Even as the stock market soars to record highs, federal regulators are announcing new, cheaper ways for cash-strapped borrowers to buy a home. With the catastrophic housing crash of the last decade still glaring through the rear view mirror, the government is again pushing home ownership as the best way to build wealth, but is it?
"It would perhaps be smarter, if wealth accumulation is your goal, to rent and put money in the stock market, which has historically shown much higher returns than the housing market," said Nobel Prize-winning economist Robert Shiller at a Standard and Poor's conference last week.
Shiller notes that the comparison between stock returns and home value returns is rough, given that stocks pay cash dividends and housing pays "in kind," in the form of housing services; that is, you get to live in a house.
Still, if you remove all forms of dividends and compare the Standard and Poor's U.S. composite stock price index since 1871 and Shiller's own real U.S. home price index since 1890, the stock market capital gains outperform the housing market's capital gains. Both, he notes, are smaller than one might expect.