Has Real Estate or the Stock Market Performed Better Historically?

From trophy homes in Beverly Hills to modest starter houses on the edges of American suburbs, real estate has long been considered a reliable path to wealth. Indeed, surveys show a plurality of Americans deem it more reliable for building a nest egg than stocks.

Historical data reveals a consistent pattern: While housing prices have generally kept pace with inflation throughout U.S. history, the stock market has typically delivered superior overall returns. Doug Kinsey, a certified financial planner at Artifex Financial Group in Dayton, Ohio, points out that even as housing has performed less well than stocks during much of the last five decades, there have been times when housing has done better, and nominal returns shouldn’t be the only factor for an investor.

“The numbers don’t tell the whole performance story. You also have to look at the impact of tax advantages, income yield, and the fact that real estate investments often allow for significant leverage. You can finance a home purchase, putting no more than 20% of your own money down, for example,” Kinsey said.

Understanding the gap between real estate and gains from stocks requires looking beyond simple returns. The S&P 500’s historical 10% average annual return (including dividends) outpaces housing’s typical 4%-8% gains, but these numbers need to be put in context. Each investment type offers distinct advantages: stocks provide liquidity and lower maintenance costs, while real estate offers tangible value and potential rental income. Let’s dig into the details.

Stock Market vs. Housing Market Historical Returns

For many Americans wrestling with their investment choices today, the age-old debate about whether to invest more in real estate or stocks is a live one. The S&P 500 index, which tracks the performance of the 500 largest U.S. public companies, has delivered an average annual return of 10.39% (including dividends) from 1992 to 2024, resulting in an inflation-adjusted return of 7.66%. During the same period, the U.S. housing market grew at about 5.5% annually, highlighting stocks’ outperformance.

In the chart below, you can see the performance of $100 invested in 1970 in real estate versus other assets, including the stocks of the S&P 500:

Thus, stocks have outperformed real estate over the past several decades. However, over different time frames, the relative performance may differ.

In the chart below, you can see that over the past decade, the S&P/Case-Shiller U.S. National Home Price Index, the S&P 500, and the Nasdaq have had different market dynamics, reflecting different sectors of economic activity:

• The Case-Shiller Index, which tracks residential real estate prices, has been far less volatile, for the most part rising steadily. This reflects the sustained demand for housing and the limited supply in key markets. Though less volatile than stocks, this index has seen smaller gains.
• In contrast, the S&P 500, a broad benchmark of U.S. large-cap stocks, has had considerable growth, capturing the performance of top companies across various sectors and the effects of macroeconomic shifts, from U.S. Federal Reserve’s policies to trade tensions and COVID-19.
• The Nasdaq, heavily weighted with technology and growth-oriented companies, has outpaced both the S&P 500 and Case-Shiller Index in gains but has also exhibited far greater volatility. Driven by rapid tech shifts and investor appetite for growth, the Nasdaq’s path has included sharp increases and significant corrections.

Key Differences

Volatility

Traditionally, stocks have been far more volatile than real estate. That’s not to say that real estate prices aren’t ever volatile—the years around the 2007 to 2008 financial crisis are just one memorable example—but stocks are more prone to large value swings.

For example, between the first and second quarters of 2020, as the pandemic bore down on the U.S., the median price for a home in the U.S. fell from $329,000 to $317,700, a drop of 3.4%. Between Jan. 1, 2020 and June 31, 2020, the S&P 500 fell from a high of almost 3,400 to under 2,300, a free fall of about 33%, before recovering.

Below, you can see the historic volatility for the S&P 500, real estate, and U.S. Treasurys:

Physical vs. Non-Physical Assets

Real estate is a physical asset that has tangible utility. You can see and touch a piece of land and live in a home that you’ve bought, giving it a real-world use.

“Of course, if you buy real estate directly, you also need to factor in your time in managing the property and maintenance and repair costs,” Kinsey said. “Comparing the rates of return has to include all these elements.”

Stocks aren’t a physical asset, and they don’t have utility in the same way as real estate. They represent ownership in a company, which does have physical assets, and serves as a store of value. But gains in the market can feel far more abstract for many than the home they care for their families in. It’s likely a reason Gallup surveys find Americans consistently say real estate is the best path to building wealth:

Leverage

Whether they’re buying a home to live in or merely as an investment, people generally use leverage to make the purchase, getting a mortgage for a large percentage of the value. Leverage makes it easier to make a larger investment, which can augment both gains and losses.

Meanwhile, though many investors, such as day traders, use borrowed money to buy and sell stocks, it’s far less common to use leverage when investing in stocks (though not other securities).

Taxes

The tax code treats these investments differently, creating distinct advantages for each. Homeowners can exclude up to $250,000 ($500,000 for married couples) in capital gains from the sale of their primary residence. Real estate investors can deduct mortgage interest, property taxes, and depreciation, while also using 1031 exchanges to defer capital gains taxes indefinitely.

Stock investors, meanwhile, benefit from lower long-term capital gains rates (typically 15% for most investors) on positions held over a year. Qualified dividends receive the same preferential treatment.

The Both/And Approach: Real Estate Investment Trusts

REITs offer a distinctly different path to property investment than buying buildings or land directly. These publicly traded companies own, operate, or finance income-producing real estate, providing investors a way to access real estate returns without the hassle of being a landlord. Their shares are often traded on major exchanges. Thus, they offer some of the advantages (like liquidity) of stocks and fewer of the drawbacks of investing in property (you’re not dealing with onerous tenants).

REITs must distribute at least 90% of their taxable income to shareholders annually, resulting in higher dividend yields than typical stocks. For example, in 2024, the average REIT dividend yield was around 4.1%, compared with the S&P 500’s average of about 1.3%.

However, REITs lack some key advantages of direct property ownership. Investors can’t leverage their investment through mortgages or claim valuable tax deductions like depreciation. They also lose the ability to make property improvements that could boost returns or respond to local market opportunities.

The trade-off comes in liquidity and diversification. REIT shares can be bought and sold instantly during market hours, unlike physical properties that may take months to sell. Additionally, a single REIT might own hundreds of properties across multiple states or property types, providing instant diversification that would be impossible for most individual investors to achieve.

The Bottom Line

Choosing stocks versus real estate isn’t about finding a universal winner—it’s about matching investments to investor goals. Historical data favors stocks for pure return potential, with the S&P 500’s 10% average annual returns outpacing housing’s returns. However, real estate’s combination of rental income, tax advantages, and lower volatility continues to attract investors seeking steady returns and tangible assets.

The best strategy for many investors isn’t choosing one over the other but building a portfolio that includes both. Stocks can provide growth and liquidity, while real estate offers stability and income—demonstrating why many successful investors diversify into both markets rather than trying to pick a single winner.