Real Estate v. Stock Investing

Answer from Ken Deshaies: Stocks have continued to rise beyond expectations, much as they did prior to the dotcom bust.  Many people have accumulated wealth through the stock market.  But, as with real estate, I would not venture into stock investing without a very knowledgeable advisor on my side. [Interesting], many of our buyers are disenfranchised stock investors.  Whenever that market takes an unexpected downturn, a percentage will pull their money and put it into real estate.  ...

Real estate is not just a paper asset.  It also provides shelter, whether full time or occasional. So, an investor can experience the joy of use of their home, or they can supplement their investment with rental income.  In addition, you have the opportunity with real estate to be an active investor, rather than a passive one. ...

According to studies by the National Association of Realtors: Real estate is a key driver of the American economy and continues to be a solid long-term investment for most American households.  Housing generally provides steady returns unaffected by volatile movements in the stock market.  Homeownership is how many American families begin to accumulate wealth according to the U.S. Federal Reserve Board.  Since record keeping began in 1968, the national median existing-home price rose every year through 2006, even during recessions and periods of sales decline.

Typically, in a balanced market, home values rise at the general rate of inflation plus 1.7 percentage points.  Home prices flattened in most metro areas during 2007, following a period of abnormal price growth during the housing boom, but modest gains are expected in 2008.

Dollar for dollar, the rate of return on an individual’s cash down payment on a house is substantial. Home buyers typically use their own money to cover only a small portion of the purchase price, but the home appreciation they realize is based on the total value of the property. 

According to the NAR study, first-time home buyers made a median down payment of 2 percent, while repeat buyers who financed their purchase put 16 percent down. However, 11 percent of repeat buyers paid cash, thanks to the equity they had built in their previous home.\nKeep in mind that, if a buyer puts 10% down on a real estate purchase, and it increases in a year by 10% of the total value (and Summit County real estate is currently doing much better than that), the buyer has just doubled his/her value.  That is a 100% return in just one year!\nOh, and that return is easily sheltered from taxes. 

Yet, housing is not a quick-in, quick-out investment.  When purchased for the long term, housing is one of the safest investments consumers can make.  In addition to the savings accumulated through a buildup of equity and tax advantages, a home provides shelter. No paper investment provides this benefit.  According to Harvard University’s Joint Center for Housing Studies, the rate of return on a housing investment dramatically increases the longer it is held. ...

The stock market has experienced wide swings in value over the past 20 years.  During that time, overall home values have continued to rise steadily and contribute significantly to household wealth and spending patterns.\nSince the early part of this decade, many consumers have diversified their portfolios into real estate, often by purchasing a second home – a wise and practical move that provides relatively safe long-term returns from a tangible asset. ...

Last, but not least, many people have either been victims of, or generated much anger over, such investment fiascoes as Enron and Qwest, along with reported huge incomes of CEOs who lead their companies to the brink of ruin, or at least do nothing obvious to earn their salaries and benefits.  In real estate, you just have more control.