Has Real Estate or the Stock Market Performed Better Historically? (2024)

For the majority of U.S. history—or at least as far back as reliable information goes—housing prices have increased only slightly more than the level of inflation in the economy. Only during the period between 1990 and 2006, known as the Great Moderation, did housing returns exceed those of the stock market. The stock market has consistently produced more booms and busts than the housing market, but it has also had better returns overall.

Key Takeaways

  • Stocks and real estate represent important paths to wealth for many Americans.
  • Historically, the stock market experiences higher growth than the real estate market, making it a better way to grow your money.
  • Stocks are more volatile than housing, making real estate a safer investment.
  • Stock earnings are taxed as capital gains when realized.
  • Stocks have no tangible value, whereas real estate does.

A note on comparing their performance: any results depend on the dates examined. For example, reviewing the returns from the 21st century looks very different from returns that include most or all the 20th century.

Stock Market vs. Housing Market Historical Returns

In terms of averages, stocks have tended to have higher total returns over time. The S&P 500 stock index has had an average annualized return around 10% over very long periods (higher if you include dividends), while average annual real estate returns are often more in the 4-8% range.

The simplest way to compare stocks and real estate is by examining the indexed performance of both markets. From March 1980 through September 2023, the U.S. housing market's annualized average growth rate was around 8.6%.

Over the same period, the S&P 500 returned about 12%, and over 14% annualized when including dividends.

Thus, stocks have outperformed real estate over the past several decades. However, on smaller time scales or over different periods with different start and end dates (e.g., 1990-2006), the relative performance may and ordinarily will differ.

While stock prices tend to have higher returns, they also incur capital gains taxes. Meanwhile, there are significant tax advantages to buying a home.

Over the 10-year period from December 2013 through December 2023, the S&P 500 returned a total of 155%; the Vanguard Real Estate Indexreturned closer to 37%:

Has Real Estate or the Stock Market Performed Better Historically? (1)

Key Differences

While stock prices and housing prices both reflect the market value of an asset, one shouldn't compare houses and stocks for market returns only. For one, stocks are historically more volatile than real estate, so those higher returns may also have higher risk.

Stocks represent an ownership interest in a publicly traded company. They are not tangible physical assets and serve no utility other than a store of value and a liquid security instrument. While there is some reason to believe that the overall stock market would gain in real (as opposed to nominal) value over time, there is little reason to believe that a single company's stock should grow in perpetuity.

Advisor Insight

Doug Kinsey, CFP®, AIFA®, CIMA®
Artifex Financial Group, Dayton, Ohio

From 1968 to 2009 the average rate of appreciation for existing homes increased around 5.4% per year. Meanwhile, the S&P 500 averaged an 7.5% return; small cap stocks averaged 11.5% per year. The rate of inflation was around 4.6%. We don't expect real estate investments to grow much more than inflation.

But numbers don’t tell the whole performance story. You also have to look at the impact of tax advantages, income yield, and the fact that real estate investments often allow for significant leverage (you can finance a home purchase, putting no more than 20% of your own money down, for example). Of course, if you buy real estate directly, you also need to factor in your time in managing the property and maintenance and repair costs. Comparing the rates of return has to include all these elements.

Real estate is not like stocks. Some speculate on real estate prices, but commercial and residential real estate serves tangible functions. People live in houses and condominiums. Businesses operate out of commercial property. Physical property has value.

This introduces two conflicting phenomena. On the one hand, existing real estate structures should naturally lose value over time through wear, tear, and depreciation. An unmodified home has no reason to grow in value over time; all the floors, ceilings, appliances, and insulation age and should be less valuable. Meanwhile, the average homes built in, say, 2023 were arguably superior in quality and features to the average homes built in 1923. While existing structures shouldn't gain value, new structures should be more valuable based on their structural and functional improvements.

What Happens to the Housing Market When the Stock Market Crashes?

The consequences of a stock market crash on the housing market can be mixed, depending on the scale of the crash. In some cases, falling equities can bring more money to the real estate market, as investors move to less risky assets. A prolonged crash is more likely to hurt real estate prices, as incomes fall and banks become more cautious with lending, which reduces the number of people buying property.

How Do You Invest in the Real Estate Market?

The most straightforward way to invest in the real estate market is to buy a house, although this represents a sizable commitment for the typical retail investor. It is also possible to invest through a real estate mutual fund or REIT. These are funds that invest in a portfolio of rental properties and pass on the net income to their shareholders. This has the added benefit of diversification.

What Are the Benefits of Investing in Real Estate?

Real estate has higher risk-adjusted returns than the stock market. Although housing prices do not grow as quickly as equities, there is a comparatively lower chance of an investor losing their savings in a sudden real estate crash. However, housing crashes are still a possibility, as the 2007-8 financial crisis demonstrated.

The Bottom Line

Although real estate and stocks have historically performed well, stocks outpace real estate in returns. Alternatively, stocks have had more peaks and valleys, making them a riskier investment. Despite their potential to generate sizable returns, stocks have no tangible value; meanwhile, real estate is a valuable, tangible asset and profit generator. The best investment for you depends on more than their returns; other factors, like your investment horizon and risk tolerance, should be considered. But if history indicates future performance, both stand to produce gains in the long run.

