Historical data show that when rental income is included, housing has achieved long-term returns competitive with equities, but with lower volatility. Because real estate performance depends heavily on execution, professionally managed vehicles may offer sophisticated investors a more practical way to access the asset class.
Some stock investors have begun to assume that housing lags behind public equities.
If you compare the recent growth of the S&P 500 against that of the S&P Cotality Case-Shiller Home Price Index from 2016 through 2026, it may feel as though real estate has no way of matching the meteoric rise of the stock market.
See the graph below from the Federal Reserve Bank of St. Louis’s data.
However, historical research shows that housing should be taken seriously as an important component of any investor’s long-term portfolio because of its potential to do just as well as the stock market over time.
This is because long-term portfolio construction is not simply a question of which asset class looked best over the last 10 years. Nor is it wise to extrapolate one decade of performance over the next 20 years.
With longer life expectancy, and earlier retirement planning that entails from it, many of us now will expect to stay invested in the market for half a century, or even more. The better question is whether an asset class contributes meaningfully to long-term return, income, volatility control, and diversification.
This article reviews the actual research on investment returns between equities and real estate across time to explore this topic.
A 145-Year Historical View
A major working paper, The Rate of Return on Everything, 1870–2015, co-authored by a team of economists including Òscar Jordà of the Federal Reserve Bank of San Francisco, examined returns across 16 advanced economies over roughly 145 years.
The study compared four major asset classes:
- Equities
- Residential real estate
- Government bonds
- Short-term bills
For real estate, the study did not look only at home price appreciation, which is what the S&P Cotality Case-Shiller Home Price Index effectively measures.
Instead, in order to create an apples-to-apples comparison between equities and real estate as two assets with different wealth building profiles, it measured total housing returns, including both price appreciation and rental income.
The paper found that, across these 16 economies, equities and residential real estate both produced real total returns in the same broad range, around 7% per year after inflation.
In the United States, equities came out ahead of housing. Over the full period studied, U.S. equities averaged about 8.5% in real annual returns, while residential real estate averaged slightly above 6%. After 1950, U.S. equities were closer to 9%, while U.S. housing remained slightly below 6%.
The takeaway is not that stocks seem to be doing better overall in the US. The broader lesson is that once rental income is included, housing was not lagging nearly as much as a simple S&P 500 versus S&P Cotality Case-Shiller Home Price Index chart may suggest. This point is further reinforced by the fact that the paper’s housing returns do not factor in leverage or tax benefits such as depreciation — both of which can meaningfully improve returns when implemented correctly.
We now have authoritative research showing that housing has belonged, and should continue to belong, in the same serious asset-allocation conversation as public equities.
But By When, and By How Much?
Average returns across 145 years and 16 economies are useful background. Knowing that American assets often outperform those of other major economies is great news, yet all this is still an incomplete guide as to how we conduct our own investment strategies across our own futures.
And therein lies the real challenge: most assets will not maintain a linear track record throughout the entire period.
If you as a U.S. investor bought stocks in 1929, it would take 25 years before you went back to being in the black.
If you had invested in U.S. stocks between 1966 and 1982, you would have experienced negative growth after adjusting for inflation.
We now know it to be highly likely that most major asset classes can perform well over very long periods. The point is that investors do not know in advance which asset class, country, sector, or entry point will perform best over their own investment horizon. This is why most advisors will have you pair your U.S. stock portfolio with a portion of international stocks, even though they had been lagging U.S. equities for roughly 15 years. Investors who maintained that allocation were rewarded in 2025, when international stocks outperformed U.S. equities.
Why Housing Matters
There is a good historical reason for all of us to diversify our portfolios.
Even for stock die-hards, it cannot be denied that housing as an alternative asset embodies several characteristics that make it qualitatively different from public equities, making it a great candidate for diversification in any portfolio.
First, housing produces rental income. Historically, a meaningful portion of housing’s total return has come from rents rather than price appreciation alone. This makes the asset less dependent on speculative resale value.
Secondly, housing has historically shown lower volatility than equities. This we can attest to from the graph cited at the top. Public stock prices can move rapidly because they are marked to market every day and are heavily influenced by things individual investors cannot control, such as the macro economy, broader investor sentiment, interest rates, bond yield curves, et cetera.
In contrast, housing prices tend to move more slowly. Rent payments are also less directly affected by stock market swings, and rental income can provide a stabilizing component even when the price of real estate goes down. Even if you are leveraged and your asset value goes “upside down,” a lender typically cannot call your loan solely because the property value declined, as long as the borrower remains current and complies with the loan terms. In a downturn, a real estate investor knows to stay the course while they get rent paid and tax depreciation filed.
