Home ownership is one of the biggest financial commitments most will make in his or her life while investing in stocks is generally seen as a key component of building wealth.
Using house-price indexes from the Federal Housing Finance Agency (FHFA) and prices for the S&P 500 from Yahoo Finance going back to 1991, take a look at how the two compared at various times in the past 27 years, as well as how housing prices in some of the biggest cities in the US have fared against stocks.
In most cases, stocks have outshined housing prices over the decades, as a nine-year bull market continues to roar.
It’s worth seeing that this is a very basic comparison. Stocks and houses are, of course, two very different types of investments. Home ownership comes with property taxes and upkeep costs, but also offers the key service of being a place for someone to live that stocks clearly do not. Stock ownership can involve brokerage and other fees.
Further, stock prices tend to be more volatile over time than housing prices. While it is possible to accrue great riches in the stock market, it’s also quite possible to lose it all. Housing prices have tended to increase more gradually over time, but as the mid-2000s housing bubble and underlying bust showed, that increase is far from guaranteed.
Given those facts, here’s how two of the most important financial markets for ordinary Americans have evolved over the past three decades:
A. 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.
B. Housing prices are up about 85% while stocks are up 79% since September 2000, when the stock market peaked during the tech bubble.
C. Housing prices are up 60% and stocks are up 233% since October 2002.
D. Stocks are up 93% since the FHFA house-price index topped out in March 2007, while housing took a long time to recover. Housing prices are up just 17% in the past 11 years, with the FHFA index not fully recovering until 2016.
E. Housing prices are up 21% since November 2007, while stocks are up 76%.
F. Stocks are up 273% since hitting a low in March 2009, while housing prices are up 36%.
G. Housing prices are up 48% from May 2011, when the FHFA index hit its post-crisis low, while stocks are up 99%.
H. Stocks are up nearly 700% since January 1991, while housing prices in the New York-Jersey City-White Plains metropolitan division are up 174%.
I. As of the second quarter of 2018, housing prices in the Miami-Miami Beach-Kendall metropolitan division are up 297% since Q1 1991.
J. Housing prices in the Denver-Aurora-Lakewood metropolitan area are up 413% since Q1 1991, still below the nearly 700% increase in stock prices.
After looking at the numbers we see that this is only one thing to consider, and it’s vital to keep in mind that past performance can’t determine the future.
This doesn’t mean that stocks are the end all investment for everyone at every time, or that buying a home is bad. Everyone has different financial and housing goals, with several aspects involved in making these kinds of decisions.