In this time of soaring stock market returns, it’s easy to assume the path to wealth is through stocks and bonds. But a new study reported by Bloomberg shows that a home purchase results in just as much wealth as playing the stock market.
Bloomberg cites a study titled “The Rate of Return on Everything, 1870-2015” by economists who compared stocks, bonds and housing over the past decades. While housing returns are hard to measure, due to sketchy record keeping and price differences “from unit to unit and city to city,” the economists managed to create a long-term database of housing prices in advanced economies.
Unlike past studies that focused on capital gains while ignoring the fact that buying a home offers similar gains, their work considered the financial benefits of not paying rent, or, in the case of becoming a landlord, collecting rent each month “just like stockholders receive quarterly dividends.” It also took into account that just as stockholders can use dividends to buy more shares, landlords can use rental income to acquire more housing.
The study concluded that gains on a home purchase are far higher than most people realize. “[T]he return on residential real estate has been as high as or higher than the return on equity. As modern economies have grown and developed, owners of the ground on which we live have been steadily enriched,” reports Bloomberg.
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