents a good long-term buying opportunity.

What stands out to me in this table is that the only thing that is up year over year is TLT.  And it isn't just this table – I've gone through every one of the charts I track, and TLT is the only thing that is up for the last 12 months.  Of course, longer term, TLT has been a terrible investment… but the Fed keeps pushing interest rates lower, and the bond market continues to be seen as the last "safe refuge" for the large capital flows seeking to escape from a crumbling Europe.

My prediction is that as the situation in Europe adjusts to its "new normal", and the ECB and Fed continue to issue currency to paper over the rotten core of the financial system, gravity will once again assert itself, and the currencies in which bonds are issued will fall much faster than the bonds can grow in nominal value.  And if the "Bond Vigilantes" ride again, pushing interest rates up to the levels where they really should be – look out below!

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