Purchasing real estate is one of the largest financial commitments many Americans will make without knowing the true value in investing, or that they are investing at all. On the flip side, those who invest in stocks are widely seen as a key component of building wealth. Business Insider decided to dig a little deeper into the subject to see how housing prices and stock prices have fared over the years.
To seek which is a better investment they used house-price indexes from the Federal Housing Finance Agency and prices for the S&P 500 from Yahoo Finance going back to 1991. From there, they looked at how the two compared at various times in the past 27 years, and how prices in large cities with the United States managed against stocks.
Stocks outperformed housing prices over the past in most instances as the nine-year market continues to boom, although the comparison is very simplified. According to Business Insider, “Home ownership comes with property taxes and upkeep costs, but also provides the key service of being a place for someone to live that stocks clearly do not.”
Stock ownership usually comes with brokerage and other fees as well and tend to be more elusive over time than housing prices. While stocks hold the potential to raise great riches, they also come with many risks. There is always the possibility to lose all you’ve invested in. Housing prices tend to rise more steadily over time than the stock market, but as we’ve witnessed before, the market always holds the potential to crash just like in 2008.
Given this information, Business Insider provided two of the most financial markets that ordinary Americans evolved over the past three decades.
“Even with the dot-com crash and the stock-market crash in the wake of the financial crisis of the late 2000s, the cumulative gains in the stock market since the beginning of the 1990s have resulted in a gain of over 700%, while housing prices have increased 164% in that time,” says Business Insider.
Since September 2000, when the stock market peaked during the tech bubble, housing prices are up nearly 85 percent while stocks are up 79 percent. Since 2002, the housing prices are up by 60 percent and stocks are up by an enormous 233 percent.
When the FHFA house-price index topped out in March 2007, stocks rose to 93 percent while housing took quite some time to recover. Housing prices rose to 17 percent within the past 11 years and the FHFA finally fully recovered in 2016.
Housing prices in other regions including the Denver-Aurora-Lakewood metropolitan area are up 413% since Q1 1991, still below the nearly 700% increase in stock prices.
The numbers provided by Business Insider’s research is only one thing to consider when choosing which to invest in and it’s important to realize past performance in the two markets can’t predict the future. Stocks aren’t always the best investment for everyone at every moment, and it also means buying a home isn’t the wrong choice. Financial and housing needs come in many different forms, with several factors involved in the decisions that lay ahead. Choose which is best for you and will help meet either your financial needs or your housing needs.
