Equities vs real estate

It is well known among professionals that historical equity returns beat real estate returns by quite a margin. Successful companies generate innovation and create real economic value, so it would be surprising if equities didn't outperform an inert asset like housing over the long run. (On a risk-adjusted or tax and leverage-adjusted basis housing might be competitive, though.) We're nowhere near running out of space in this country, despite what housing bubble speculators might think. See previous posts, here and here.

NYTimes: When Marti and Ray Jacobs sold the five-bedroom colonial house in Harrington Park, N.J., where they had lived since 1970, they made what looked like a typically impressive profit. They had paid $110,000 to have the house built and sold it in July for $900,000.

But the truth is that much of the gain came from simple price inflation, the same force that has made a gallon of milk more expensive today than it was three decades ago. The Jacobses also invested tens of thousands of dollars in a new master bathroom, with marble floors, a Jacuzzi bathtub and vanity cabinets.

Add it all up, and they ended up making an inflation-adjusted profit of less than 10 percent over the 35 years.

That return does not come close to the gains of the stock market over the same period. The Standard & Poor's 500-stock index has increased almost 200 percent since 1970, even after accounting for inflation.