Here’s a pop quiz:
By how much has the domestic residential real estate market outperformed the S&P 500 index over the past three years?
The U. S. real estate market has seen its biggest boom in history in recent years. Investors who have moved away from the stock market and shifted their assets into housing are probably very happy they made such a move. But should they be? It depends, but the numbers themselves tell an interesting story.
Since 2003, residential housing prices in the U.S. have risen by 10 percent per year. In fact, the annual returns have been accelerating, 7% in 2003, 11% in 2004, and 12% in 2005. Despite such a strong market, investors in the stock market have actually done even better, as the S&P 500 has advanced 13% per year during the same period.
If a huge housing boom can’t even match the stock market’s performance, it serves as yet another quantitative example of why equities have outperformed real estate by a factor of three throughout history.