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Real Estate vs. Stocks: The Cold, Hard Data from the Last Two Decades.
For the past 20 years, people have debated whether investing in real estate (like houses and land) or the stock market is better.
Both can make you money, but they come with different levels of risk and other potential rewards.
This article will compare how real estate and the S&P 500 (a measure of the stock market) have performed over the last two decades.
We'll look at the facts, explore different ways to invest in real estate, and break down the good and bad of each option.
Let's see how houses and stocks have performed as investments.
How We Track Performance:
Houses: We use the S&P CoreLogic Case-Shiller U.S. National Home Price Index, which tracks home prices across the US.
Stocks: We use the S&P 500, which tracks the performance of 500 large US companies. We'll look at yearly results from 2005 to 2024.
Why Stocks Keep Going Up (Even When It's Bumpy!)
The stock market can feel like a rollercoaster.
It has its ups and downs, but over time, it generally goes up. Think of it like this:
Long-term growth: Over many years, the stock market (like the S&P 500) has earned investors about 10% per year on average.
Economy keeps growing: Companies make more money, new technologies emerge, and people keep buying things. This helps stock prices rise.
Bumps happen, but we recover: Recessions, wars, and unexpected events cause temporary drops, but the market usually bounces back.
Why?
Companies earn profits: Investors buy stocks in companies they believe will be successful. When companies do well, their stock prices tend to go up.
Innovation is key: New ideas and technologies drive growth and create exciting investment opportunities.
We're optimists! Investors generally believe in the future and expect the economy to keep growing over the long term.
Important Note: The past doesn't guarantee future success. Investing always has risks. Things like inflation and global events can affect how the market performs.
Bottom line: The stock market can be a great way to grow your money over the long term, but it's important to be prepared for the bumps along the way.
Houses vs. Stocks: A Long-Term View:
A study covering 145 years and 16 countries found that houses and stocks had similar average yearly returns: a little over 7% for houses and just under 7% for stocks.
So, houses and stocks have performed quite similarly over very long periods.
Recent House Price Trends:
Looking at the Case-Shiller index, here's how house prices have changed recently:
Last year: Up about 3.6%
Last 3 years: Up about 5.8% per year (on average)
Last 5 years: Up about 8.9% per year (on average)
Last 10 years: Up about 6.9% per year (on average)
This shows how long you own a house can significantly impact your return.
Ups and Downs for Both:
It's hard to compare houses and stocks year by year. However, there have been some major events:
Stocks: In 2008, the stock market dropped, losing almost 40%. But in most other years over the last 20, it's averaged about 8.33% growth.
Houses: In 2021, house prices in 20 major cities jumped almost 19%. But during the housing crash of 2007 and 2008, prices fell.
Important Things to Remember:
These numbers are just averages.
Your actual results can vary greatly.
For houses, location, the type of house, and your investment strategy matter.
For stocks, the companies you choose and when you buy and sell make a big difference.
Different Types of Real Estate Investments
Let's look at the main ways to invest in real estate:
Residential Real Estate: This means houses, condos, and townhouses.1 People often buy these to rent them out (for regular income) or hope the property's value will increase over time. This type of investment can provide steady income and tax benefits.2
Commercial Real Estate: This includes office buildings, stores, and warehouses.3 These investments are usually larger and have longer leases than residential properties.4 They can offer higher potential returns but also come with more risk and require more management.5
REITs (Real Estate Investment Trusts): These are companies that own and run income-producing real estate.6 Buying REIT stock is like investing in real estate through the stock market.
Risks and Benefits: Real Estate vs. Stock Market
Both real estate and stock market investing come with inherent risks and benefits.
Real Estate Investing:
Benefits:
You own a physical property.
Can generate regular rental income.
Offers tax breaks.
Property values often rise with inflation.
Drawbacks:
Harder to sell quickly.
Requires management and upkeep.
Values can go down.
Needs a large initial investment.
Stock Market Investing (S&P 500):
Benefits:
Easy to buy and sell.
Easy to spread your investment across many companies.
Has historically provided good returns.
No maintenance needed.
Drawbacks:
Prices can change a lot quickly.
Returns are not guaranteed.
Conclusion:
Both houses and stocks have been good investments over the past 20 years.
While stocks have done a little better recently, they’ve performed similarly to real estate over a much longer time.
Remember, these are just average numbers, and your own results can be very different. Where your house is, what kind of house it is, and how you invest matters.
The same is true for stocks: which companies you invest in and when you buy and sell makes a big difference.
Real estate gives you something physical, rental income, and tax breaks, but it also takes more work and money upfront.
Stocks are easier to buy and sell and have historically done well, but they can be risky and you aren’t guaranteed any returns.
The best choice for you depends on your own situation, how much risk you’re comfortable with, what you want to achieve, and how long you plan to invest.
Some people choose to invest in both.
Best, Pedro Frias
Works Cited
1. S&P 500: historical performance from 1992 to 2024 - Curvo, accessed January 7, 2025, https://curvo.eu/backtest/en/market-index/sp-500
2. Historical Average Stock Market Returns for S&P 500 (5-year to 150-year averages), accessed January 7, 2025, https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages/
3. Real Estate vs. Stocks (What 145 Years of Returns Tells Us) - BiggerPockets, accessed January 7, 2025, https://www.biggerpockets.com/blog/real-estate-vs-stocks-performance
4. S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index | S&P Dow Jones Indices, accessed January 7, 2025, https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-us-national-home-price-nsa-index/
5. S&P 500 Historical Annual Returns | MacroTrends, accessed January 7, 2025, https://www.macrotrends.net/2526/sp-500-historical-annual-returns
6. Case-Shiller Composite 20 Home Price Index YoY Monthly Trends - YCharts, accessed January 7, 2025, https://ycharts.com/indicators/case_shiller_home_price_index_composite_20_yoy
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