Over the past 30 years, the average total annual returns for residential real estate and equities in the United States can be summarized as follows:
Residential Real Estate
• Average Annual Returns: The average annual total return for residential real estate has been around 3-4% when adjusted for inflation. This includes both price appreciation and rental income.
• Price Appreciation: Historically, U.S. home prices have increased at an average rate of about 3-5% per year, not adjusted for inflation.
• Rental Income: Rental yields can vary widely by location but typically add around 3-5% per year to the total return.
Equities (S&P 500 Index)
• Average Annual Returns: The S&P 500, a broad measure of the U.S. stock market, has historically returned about 10-11% per year on average, not adjusted for inflation. When adjusted for inflation, the average annual return is around 7-8%.
• Price Appreciation: The capital gains component of the S&P 500 has contributed significantly to these returns, averaging about 6-7% annually.
• Dividends: Dividend yields for the S&P 500 have averaged around 2-3% per year, contributing to the total return.
Summary Comparison
• Residential Real Estate: 3-4% average annual return adjusted for inflation.
• Equities (S&P 500): 7-8% average annual return adjusted for inflation.
These figures provide a general sense of the long-term performance differences between residential real estate and equities in the United States over the past 30 years. The higher returns for equities reflect the higher risk and volatility associated with stock market investments compared to real estate.
