Do U.S. Investors Prefer Stocks or Real Estate?

Do U.S. Investors Prefer Stocks or Real Estate?

Roger Pettingell Sarasota Real Estate

With housing prices skyrocketing and stocks plummeting, it’s highly understandable if Americans choose real estate over equities as their preferred long-term investment vehicle.

The fact is that for years U.S. adults have favored residential property over a bushel of stocks as a long-term investment, even when stocks outperform real estate.

A new study takes a closer look at the issue of preferable long-term household investments

What’s undeniable is that owning a property and holding stocks are far and away the favored investments among Americans looking to invest money that’s they don’t need over the next 10 years.

The study shows that real estate invariably gets the nod over stocks and does so on a fairly regular basis.

This from the report:

  • 29% of U.S. adults say that real estate is their preferred way to invest money not needed for 10 or more years, coming out on top for the third time in the past four years.
  • The preference for the stock market surged from year-ago levels, to 26% from 16%, despite the stock market being down more than 20% year-to-date at the time of polling.

From those who didn’t select the stock market as their preferred investment for the next 10 or more years, the survey requested the single biggest reason. The top answer by a wide margin: “too much volatility” (36%).

“Despite a housing market that is coming off the boil, preference for real estate remains high,” said Greg McBride, chief financial analyst at Bankrate. 

“For the third time in the past four years and the sixth time in the past decade, real estate is Americans’ preferred way to invest money not needed for more than 10 years. Despite a brutal bear market in 2022, the stock market was a close second.”

Holding cash was the third optimal choice for investors, at 17%, while bonds, commodities, and cryptocurrencies finished significantly further down the study’s list.

A ‘Tangible’ Asset

So why real estate over stocks for long-term-minded investors? Familiarity and risk play big roles in that equation.

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“It’s really a combination of familiarity with the tangible asset and familiarity with narratives concerning returns to real estate, particularly residential real estate,” says Robert Johnson, professor of finance at the Heider College of Business at Creighton University.

Seemingly everyone understands purchasing real estate and the benefits of the asset, Johnson noted.

“One of the benefits of investing in residential real estate is that one does not get a minute-by-minute or second-by-second quote on what that particular investment is worth,” he said. 

“Ironically, the illiquidity of residential real estate is a positive compared to the liquidity of stocks. When the stock market declines, one immediately sees that and there is no doubt about the drop in value.”

On the other hand, no one provides a real estate owner with constant quotes on what their home is worth. “Consequently, one has the illusion of stability of value with residential real estate,” Johnson said.

Other investment specialists note the relative scarcity of real estate over stocks as a big difference maker.

“There is only so much dirt on this Earth on which to build,” said Jeff Samuels, regional manager at the Agency, a real estate firm in Walnut Creek, Calif. “It continues to exist in a limited supply relative to the ever-increasing demand for housing that is a result of our growing population.”

That means real estate is something tangible, something physical, and something dependable.

“Given the choice to invest in dirt on which to build shelter, which is a necessary human need, or risk investing in the next Enron, a risk-averse person may have a strong case for real estate,” Samuels told TheStreet. “This is the ‘comfort level’ factor with investing in something that’s easy to understand.”

The Smart Play – Make Room for Both

While real estate may hold sway with long-term investors, holding both puts long-term savers on the fast path to financial security.

“The best move for any investor is to discuss their short and long-term goals with a professional money manager, with a focus on diversification,” Samuels says. 

“We should never view this conversation that it has to be either real estate or stocks – it can and should be about both.”

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