Has Real Estate or the Stock Market Performed Better Historically? (2024)

FAQs

Has Real Estate or the Stock Market Performed Better Historically? ›

What is the historical performance of stocks versus real estate? Over the past 50 years, stocks have generally generated higher returns than real estate. If you had invested $33,500 into the S&P 500 in 1973, it would now be worth around $5.1 million, with an annual return of 10.59%.

What is the historical performance of stocks vs real estate? ›

The S&P 500 stock index has had an average annualized return around 10% over very long periods (higher if you include dividends), while average annual real estate returns are often more in the 4-8% range. Thus, stocks have outperformed real estate over the past several decades.

What performs better, stocks or real estate? ›

Returns. As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market.

What investment has the highest rate of return? ›

The U.S. stock market is considered to offer the highest investment returns over time. Higher returns, however, come with higher risk. Stock prices typically are more volatile than bond prices.

Which asset class has the highest return? ›

The stock market has proven to produce the highest returns over extended periods of time. Since the late 1920s, the compound annual growth rate (CAGR) for the S&P 500 is about 6.6%, assuming that all dividends were reinvested and adjusted for inflation.

Do stocks return more than real estate? ›

Stocks typically have yields between 8 percent and 12 percent, while real estate tends to provide returns between 2 percent and 4 percent per year. However, external factors such as trends and emotional investment decisions can lead to lower choices and returns.

What is the average return on real estate last 20 years? ›

The data shows that the annual appreciation of property value in the USA across 20 years is 3.97% per year. As you can see from the graph, there were a few years where property values actually fell and took a while to recuperate.

Do REITs outperform the S&P 500? ›

Over the long term, our research found that REITs have outperformed stocks. Since 1994, three REIT subgroups stood out for their ability to beat the S&P 500. Here's a closer look at these market-beating REIT types.

Why do people invest in real estate instead of stocks? ›

Real estate ownership is generally considered a hedge against inflation, as home values and rents typically increase with inflation. There can be tax advantages to property ownership. Homeowners may qualify for a tax deduction for mortgage interest paid on up to the first $750,000 in mortgage debt.

Is it better to be a real estate agent or investor? ›

Real estate agents earn commissions on their deals. This can vary from 1% to 5%, or sometimes even more, depending on the property. However, a real estate investor earns no commission; rather, the investor benefits from the difference between the purchase price and sale price of a property.

How to turn 10k into 100k? ›

How to Turn 10k into 100k in a Year?
  1. Invest in stocks (try Acorns or Public now)
  2. Start blogging (click here for the best blogging platform)
  3. Write an email newsletter (here's my recommendation for the best email marketing software)
  4. Start an online business (Shopify makes it easy)
  5. Flip stuff.
Apr 10, 2024

What's the best thing to invest in right now? ›

11 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Bonds.
  • Money market funds.
  • Mutual funds.
  • Index Funds.
  • Exchange-traded funds.
  • Stocks.
Mar 19, 2024

How to turn 50k into 100k? ›

One way to turn 50k into 100k is by strategically investing in real estate opportunities. One popular real estate investment strategy is purchasing rental properties. By buying a property and renting it out, you can generate a steady stream of passive income.

What is the safest asset to own? ›

Key Takeaways
  • Understanding risk, including the risks involved in investing in the major asset classes, is important research for any investor.
  • Generally, CDs, savings accounts, cash, U.S. Savings Bonds and U.S. Treasury bills are the safest options, but they also offer the least in terms of profits.

What stock will grow the most in 10 years? ›

9 Best Growth Stocks for the Next 10 Years
  • DraftKings Inc. ( DKNG)
  • Extra Space Storage Inc. ( EXR)
  • First Solar Inc. ( FSLR)
  • Gen Digital Inc. ( GEN)
  • Microsoft Corp. ( MSFT)
  • Nvidia Corp. ( NVDA)
  • SoFi Technologies Inc. ( SOFI)
  • Tesla Inc. ( TSLA)
Mar 27, 2024

What is the best performing asset last 100 years? ›

Not only were U.S. stocks the top performing major asset class, they outpaced other investments by a wide margin.

How does investing in stocks compare to investing in real estate? ›

Stocks are highly liquid. While investment cash can be locked up for years in real estate, the purchase or sale of public company shares can be done the moment you decide it's time to act. Unlike real estate, it's also easier to know the value of your investment at any time.

What is the historical performance of value stocks? ›

On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as you'll see on this chart. Also, historical data strongly favors value stocks in the US, known for their lower relative prices and higher expected returns over the past century.

What is the historical performance stocks vs bonds? ›

The chance of losing money over any 10-year period was nearly seven times greater for bonds than it was for stocks. Over any 10-year period, stocks did better than bonds 89% of the time. And, over 15 and 20-year periods, stocks beat bonds every time and never failed to beat inflation.

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