Real Estate and the Efficient Market Hypothesis

Editor’s Note: A version of this appeared in the San Antonio Express News. Dignowity Hill is a historic neighborhood in San Antonio balanced precariously – for the moment – on the cusp of hipsterism, about to fall into the ‘gentrified’ category. For anyone who has strongly held opinions about gentrification, let me assure you this post has nothing to do with Dignowity Hill, or gentrification. Thank you.


My friend recently asked me what I thought about his idea of buying a small plot of land he saw for sale in Dignowity Hill, as a short-term investment. Less than $10,000.

“The East Side is getting ready to boom,” he tells me. Agreed.

“Dignowity Hill has so much charm and a ton of new investment activity nearby, with the Hays Street Bridge and Brewery, and prices will be going up.” Yup, probably.

“I like the idea of investing for a couple of years, then cashing out.” Ok, now I knew he was on the wrong track, and I told him so.

Markets are more efficient than you think

What I believe my friend did not take into account is the idea that he has hundreds – actually make that probably thousands – of competitors for that single parcel on Dignowity Hill. Those competitors mean he will not likely get a bargain.

Most middle class people, certainly most homeowners, understand the basics of real estate investing. That means hundreds of thousands of people – in San Antonio alone – have the knowledge necessary to buy that parcel, and certainly tens of thousands of people in the city have available cash to pick up a plot of land at less than $10,000.

Of those tens of thousands, I’d estimate many hundreds to a few thousand San Antonio residents actively look for real estate opportunities. I don’t think it’s unreasonable to expect that hundreds of San Antonians have seen this exact parcel, and up until now, have not made a bona fide offer to purchase it, at, or very near, the listed price.

This is not to say definitively that the parcel is a bad investment. Frankly I have no idea. I never looked at it. But I do know that markets with hundreds of potential buyers are pretty efficient at price discovery, and the parcel will not be a screaming bargain for my friend.

Will the East Side boom? Sure. Is Dignowity Hill totally cool? Yeah. Could prices double in a few years? I wouldn’t be surprised.

But the current offering price of the parcel will take into account all of these factors. Any reasonably efficient market aggregates opinions and is forward-looking – meaning my friend would have to pay now for the likely boom, the coolness, and the chance of doubling.

My entire point with this anecdote is this: although we may not see the competition in front of us, many markets are extremely efficient at reflecting all the unseen competition for investments. Real estate is less efficient than some markets, but it’s really not so inefficient that a part-time speculator like my friend will grab a great bargain.

Before concluding, I want to point out two other reasons my friend should be cautious.

Short-term time horizons

If you need to sell any investment within five years, then I don’t call that an investment, that’s something like a speculation. There’s nothing inherently wrong with speculating, only that it tends to work up until the point when it doesn’t any more, and then it ends up looking a lot like gambling in retrospect.

Real estate inefficiency

Real estate – as a speculation or as an investment – is terribly inefficient to buy and sell. Most real estate transactions require you to get an appraisal, do a title search, pay a realtor, and possibly an attorney, all of which add up quickly.

To invest $10,000 in the stock market, for example, will cost you less than $20 to do the transaction at an online discount broker. To invest $10,000 in real estate – unless you have distinct professional discounts or built-in advantages – might run you 1,000 in fees, easily.


I’m not saying I don’t love real estate as a long-term investment. I love real estate. Most of my non-retirement net worth comes from real estate ownership, of my home. But for small, short-term investments, I would rarely recommend real estate, much less real estate speculation.

Even in wicked cool Dignowity Hill.


See related posts:

Nate Silver’s 7 Levels of the Efficient Market Hypothesis

Guest post by Lars Kroijer – The Simplest Investment Approach Ever



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Book Review: Going Going by Naomi Shihab Nye

Teen romance novels for girls are not exactly the bread-and-butter of Bankers Anonymous book reviews, but stick with me for a little while, I’ve got my reasons.

