Total long-term returns for both stock market and real estate are actually very similar (about 10% nominal, or 7% real). For stocks, the total return is capital gains plus dividends, and for real estate is capital gains plus rental income minus expenses (insurance, maintenance, etc). Rental income could be actual rental income (someone is paying you money to live in your house), or “owner’s equivalent rent” (money you don’t have to pay to someone else because you live in your own house).
The well-known argument that housing “only appreciates 1%/year”, although factually correct, is quite misleading and incomplete. Yes, empty housing only returns 1%/year (probably negative if expenses are factored in), but that’s not the point of real estate, is it now? Hotels wouldn’t be very good investments if they sat empty, right? Historically, rental income delivers most of the returns for real estate, while capital gains usually return much less.
Naturally, since San Diego rental yelds are very low now, it means that local real estate is overpriced. But I guess that’s not news to you or anybody else here.
Finally, there are many differences between stocks and real estate investments (liquidity, leverage, minimum investment required, and tax treatment), and it is true that these can influence actual returns a lot. I agree with you, for regular folks stocks are a far easier investment, because they’re liquid and can also be bought a little at a time.