Third, housing does not always move in line with stocks. The correlation between stocks and real estate has been very low, at around 0.1 to 0.15 during most of the last five decades, with exceptions during systemic panics such as during the Great Financial Crisis. Historically, there have also been instances where the stock market panic has benefited the real estate market (negative covariance) in the form of capital flight.
In short, this asset will likely perform:
- just as well over time
- with less volatility, and
- with not much correlation
to the stock market.
The authors of this study go as far as to state that “[s]ince aggregate equity prices are subject to large and prolonged swings, a representative investor would have to hold on to his equity portfolio for longer in order to ensure a high real return.” (p.41) If you are looking at a shorter time horizon, real estate may even become the better asset to focus on.
The Practical Challenge: You Cannot Simply Buy “The Housing Market”
This is where real estate investing becomes more complicated than public stocks.
In public equities, index funds allow present-day investors to buy broad market exposure with relative simplicity. Modern index investing made it much easier to avoid individual stock speculation and participate in broad market growth.
In contrast, there is no simple equivalent of buying the entire U.S. housing market in one click. Most publicly traded REITs get affected heavily by the turbulence of the stock market swings, so the stabilizing effect cannot be felt by holding them.
Actual real estate investing must depend heavily on market understanding, acquisition strategy, financing options, property management logistics, proper tax filings, and a well-timed exit strategy.
In other words, real estate is not only an asset class. It is also an operating business.
This is why implementation matters.
Why Managed Real Estate Vehicles Matter
Although demand for more quality and affordable housing continues to build, real estate prices have stopped appreciating against the headwinds of high interest rates and affordability issues. Stocks may appear as if they are continuing to rise, but the famous Buffett Indicator, a valuation index showing whether a country’s stock market is overvalued, is now indicating that the U.S. stock market is valued at more than twice its underlying value.
In this difficult climate, local real estate continues to offer opportunities, but they are becoming harder to find for the weekend armchair investor.
In fact, the operational demands of the asset class are not abstract. Property selection, acquisition discipline, renovation oversight, property management, financing strategy, and exit execution all require time, expertise, and consistent attention.
A professionally managed real estate fund is designed to address these issues. The right fund structure allows an experienced investor to maintain meaningful exposure to the asset class while delegating execution to a specialized team — one whose track record, strategy, and judgment the investor has independently evaluated and approved.
The key is selectivity. A fund worth considering should demonstrate on-the-ground market knowledge, a wholesale acquisition approach, professional renovation and property management, strategic use of financing, and institutional-quality financial reporting.
Most investors who bought real estate from 2012 onward were rewarded simply for being a buy-and-hold landlord.
In comparison, in today’s climate, a savvy investor might do well to find a real estate fund whose strategy they can endorse. A well-run fund can operate at a scale that is beyond the reach of an individual investor.
Characteristics of Housing as an Asset
To recap, the characteristics of housing as an asset come from a combination of factors:
- Long-term return potential comparable to equities
- Rental income
- Lower historical volatility than the stock market
- Different behavior from public equities
- Availability of leverage
- Tax and depreciation advantages
At the same time, the limitations are real:
- Property selection matters
- Markets are local
- Management quality matters
- Post-purchase repairs and capital expenditures are unavoidable
- Liquidity is lower than public equities
- Execution risk is meaningful
- There is arguably more work
There is no doubt that real estate is not something to add to your portfolio without due diligence, as is the case with any type of asset. It belongs in a portfolio only when the investor understands real estate strategy, market, and execution.
Conclusion
Authoritative studies now show that historically, housing has offered return potential in the same broad range as equities, with lower volatility. Leverage and depreciation are great additional reasons some investors prefer real estate over stocks at all times. Of possible further interest, recent studies that are being cited here have found that “safer assets,” meaning bonds and bills, have actually behaved with more volatility than previously thought. For market participants who are looking to build long-term wealth, understanding real estate as an asset class is a pursuit that richly rewards the effort.
Sources
Graph: S&P Dow Jones Indices LLC, S&P Cotality Case-Shiller U.S. National Home Price Index [CSUSHPINSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPINSA.
Source: “The Rate of Return on Everything, 1870–2015,” Òscar Jordà et al., National Bureau of Economic Research, December 2017, revised May 2019.
Disclaimer
This article is for educational purposes only and does not constitute investment, legal, or tax advice. It is not an offer to sell or a solicitation to buy securities. Any investment opportunity should be evaluated only through the applicable offering documents and with the advice of each investor’s own professional advisors.