Catherine Cashmore, a well-known real estate expert, recently brought attention to the Herengracht Index, an incredibly valuable resource for analyzing the 18.6-year real estate cycle. The index, created by real estate finance professor Piet Eichholtz, documents more than 350 years of housing data along Amsterdam’s prestigious Herengracht Canal. In this blog post, we’ll explore the significance of this index, its implications for real estate investors, and its relevance to the 18.6-year cycle.
The Herengracht Canal, considered the most important canal in Amsterdam, has always been a prestigious address for the wealthy. The canal’s unique history and consistently high demand make it an ideal location to study long-term real estate trends. Eichholtz’s index is adjusted for inflation and shows real house prices rather than nominal ones, revealing that despite a tenfold increase in nominal terms, the inflation-adjusted cost of housing has only increased by 3.2%.
A key lesson from the Herengracht Index is the importance of timing the market rather than relying on time in the market. Eichholtz’s research emphasizes that real estate investors who were able to time their purchases and sales correctly made a windfall, while those who did not lost everything. The index’s data aligns closely with the 18.6-year real estate cycle, underlining the importance of understanding this cycle for investors.
The Herengracht Index offers valuable insights into the various booms and busts of the real estate market over the past several centuries. For example, the infamous tulip bubble of the 17th century, which saw tulips selling for the price of a Grand Canal mansion, was actually more closely tied to land speculation than tulips themselves. The inflation-adjusted prices of houses on the Herengracht doubled in just five years, only to crash in 1637.
As we approach the end of the current 18.6-year real estate cycle, understanding this cycle and its history can provide a significant advantage for investors. The Herengracht Index serves as a stark reminder of the importance of timing the market and the potential consequences of not doing so.
For those looking to delve deeper into the topic, consider the following reading list:
- “A Long Run House Price Index: The Herengracht Index, 1628-1973” by Piet Eichholtz
- “The Secret Life of Real Estate and Banking” by Phillip J. Anderson
- “The Ascent of Money: A Financial History of the World” by Niall Ferguson
- “Real Estate Riches: How to Become Rich Using Your Banker’s Money” by Dolf de Roos
The Herengracht Index offers a unique and valuable perspective on the long-term trends of the real estate market, emphasizing the importance of understanding the 18.6-year cycle. Investors can use this knowledge to make informed decisions and capitalize on market fluctuations, ensuring they come out ahead in the game of real estate.