Of course, there have been some periods when residential real estate has outperformed the stock market—most notably, during big stock market drops. In the very worst phase of the last one—the six months from September 2008 through February 2009—the S&P 500 fell by 41.8 percent, while the home price index fell “only” 10.1 percent, though very few homes were sold at that time.
Over longer time periods, stocks have generally outperformed homes. From 1975 through June 2017, the S&P 500 returned 12.0 percent annualized, versus 4.9 percent for the home price index and 4.7 percent for cash, as shown by the bars at the right.
I think the real issue is that my friends are not looking at data. They’re listening to stories like Ryan’s—and ignoring stories like my family friend’s. Real estate, as they say, is all about location, location, location—and timing. They seem to assume that they’ll be as lucky as Ryan (or Ryan’s parents), in getting both location and timing right.
I’m less optimistic. I’m investing in a well-diversified portfolio of stocks, while also putting aside some money for the home I hope to buy someday.
Elizabeth Sohmer is an analyst for Bernstein Private Wealth Management.