Going Going by San Antonio poet and novelist Naomi Shihab Nye is not your typical teen romance novel, although it does follow the arc of a sixteen year-old downtown girl, Florrie, falling for an uptown boy.

Our heroine Florrie does not shy away from political stances, nor does the novel Going Going. The political stance dominates the novel more than the romance.

Sixteen year-old Florrie asks us, the reader, one of life’s big questions: “What makes for a good city? Indeed her question is just another way of asking: “What makes for a good life?”

In real life, I live about 6 blocks away from the author of Going Going, so it turns out I know and love many of Florrie’s places too. Her protagonist bikes with arms outstretched down her favorite street, just as I have done, on that same street.

I picked up Nye’s Going Going (at San Antonio’s homegrown The Twig Book Shop) because the City of San Antonio – just like Florrie – is currently in a deep conversation with itself over “What makes for a good city?”

And Florrie has the answer, at least for her: The old mom-and-pop stores, the place-specific homegrown businesses, make for a good city. Chain businesses, by contrast, hurt the city and make life worse.

Florrie pores over old black-and-white postcards, which she collects avidly. She thrills to memories of her Lebanese immigrant grandfather, who founded the family’s Mexican restaurant. In Florrie’s statement of purpose, written for a school project, she writes about herself:

She loved Old Ladies, Elderly Men, Old Houses, Old Spoons, Old Books, Old Bowls, old Maps, Lace Curtains, Antique Bedspreads, Recipes, Remedies, Stories (but not the dumb stories about knights and battles, which did not interest her in the least), Vintage Postcards and Tintype Photographs, Doilies, Velvet Pillows, Black-and-White Movies, Rocking Chairs, and Vintage Toys, and best of all, she loved Old Buildings and Businesses run by Real People. She loved things that were Fading and Disappearing. How could she protect them in the World?

The enemy of all that she loves, Florrie writes, are “Big Business Corporations, Urban Development, and basically People with Too Many Dollar Bills.”

Florrie’s plan, which drives the story, is to organize a teenage, guerrilla-protest movement against chain stores. She enlists her family-and-friends circle in a boycott of the Wal-Marts, the Gaps, the Home Depots of San Antonio – any store not locally-owned.  She then hosts a series of rallies against chain-store corporations in the city’s historic Main Plaza, later in front of a Wal-Mart, and finally on the touristic San Antonio River Walk, with mixed success.

In the end, the teenage activist achieves some media notice and notoriety through her protest, but not necessarily lasting change in the city.

Sympathy with Florrie

The author Naomi Nye clearly has tremendous sympathy with Florrie’s aesthetic and moral view of what makes for a good city. So do I.

Florrie is right to decry the homogenization of urban life.

Ever since the 20th Century combination of automobiles and air-conditioning made vast swaths of the American Southwest newly attractive, the cities of Texas, New Mexico, Nevada and Arizona have boomed in population.

Florrie and I don’t want this

What we’ve built – efficiently and affordably – to service these new populations are indistinguishable commercial strips filled with chain stores.  Drive down any commercial-zoned highway in these Southwest cities and you’re assaulted with the same exact signage as any other highway – because it’s lined by the same exact chain stores. Their buildings look exactly like buildings in other places, their menu and service offerings fine-tuned to repeat the menu and service offerings of Anywhere, USA.

Where is the sense of place?  Where is the sense of a local community?

You need to exit the main highways and turn onto the smaller streets to feel the interesting heterogeneity of locally-owned businesses. From these one-off buildings – with their store owners greeting you from behind the counter – neighborhoods and communities emerge.

San Antonio, TX – Florrie’s city, Nye’s city, my city – exploded upward in population in the past 50 years but imploded in terms of interesting cultural offerings. The blocks around the Alamo, to take the most high-profile and obvious example, are blighted with the same chain-owned Ripley’s fun-house and Rainforest Café offerings you can find in any place in the nation where tourists congregate in bored, hungry numbers.

