Stocks and Houses

Twelve years ago when the boom in tech stocks ended, housing was considered a safe investment to escape to.  Six years ago the financial crisis took down both stocks and housing.  Clearly neither is without risk, but maybe the past can offer some hint as to which might be better.   Looking at the period since January 1987 when the S&P/Case-Shiller 10-City Index begins to the most recent data point from last February,  stocks measured by the S&P 500 are up 472% and home prices are up 154%.  Neither figure is adjusted for inflation and neither includes dividends or any adjustments for taxes.  However, if the starting point is the summer of 2000 when the stock market peaked, stocks are only 2% high now while housing is up 45%.  Alternatively, if one starts the comparison in October, 2002 when the tech bust bear market ended, stocks are up 77% since then while housing gained only 14%.   Maybe the most telling choice of  starting point is October 2007 when the financial crisis began — from then to last February stocks are down 2% and housing is down 24%.   When you buy matters almost as much as what you buy.

For those who like the big picture, the chart compares the S&P 500 and the S&P/Case-Shiller 10-City Home Price Index.  The Home Prices were rebased to start at the same level as the S&P 500 in January 1987.

Source: S&P Dow Jones Indices, S&P/Case-Shiller Home Price Indices

Source: S&P Dow Jones Indices, S&P/Case-Shiller Home Price Indices

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One Comment

  1. Martin Hohensee says:

    Interesting observations, but the fact that most people thank leverage of 4-times when they buy their homes (necessarily) would also affect realized historical returns. Difficult to incorporate though without matching individual house price data points with corresponding ltv data.

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