RLA: I agree, except that you cherry picked the best time in history for RE(at least modern times) and one of the best locations. What I compared were the national housing market to stock indexes for the very reason CONCHO points out–Timing is everything.
But that really applies most for short-term investing in either RE or stocks. I can find several examples of stock gains that blow away even the recent SoCal RE gains, even with leveraging. But that is with perfect hindsight–I would take perfect hindsight in investing over any other method–Just ask the CEO’s that have been nailed backdating options!
I don’t espouse stocks over RE for investing. But stocks carry only their cost as a liability–not so for houses. The stock market taken as a whole has beaten the RE market -as a whole- over ANY 20 year period in history. I agree that one may use massive leveraging in RE, but one can leverage to buy stocks as well–some in straightforward ways, such as leveraged stock accounts, and some in stupid ways like I saw in the 90’s. I knew otherwise intelligent people who maxed out their credit cards and took out home loans to buy tech stocks… ouch. Leverage in stocks became much more regulated after the huge market crashes in decades past. I wonder if we will see any measures taken on RE leveraging if this bubble turns out as bad as some of the real bears have been predicting. I doubt it.
And as far as Joe Average–True, it is easier for him to leverage to buy a house. But I really think Mr. Average is much safer and better off plunking down a few hundred bucks per month on an index fund (which dollar cost averages) as an investment rather than RE (your own home is a different calculus). The index, unlike a single stock, will not go to zero, you can buy (almost) as little or as much as you want for <$10/trade, and sell it just as fast, your fund will never have a leaky roof, termites, balloon payments, lack of renters or a 6% commission to sell.
With that said, a savvy investor can make money in either RE or stocks. But Mr. Average is rarely that savvy, just lucky that RE has gone up or flat for a decade. I doubt Mr. Average is prepared for a major RE swing down. Leverage works both ways and it is not as easy to go bankrupt now as it was in the early 90's due to recently passed legislation. Cute timing on their part, don't you think?
-one muggle
