Americans Already Forgetting Big Lesson from Meltdown

×
Americans Have Already Forgotten One Of The Biggest Lessons Of The Financial Crisis
Kevork Djansezian/Getty Images
By JOE WEISENTHAL

Gallup recently released the latest edition of an annual survey asking Americans what they considered to be the best long-term investment.

The No. 1 answer? Real estate!

Americans Sold on Real Estate as Best Long-Term Investment
This chart doesn't go back that far, sadly, but you can see that just a few years ago, the percentage of Americans who thought real estate was the best investment was MUCH lower, a fact obviously attributable to the trauma of the housing crash.

After the housing crash, numerous pundits predicted that America's love affair with homeownership would be doomed for good and that it might take generations for people to be into the idea of owning real estate again.

Nope.

One problem here is that Americans are wrong: Crash aside, real estate isn't historically that great of an investment.

Cullen Roche, who brought the survey to our attention, writes that the long-term performance of real estate as an investment is actually quite pathetic:

According to the U.S. Census Bureau Survey of Construction single-family real estate generates a 0.74 percent annual return over the last 30 years (this includes multiple housing booms, mind you, so the data is probably much lower if we go further back in time). So there appears to be some recency bias here despite the housing bust.

And this doesn't even account for many of the miscellaneous costs involved in real estate. As I've shown previously, a house is basically a depreciating asset that comes with an appreciating piece of land. But that depreciating asset is extremely expensive over its lifetime. When you calculate the total costs that go into maintaining this asset the returns are very likely to be negative over long periods of time. So that 0.74 percent figure is probably higher than you should really expect. In fact, the returns from stocks and bonds trump real estate by a healthy margin so Americans have this one totally backwards -- the American Dream isn't quite the dream we have been sold.

People may have excellent reasons for buying a home, as opposed to renting. And right now in many cities, the math indicates that buying is preferable. But as a long-term investment, it's wild to see real estate retain its perch as the clear favorite among Americans.


More from Business Insider


Increase your money and finance knowledge from home

Understanding Stock Market Indexes

What does it mean when people say "the market is up 2%"?

View Course »

Investing in Emerging Markets

Learn to invest in a globalized world.

View Course »

Add a Comment

*0 / 3000 Character Maximum

51 Comments

Filter by:
lllumpfish@aol.c

This is a ugly,greedy,dishonest,un ethical,corrupt time in America and I have owned several homes and would not be looking for homes now.The whole financial crisis was planned,manipulation and all things one does not expect in this country you never own it anyways if its not your pretender lender the taxs will get you eventually and the only ones profiting are states,banks,brokers,and the rest of the housing finance industry.Good luck you can have it.

April 22 2014 at 3:07 AM Report abuse +1 rate up rate down Reply
lllumpfish@aol.c

I just put down like 1000 words so whered it go?

April 22 2014 at 3:02 AM Report abuse rate up rate down Reply
thejrd

The 1970's was a good time to buy housing,then came 1980 and double digit mortgage rates. Be ready for the repeat----inflation and interest rates will kick us in the ass again!

April 21 2014 at 11:03 PM Report abuse -1 rate up rate down Reply
chloe

I haven't forgotten... The politicians are owned and operated by the banks. Together, they continue to sink us all farther into poverty...That was loud and clear in 2008 and it's just as loud and clear today...They have successfully finished off this country due their greed and arrogance...Bastards will pay though...

April 21 2014 at 8:58 PM Report abuse +3 rate up rate down Reply
vlady1000

I know many, many wealthy people. None rent. Many of these people made their wealth in INVESTMENT RE or in their own business. very, very few acquired their wealth via the stock market. The house you buy to live in is NOT true investment RE, a big difference.

April 21 2014 at 8:51 PM Report abuse rate up rate down Reply
aquacenturian

this is the dumbest article ive read in a while! americans buy houses for homes in the areas they want their children to grow up. americans didnt cause the housing bomb the hedge fund investors did along with crooked banks selling failing mortgages etc...

April 21 2014 at 8:22 PM Report abuse +1 rate up rate down Reply
SPQR

Homes are lots of work unless you buy new. Of course they cost more but having work done on your home is very expensive. A plumber charges $300 to change the innards of a toilet. More on the weekend. Roofs have doubled in price in the last 15 years.

April 21 2014 at 7:09 PM Report abuse -2 rate up rate down Reply
1 reply to SPQR's comment
Ken

Buy a double or triple decker home. Rent out the other 1 or 2 areas to pay for mortgage and expenses....

April 21 2014 at 7:35 PM Report abuse +1 rate up rate down Reply
SPQR

Americans are stupid and will probably vote in Hillary who will be the worst president in the history of the US hands down.

April 21 2014 at 6:59 PM Report abuse -11 rate up rate down Reply
bharrison777

Prefer to live in a house I own. Real estate is insolvent cash instrument if you need cash quickly but may be a good investment for people who can't stomach the ups and down of the market.

April 21 2014 at 6:03 PM Report abuse rate up rate down Reply
prnyl

Buy low sell high - real estate works for those who are able!

April 21 2014 at 5:25 PM Report abuse rate up rate down Reply
2 replies to prnyl's comment
Ken

Location AND timing are everything, but mortgage, renovation, and maintenance offset that over the longer term....

April 21 2014 at 7:21 PM Report abuse -1 rate up rate down Reply
Ken

Yea, you are a house flipper

April 21 2014 at 7:37 PM Report abuse +1 rate up rate down Reply