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Real estate investment compared to stock

October 31, 2008 Leave a comment

I just went ahead to research the house price history and found that it’s pretty good. From 1975 to 2000 (before the house bubble), California index went from 16 to 100, which is 625% overall gain, in 25 years. These 2 pages have interesting charts:

http://mysite.verizon.net/vodkajim/housingbubble/
http://investmenttools.com/median_and_average_sales_prices_of_houses_sold_in_the_us.htm

At the same time range (1975 to 2000):

S&P 500 went from 86 to 1420 (1650%)
DJ index: 800 to 10635 (1328%)
401K at 10%: 100 to 1092 (1092%) (before tax) – refer to my tool page: http://onlinedisk.us/mf.asp

First, that shows again that index fund is not bad at all. I’m not confident that I can select a mutual fund that does 10%+ every year for 25 years.

Secondly, real estate investment is good since your cost is only 25% down payment. Let’s do a math:

You put $100 down to buy a $400 house with no on-going cost, and same amount in stock. 25 years later:

– the house is $400*6.25 = $2500
– S&P500 is $100*16.50  $1650
– DJ is $100*13.28 = $1328
– 401K is $1092

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Categories: Finance Tags: , , ,