Conventional wisdom suggests that investing in residential real estate during times of inflationary pressures may yield a more favorable total return outcome than being invested in stocks. The observed reality, however, is less exciting. In tracking the four most volatile inflationary environments in the United States since 1987 (the first full year of the S&P CoreLogic Case-Shiller U.S. National Home Price Index), there have been four occurrences that deserve attention. Table 1 below provides the observed outcomes that reveal a mere 50% success rate for those investors that followed a strategy of favoring residential real estate relative to equity market participation.
Table 1: Four major inflationary periods in the United States since 1987
For those investors seeking a more definitive answer on ways to outpace inflation, the long-term solution is equity market participation. Table 2 below provides a performance breakdown of residential real estate to the S&P 500 relative to annualized inflation (CPI). It bears notable significance to highlight the immense relative outperformance of the S&P 500 over the past 35 years.
Table 2: Annualized performance of U.S. Home Prices and the S&P 500 relative to annualized inflation (CPI)
Investments in residential real estate require notable considerations that are not accounted for in the analysis above. While residential real estate has the potential to provide tax advantages and income generation (for example, through rental income), it also exhibits illiquidity, high transaction costs, ongoing maintenance and tax costs, and special considerations (such as the relationship between property location and price appreciation).
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.
All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional location.