Misc.

Home Prices Versus Collectibles and Alternative Assets?

Are you a collector or an investor when it comes to collectibles? Or are you both? Collectors Dashboard evaluates collectibles as an alternative asset class. This means that the same money to buy those collectibles could have otherwise been invested in stocks, bond, real estate and so on. The trick is that (most) people don’t spend on collectibles what they have spent on their homes. This begs the question — How does the investment in your home compare to what you spend on collectibles as an alternative asset?

Most people who buy homes have traditionally put down a fixed percentage and taken out a mortgage for the rest. A general rule has been 20% down and finance the other 80% with a mortgage. That is just a generalization of course. Some people even own their homes outright. But what about other alternative assets versus traditional assets like stocks and bonds? Or what about buying a home versus high-end collectibles?

Housing affordability and construction costs have become serious issues in America. Worker mobility, low mortgage rates, more savings and strong employment opportunities have helped to mitigate those cost issues. Still, costs have become high enough that many Americans just cannot afford to buy a home.

Sports cards and many other high-end collectibles rocketed higher from 2020 into the start of 2021. And then the reopening came, and the high prices of collectibles may have cured high prices. The price of many collectibles has come down sharply from a zenith in the first quarter of 2021 into this summer.

Home prices have not come down. The stock market hit a recent high. Government bond yields are still discouraging as the 10-year and 30-year returns have been lower than the current inflation rate. Does this make a home the best alternative asset even above some of the high-end collectibles? That depends.

It goes without saying that millions of Americans are comfortable buying a home. But coming up with the traditional 20% of an average home is still much easier to most Americans that spending $40,000 to $100,000 all at once on high-end collectibles.

Zillow indicated in June of 2021 that the typical U.S. home price rose to $287,148 in May 2021, up 13.2% from a year earlier. Another report from CoreLogic’s June 2021 National Home Prices showed that home prices rose 17.2% from June 2020. The competing report from CoreLogic for June 2021 now projects that home price gains may slow over the next year as demand moderates and for-sale inventory rises. Still, CoreLogic projects that home prices will rise by another 3.2% from June 2021 to June 2022.

There was an old saying from the hit series The Sopranos about real estate — they aren’t making any more of it. What they are making more of is homes, even if it is not enough new homes. The larger debate is what has happened to people’s home values over time. They only seem to go up. There are of course exceptions from insurance issues (flood, hurricane, environmental) and neighborhoods riddled with crime. And some towns can dry up if the dominant business located there closes.

A report from CoreLogic in June of 2021 said:

Home prices have been rising in the mid-single digits for some years now. The recent surge to double-digit price jumps reflect the convergence of exceptional demand and persistent low supply. With plenty of cash on the sidelines, along with very low mortgage rates, prices are heading up and affordability will become a more acute issue for the foreseeable future.

A prior report from Zillow in May of 2021 noted:

The typical U.S. home grew in value by 13.2% year-over-year in May, and was up 1.7% from April, to $287,148 — both record highs in Zillow data that dates to 1996.

The reality is that buying a home tends to only see values rise over time. It is of course a generality, and there are certain periods of change like the Great Recession and home prices from 2007 to 2010 performed abysmally in many regions.

As far as what to expect from the collectibles sector as an alternative asset class in the year ahead, here is some insight from June 30, 2021. Knight Frank’s ‘The Intelligence Lab’ after the 2021 Wealth Report notes that collectibles have become an emerging asset class and says that there is no doubt that collectibles are now an asset class. It noted:

A broad range of collectibles, including coins, banknotes, comic books and trading cards, have become highly liquid and fungible. There is even fractional ownership of collectibles.

Collectors Dashboard would issue the same warning as other information providers that we do not issue investment advice and we do not publish public forecasts for collectibles. Knowing future prices is of course not an exact science. It may be an absolute guess in many cases. Any stock or bond investor would confirm there is no such thing as a guaranteed profit. The same is also true for collectibles and homes.