FORTUNE -- As the real estate market recovers, so does America's faith in housing as an investment.
According to a Gallup poll released Thursday, a plurality of Americans now think of real estate as the "best" long-term investment, followed by gold, stocks and mutual funds, savings accounts/CDs, and bonds:
If one assumes "best" to mean the investment that offers the highest return, then Americans have things backwards. Real estate, on average actually returns very little when adjusted for inflation. Robert Shiller -- the economist famous for helping to create the widely cited Case-Shiller housing index puts it like this:
Home prices look remarkably stable when corrected for inflation. Over the 100 years ending in 1990 -- before the recent housing boom -- real home prices rose only 0.2 percent a year, on average. The smallness of that increase seems best explained by rising productivity in construction, which offset increasing costs of land and labor.
And since 1990, housing has continued to be a middling investment, when you take into account the bursting of the real estate bubble:
When adjusted for inflation, the average house has appreciated little since 1987. The picture looks a lot different for the other investments Gallup asked about it in its polls. The S&P 500, for instance, has produced an inflation-adjusted annual return of 6.32% since 1929, while investing in government debt would have returned roughly half that figure. Gold, interestingly enough, has performed pretty well on an inflation-adjusted basis, averaging a 4.12% return per year since the end of the Bretton-Woods monetary order in 1971.
If you break down the Gallup data into income groups, the answers are even more revealing. For one, wealthy Americans are more likely to pick stocks as the best investment than any other income group. This makes sense, as investing in the stock market is -- as the above data shows -- the best way to become wealthy.
Secondly, it appears as if people are likely to say investments they own are the "best." According to the Gallup report:
Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.
So wealthy Americans are the most likely to understand that stocks provide the best chance for a higher return, but they are also not free of the tendency to think that the thing they are doing (in this case, owning a home) is the intelligent thing to do.
Of course, this analysis takes for granted the idea that "best" necessarily means the investment that is most likely to make you the most money. There are, of course, other reasons why people might decide to invest in real estate. While it theoretically might make sense for an investor to rent his home and plow the money he saves on taxes, mortgage interest, and maintenance into the stock market, such a strategy might not work in the real world. First of all, people have limited time: They're going to spend a lot of energy choosing a good place to live, and might not also have the time to wisely manage securities investments too. Secondly, owning a home is a great way to force yourself to save money, as each mortgage payment is something you have to make, lest you risk losing your home.
Either way, if you decide to put your extra cash into real estate for these reasons, you should be aware that this is the reason you're doing it. As long as you don't expect your home to make you a lot of money on an inflation-adjusted basis, invest away.
Economists have been arguing for higher inflation targets. But richest 0.1% are likely not to blame for the failure to implement such policies.
FORTUNE -- The International Monetary Fund isn't known for its candor.
As a political institution with a multitude of sponsors with differing -- or even competing -- interests, it often puts forth policy recommendations in a swirl of circumlocution, or as Paul Krugman recently asserted, euphemism.
Krugman was referring to a MOREChristopher Matthews - Apr 8, 2014 12:34 PM ET
If you thought Vladimir Putin's annexation of Crimea was quick, just look at how fast investors have changed their tune on Russia.
By Jen Wieczner, writer-reporter
FORTUNE -- It wasn't too long ago that Russia was considered one of the BRIC powerhouses among emerging markets, along with Brazil, India, and China. Toward the end of 2013, many respected money managers were excited about Russia -- if not bullish. David Darst, then the MOREMar 31, 2014 5:00 AM ET
A "clever" bond deal will add even more tension to the neighboring nations' negotiations.
FORTUNE -- Just months before the toppling of its government, Russia cut a loan deal with Ukraine that would make even an ace structured finance dealmaker envious. One expert on sovereign debt has called the transaction "clever." And the deal could come back to haunt Ukraine's economy.
Back in December, Russia lent Ukraine $3 billion as part of MOREStephen Gandel, senior editor - Mar 12, 2014 5:00 AM ET
Big IPO-like spikes, clients being favored over others, and the potential for unfair Wall Street profits. This certainly sounds like another manipulated market.
FORTUNE -- Wall Street may have a new debt problem.
Late last week, Goldman Sachs (GS) disclosed that regulators are probing how it allocates and trades bonds. Citigroup (C) is reportedly in regulators' crosshairs as well, along with the rest of Wall Street. At issue is how banks decide MOREStephen Gandel, senior editor - Mar 6, 2014 5:00 AM ET
Target-date funds did well in 2013 for all the wrong reasons.Stephen Gandel, senior editor - Feb 18, 2014 5:00 AM ET
Buyer beware. A single year in which stocks soared and bonds tanked can throw the long-term numbers way out of whack.
FORTUNE -- Today let's have some fun with numbers. The kind that investors rely on. Which turn out to be the kind that can be skewed by their start or end dates, and that can skewer your investment portfolio if you follow them blindly.
Let's start with a key number, the MOREAllan Sloan, senior editor-at-large - Jan 15, 2014 5:00 AM ET
Bridgewater Associates has claimed that one of its key funds will do well in up and down markets. So how come it couldn't perform in 2013?
FORTUNE -- The hedge fund that claims it will never have an off year just had one in 2013.
Bridgewater Associates' All-Weather fund dropped 3.9% last year. This has come at a time when the sky for many investors has been quite clear. The stock MOREStephen Gandel, senior editor - Jan 9, 2014 2:50 PM ET
Markets should welcome the end of the Federal Reserve's stimulus.
By Sanjay Sanghoee
FORTUNE -- The U.S. Federal Reserve is one of the most powerful bodies on the planet today, able to shake global markets with the force of a single word: taper. Analysts shudder, investors wail, bond yields spike, and stocks collapse whenever the mere possibility of a taper arises. And yet, the fear that the world will end if MOREDec 17, 2013 9:01 AM ET
Will tapering be a "sell the news" moment for 10-year yields? The pundits don't seem to agree.
By Daryl Jones, Hedgeye
FORTUNE -- Like many Americans nowadays, I tend to tune out much of the mainstream media, but I did catch myself watching a little CNBC recently. Interestingly, it made me realize that the buy side, sell side, and media are arguing with many of the same platitudes on the topic MOREDec 12, 2013 9:08 AM ET
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