05-14-08 - 1

From 1996 to 2006 the average price of existing homes in the US very nearly doubled. That sounds awesome, but anually that's only 7.18% growth. That's also perhaps the fastest appreciation of home values in the history of the modern US.

Over the same period, stocks (the S&P 500 to be precise) rose even more, by about 225% , or 8.48% anually. Over longer time spans stocks look even much better vs. housing, I was just surprised that even during the biggest housing boom in modern history stocks did better, even despite the big crash in 2001-2002.

BTW obviously housing in hot spots did better than the national average, but also stock sectors like energy & technology did better than the S&P so let's not get into that game.

Of course the big advantage with houses is that you can massively leverage your investment (and the interest deduction, and the tax break on gains). If you leveraged a big stock bet the same way you would do better on average. For the most part people don't do that. The reason is that housing is supposed to be much safer. Leveraged bets are very risky; no bank would ever loan you money in order to invest it in the stock market, but they will make that loan for housing.

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old rants