House prices in the US increased roughly 3.89% between 2010 and 2020, according to the S&P/Case-Shiller National Home Price Index. During the same period, inflation averaged about 1.8%, while the S&P 500 saw an annual growth of 11.21%. This difference is significant. For example, a $500,000 investment in real estate growing at 3.89% annually would reach over $732,000 in 10 years. In contrast, the same amount invested in an S&P 500 index fund, growing at 11.21% annually, would balloon to $1.44 million in the same timeframe—almost double the real estate return. Moreover, the index fund comes with minimal carrying and transaction costs, unlike property investments. This raises the question: why do so many consider their home to be such a great investment?
Two cautions before reading too much into these numbers. First, 2010–2020 was an unusually strong decade for equities and a rebound decade for housing after the 2008 crash; over the long run U.S. home prices have roughly tracked inflation with only a modest real premium, while the S&P 500 has returned on the order of 10% nominally — the gap is real and persistent, but the precise figures depend heavily on the window you pick. Second, the comparison above pits the whole house price against an equal sum invested in stocks — yet almost nobody buys a house with cash, and that changes everything, as the next subsection shows.
According to NAR’s research Housing Wealth Gains for the Rising Middle-class Markets, over the past 30 years, single-family existing-home sales prices have increased at an annual pace of 4.3% as of 2021 Q4, with home prices accelerating at a faster annual pace of 8.3% over the past 10 years.
Read more about Case-Shiller Index:
More details are in section “Housing’s Role in Optimal Portfolios”.