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
A new report argues that there are just 31 affordable housing units for every 100 families who need them. Addressing this problem raises more questions than it answers.
FORTUNE -- The rent is still too damn high.
That's the only conclusion you can reasonably draw from reading Out of Reach, the latest report from the National Low Income Housing Coalition (NLIHC). The study attempts to determine the hourly wage a full-time worker would need to earn to MOREChristopher Matthews - Mar 25, 2014 2:05 PM ET
Economists from the Demand Institute predict only modest home price increases nationally, but some areas will fare much better than others.
FORTUNE -- "The time to buy is when there's blood in the streets." That quote, attributed to 18th-century financier Baron Rothschild, means that buying when everyone else is panicking is a great idea, as that's when prices are at their lowest.
But when it comes to the real estate market, the MOREChristopher Matthews - Feb 27, 2014 9:43 AM ET
That is, if you can afford a down payment and qualify for financing.
FORTUNE -- Home prices have been rising steadily for more than year, with the most recent Case-Shiller index reading showing the biggest year-over-year increase in nearly a decade. But that doesn't mean that it is a bad time to buy.
According to a just-published analysis from Trulia Chief Economist Jed Kolko, homeownership is 38% cheaper than renting nationally and MOREChristopher Matthews - Feb 26, 2014 12:18 PM ET
But other data suggest that the real estate market is finally cooling off.Christopher Matthews - Feb 25, 2014 10:58 AM ET
Recent data suggest that the promised construction boom may not materialize.Christopher Matthews - Feb 19, 2014 12:39 PM ET
Four reasons why a collapse in China's home prices won't spell global disaster.
By Shang-Jin Wei
FORTUNE -- As China's home prices soar to record highs and well beyond the reach of ordinary citizens, the world watches closely as many wonder if the housing market might eventually crash. The global economy is still recovering from the financial crisis triggered largely by the collapse of America's housing market, and it's easy to MOREFeb 3, 2014 1:55 PM ET
The banner year for stocks signaled a boom in million-dollar home sales, but what happens if the party ends?
By Jeffrey McKinney
FORTUNE -- With stocks a whisker from posting a record this year, some investors are latching onto homes that fetch $1 million or more.
Surging stock prices and increased consumer confidence are among the factors propelling sales in the upper-end housing market, says Walter Molony, a spokesman for the National Association of Realtors.
Sales of MOREDec 16, 2013 5:00 AM ET
American Infrastructure MLP Fund busts through its target.
FORTUNE -- American Infrastructure MLP Fund has closed its second investment fund with $800 million in capital commitments, Fortune has learned. The Foster City, Calif.-based firm originally targeted $750 million, and now manages over $1.5 billion in total capital (including co-investment opportunities afforded LPs).
The Foster City, Calif.-based firm was founded in 2006 by Bob Hellman, who previously was with McCown De Leeuw & Co. MOREDan Primack - Dec 9, 2013 4:05 PM ET
|Regulators pave way for Internet "fast lane" with net neutrality rules|
|What stumps Warren Buffett? Minimum wage|
|Facebook profit triples on mobile growth|
|Apple shares soar on increased buyback|
|Thanks to Obamacare, more workers may quit their jobs|