Has Real Estate or the Stock Market Performed Better Historically?

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 had better returns overall.

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 of the 20th century.

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; gains from sales of investment properties are taxed as capital gains as well.
• Stocks have no tangible value, whereas real estate does.

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 of 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 1992 through March 2024, the U.S. housing market’s annualized average growth rate was around 5.5%.

From 1992 to 2024, the S&P 500 returned about 8.27% and over 10.24% 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.

Important

While stock prices tend to have higher returns, they also incur capital gains taxes. Selling investment real estate for a profit can also mean capital gains taxes, but exclusions exist for those who sell their main home.

Over the 10-year period from June 2014 through June 2024, the S&P 500 returned a total of 184.09%; the Vanguard Real Estate Index returned closer to 12.42%:

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. On the other, 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.

Does the Stock Market Out Perform the Housing Market?

Historically and generally the stock market outperforms the housing market, but the housing market is usually a bit more stable than the stock market.

What Makes More Millionaires, Stocks or Real Estate?

Both markets have generated millions for many investors. The amount of money a person can make from either market depends on market conditions and how much they have invested.

Is It Better to Invest in the Stock Market or 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 2007-2008 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.

Read the original article on Investopedia.