Stocks v. Real Estate: What's the Better Investment?

Housing or Stocks.  What’s The Better Investment?

In a new Federal Reserve Bank of New York study, researchers examined the question - What is a better investment, owning real estate or owning stocks?   The answers may or may not surprise you.  

The study showed that an overwhelming 90% preferred owning a home rather than investing in the stock market and a majority of those participants also favored being a landlord to purchasing stocks.  With more than 50% of households preferring to be landlords and owning rental properties.

One of the most common reasons for choosing housing over the stock market was the comfort and stability housing brought over only seeking a return through the stock market.  One of the most commonly-selected responses was that housing prices were “less volatile”. 

Over the last few years and especially during the pandemic, research has shown that residential real-estate has acted as a strong hedge in most bear markets (MarketWatch). A bear market, according to Investopedia, is when a market experiences prolonged price declines.  For example - The S&P 500 index lost over 20% in Quarter 1 of 2020, while the Case-Shiller National Home Price Index increased 1.4%.  The market has since recovered.

There was a shift in preferences away from housing during the pandemic but those levels are back to where they were out pre-COVID.  The shift away wasn’t driven by concerns about home prices.  Participants expressed more concerns about risk of vacant rental properties and being able to make mortgage payments.

Based on the sample from the survey, women and non-college graduates have a stronger

preference for housing than other demographics do.  On the gender side, men in the sample are risk-taking than women and more willing to invest in the stock market, where returns are looked at as more volatile. The education gap is similar to the gender gap - college graduates tend to expect higher returns in the stock market than in housing and time management of a rental property as one reason for choosing the stock market.

The conclusion of this study showed that investors view housing - primary residences and rental units - as a good investment over the stock market.  This seems to be a more important asset to middle-class households.  More and more home investors are seeing higher returns  and lower volatility as reasons to buy a primary residence. 

Read the full study HERE.