Tuesday, November 18, 2008

Homes v. Stocks as Investments

According to an article in Charles Schwab on Investing, Fall 2007 (p. 7), which looks like it was written by Matt Wood, stocks are a better investment than housing:

[R]esidential real estate provided an annualized return of 8.6% during the period from 1978 to 2004, compared with 13.4% for the S&P 500 Index (citing Jack Clark Francis et al, Contrasting Real Estate with Comparable Investments, 1978-2004, April 2007)

In some cases, [owning a home costs] as much as three times the purchase price [due to insurance premiums, maintenance costs, and property taxes]...Robert Shiller says real estate's historic real returns are closer to zero after adjusting for inflation. [David Crook, "Your Home Isn't the Nest Egg That You Think It Is," WSJ Online, March 12, 2007]

I refused to buy any property during the last five years, believing that everything in California was overpriced. Now, however, I am not so sure. Housing and other hard assets might not be a great investment, but they no longer appear to be flagrantly overpriced.

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