As I’ve written before, I deeply admire Jane Jacobs’ view of successful cities, which is that a mix of the new and the old – even old shabby outdated buildings – help urban areas remain flexible and innovative.

Change in the last 10 years

Written 10 years ago and published in 2005, the interesting – maybe ironic – thing about reading Going Going in 2014 is that San Antonio has already changed quite a bit since then. The Mission Drive-In, identified in the novel as one of the last operating outdoor theatres, has since been converted to merely a visual – albeit attractive – simulacrum of itself. No more outdoor movies there.

Thousands of housing units have sprouted around Florrie’s neighborhood, utterly altering traffic flow and density in the near-downtown neighborhoods of San Antonio, and this looks to continue apace in the foreseeable future.

Going Going, among other things, is a love poem to San Antonio.[1] I thrilled to recognize many of Nye’s favorite places as my favorite places, from Liberty Bar to El Mirador, from San Fernando Cathedral, to the Rose Window at Mission San Jose.

She profiles real-live personages of Florrie’s neighborhood, like bow-tied Mike Casey on his bike, or movie rental Planet of the Tapes owner Angela pushing her baby, Wiley Francisco, in a stroller.[2]

The dangers of a museum mindset

Although I’m simpatico with Nye’s Florrie, I also found myself arguing quietly against a version of Florrie’s view in real-life San Antonio, which I’ve come to call the ‘museum mindset.’

Nye depicts Florrie as a zealot – albeit a sympathetic, spunky zealot – pushing the limits of the patience of her family and friends in the furtherance of her cause to save old buildings and locally-owned businesses.

Despite the fact that Florrie is only sixteen, she represents a deeply conservative[3] strain of thought.

Because she values old things and old ways and old technologies, her frame of reference naturally resists change. New developments, even beautiful or thoughtful or desperately needed ones, spark in her an instant nostalgia for a soon-to-be lost better age.

This deeply conservative attitude – the museum mindset – surrounds us in San Antonio, and has a big voice in the debate about the future of the city.

For every new development – and there are quite a few going on right now – there is an equal and opposite reaction of “Well there goes the uniqueness of my city,” “gentrification will naturally push out diversity,” “new businesses threaten residential life,” or “here come the Yuppies.”

I’m not in the real estate development business nor do I applaud every new change, but I’ve seen enough opposition-for-opposition’s-sake fights in the name of historic preservation to see the museum mindset as a threat to the city as well.

Preservationists sued, picketed, and went to jail to keep this 1950s-style gem from demolition

Examples of the museum mindset in San Antonio today

We see it in the fight to preserve a utilitarian 1950s-style broadcast station from demolition to make way for housing.  We see it in opposition to updating a tired grocery store façade because it references a mid-century architectural style, despite the fact that the neighborhood sorely needs a better grocery store.

Five doors down from where I live, a “house-museum” somehow manages to preserve its 501c3 tax-exempt status, despite the fact that it opens to the public a mere 10 days out of the year.  Except for those ten days, the building is totally empty all year, forming a hole in the neighborhood structure. It will not even open this year.[4]

The preservationist group that owns this house has a similar empty-old-house-as-museum project in Hudson Valley, New York. The board of trustees for the preservationist group that ‘runs’ the house-museum – a lawyer for Exxon Corporation and his two sisters – ran afoul of its neighbors in Hudson New York who grew tired of their house-museum charade in the Hudson Valley,[5] but so far my neighborhood in San Antonio allows it to continue.

