Which is a better investment: buying a home or investing in stocks?
Since 1995, stock prices have outperformed home prices by a factor of four, but which is actually the better investment for building wealth?
If you look at the recent rise in home prices, you might think that the value of real estate is increasing at the same rate as stocks.
You might be surprised. Over the past 30 years, stock prices have risen four times faster than home prices, according to Motley Fool analysis.
Since 1995, home prices have increased approximately 310%. During the same period, the S&P 500 index rose approximately 1,200%. Add in dividends, and the S&P’s total return is over 2,200%.
“Equities, by and large, are the most profitable asset class. There’s no comparison,” said Matthew Argersinger, senior investment analyst at The Motley Fool.
Another way to compare two investments is: According to financial journalism site Investopedia, from 1992 to 2024, the S&P returned an average of 10.4% per year. In the same year, house prices rose by about 5.5% annually.
“If your goal is to invest in a home or the stock market to create long-term wealth for your retirement, the stock market will definitely perform better,” said Caleb Silver, editor-in-chief of Investopedia.
“But I need a place to live.”
A home is more than an investment
And therein lies the enduring appeal of America’s hometown. It’s an asset. It’s an investment. It’s also your castle.
“I recommend thinking of your home as two things,” says Brian Kearns, a Chicago-area certified public accountant and certified financial planner. “The first is a place of refuge. The second is a place to live your life.”
Perhaps nothing improves the quality of life more than a nice home. It’s your environment, your base, and where you’ll probably spend most of your time.
Kearns and other experts say it’s a mistake to think of housing as just an investment. And it’s probably not entirely fair to compare housing to stocks. These are completely different assets.
Homes or stocks: which is the better investment?
Still, many Americans struggle with the question of how to invest their limited funds.
Option A: Buy a home. This deal can leave you with heavy monthly mortgage payments and seemingly never-ending maintenance costs.
Option B: Rent a house or apartment. This is an option that allows you to set aside extra cash for stock investments.
Given the historical performance of stocks, Option B “may be a faster and more efficient way to build wealth,” Silver said.
Between mortgages, insurance, property taxes, and maintenance costs, a home can be a very expensive asset.
“And you’re not going to get anything close to the returns that investing in the stock market has historically produced,” Silver says.
Homeownership and the American Dream
However, option A has distinct advantages. When you buy a home with a mortgage, you enter into a multi-year wealth accumulation cycle in which your mortgage payments and the value of your home gradually increase.
“It’s basically forced savings,” Argersinger said.
Homeownership has helped millions of Americans achieve the American Dream and built wealth that parents can pass on to their children.
“For people who grew up in poverty, I think that kind of forced savings can be a way to get out of poverty,” said Amy Arnott, portfolio strategist at Morningstar.
If you choose option B and rent a house and invest in stocks, you’ll need the discipline to stick to it. No one will force you to buy stocks.
Myths about rising home values
Experts say many consumers mistakenly assume that home prices will rise as dramatically as stock prices.
One reason is that homes have fallen into disrepair recently, rising in value by about two-fifths in the first half of the past decade.
Another reason is that housing is an extremely valuable asset. The average home sale price in mid-2025 was $512,800, according to federal data.
Five years ago, the average home price was $371,100.
That sounds like a significant increase. And that’s true in dollar terms. But in percentage terms, house prices have only increased by about 38% over five years.
In contrast, the S&P 500 is up about 86% over five years.
“If you own a home for decades, it needs to keep up with inflation,” Arnott said. “But you don’t usually get the kind of growth that you get with stocks.”
If you’re considering whether to invest in stocks or homes, here are some comparison points from Investopedia, the Motley Fool, and Morningstar.
volatility
Home prices go up and down, but they are different from stock prices.
According to Investopedia, home prices have never actually fallen in the last 10 years. In contrast, the S&P fell 18% in one year.
utility
A home is a physical asset. Stocks are not like that. You can solve the “shelter” problem and live in your own home. Other people can live there and receive rental income.
Because housing is a physical asset, it is considered a more stable investment than stocks. Experts say that while a home can lose value, it generally cannot lose all of its value. The house won’t go bankrupt.
utilize
When you buy a home with a fractional down payment, you are making a leveraged investment. Use leverage to double your returns.
Let’s say you have 20% equity in your home. “If your home appreciates 2% to 3% a year, your return could be 10% to 15% a year because you have leverage,” Argersinger said.
Some armchair investors have dabbled in leveraged stock investing, but leveraging stocks can come with risks.
liquidity
Your home may be worth $500,000, but that’s not easy money to spend. Housing is considered less liquid and easier to buy and sell than stocks.
maintenance cost
Homeownership is expensive, and not just because of the mortgage. According to a recent analysis by Zillow and Thumbtack, the “hidden costs” of homeownership, including maintenance, insurance, and taxes, now total nearly $16,000 annually.
In contrast, ownership of stocks incurs relatively small administrative costs. Management fees for stock mutual funds are typically less than 1%.
tax reduction
Homeowners enjoy favorable tax benefits. Itemizing typically allows you to deduct both mortgage interest and property taxes.
If you sell your primary residence, you could potentially avoid taxes on up to $250,000 in capital gains, or $500,000 for married couples.
In contrast, investors who sell their stocks for a profit generally face capital gains taxes.