Hudson Valley “museum house”

The building would make a lovely residential home, but for the past forty years it has been a C-grade museum instead. My best guess is this happens because of the incumbency of the museum mindset.[6]

In downtown San Antonio, this museum mindset favors preserving an old building, however decrepit, unused, or blighted, owned by the local school district, from demolition, removal, or renovation to make way for its current highest and best use.  Preservationists have successfully check-mated the neighborhood school – a leading light in a struggling inner-city urban district – into eliminating green space for its kids. In order to preserve this haunted house in the school’s backyard – and ‘haunted house’ is literally how school administrators refer to this building privately – next year the kids will have zero yard space.  Will teachers plan on encouraging jumping jacks next to desks in their classroom, or in between the cafeteria tables? I don’t know. I do know that blighted house will keep my kid indoors all next year, while bringing down property values all along its street.

So in my opinion the museum mindset, though helpful in fighting homogenization and strip malls, also hinders progress.

This debate in San Antonio will continue as the city figures out what makes for a good city, and what makes for a good life.

Hey kids! Want a haunted house instead of a playground?

Nye’s spunky character Florrie provides a useful answer as a starting point to the conversation, although Florrie and I would not agree on everything.

Florrie’s romance

To my pleasant surprise, Going Going does not resolve happily.  The teenage Florrie does not keep the boy and live a mythical teenage romance.  The relationship ends uneasily, with Florrie a little bit hurt, and a little bit wiser for the experience.  Kind of like a real teenage romance.

I suppose the romance reflects unease with what Florrie’s boyfriend represents.  He comes from the recognizably wealthier, sophisticated, more corporate part of town.  Despite the kissing and their bike-riding adventures together, Florrie returns ultimately to the comfort of her parents, her brother, and a humble-but-more-loyal boy from her own neighborhood.

San Antonio’s debate

In growing into its adolescence over the past 50 years[7], San Antonio lost much of its unique character, a process so traumatic to its earlier roots that I don’t blame preservationists for seeking the comfort of the familiar and the loyal.

The older areas of town will struggle with this pull to a wealthier, sophisticated, and possibly more corporate future, and the conversation will not be easy. My guide in these things, Jane Jacobs, would say we need to keep some of the old buildings, but we also need to build some new.  The best places, and a good life, consist of preserving a sense of history and place, while not stagnating or fetishizing the old ways. Resisting all change means stagnating and ultimately being left behind, and left out of the transforming process for urban landscapes.

I salute my neighbor Naomi Shihab Nye for adding to this conversation with Going Going.

going_going Please see related post Book Review of The Turtle of Oman by Naomi Shihab Nye

Please also see related post The Death and Life of Great American Cities by Jane Jacobs

Please see related post All Bankers Anonymous book reviews in one place.



[1] Another downtown San Antonio poet Jenny Browne recently penned her own love-poem to the City, in the interestingly named Garden & Gun magazine.

[2] Angela later produced her own love-poem to her neighborhood, on YouTube.

[3] Small ‘c’ conservative, obviously

[4] If you’d ever been inside this house museum you’d know this is no big loss to the public.  I’d link to their website to give you a virtual tour, but of course, they don’t have one.  That alone tells you what you need to know about their mission to serve the public.  But hey!  501c3 status!

[5] From the Wikipedia entry on the Hudson Valley house owned by the same “preservationist” group that owns the house-museum five doors down from me: “Robert Perry, a Texas lawyer and friend of the family, named the trust the Perry-Gething Foundation. Local preservationists have filed complaints against Perry with the state and the Internal Revenue Service, angry that he keeps the house closed most of the year and resides in it himself for several weeks in the spring and fall. Perry responds that when he is present, the house is open by appointment. The tax code, he says, requires only that the foundation maintain the property and says nothing about it making the museum open to the public.”

[6] And possibly, Texans are more polite to their neighbors than New Yorkers.

[7] In this analogy, the creation of Hemisfair Park in 1968 kicked off the city’s adolescence with an horrific bulldozing of an historic neighborhood, to make way for the unapproachable, awkward, sullen park it is today. Here’s hoping the H-Park group will turn this ugly duckling into a swan. The presence of immovable, unused, empty, historic buildings in the park hinders rather than helps this process.

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