Homeownership vs. the stock market

Homeownership vs. the stock market

Steve Thomas

AS A LONGTIME INVESTORS IN AND ADMIRER OF ARIEL Capital Management, as well as a 19-year subscriber to BLACK ENTERPRISE, I am a serious investor in both stock and real estate markets. However, I take issue with some of the comparisons made in “Wall Street–The Best Address” (Moneywise, April 2007) between stocks and real estate.

For example, in the article, [an investment of] $150,000 is compared using historical returns of 11.4% in stocks and 5.5% in real estate. But few homeowners pay cash for a home. A more accurate comparison would have been to assume the $150,000 as a 20% down payment. A $150,000 down payment qualifies a homeowner for a $750,000 home today. Using the same 5.5% appreciation, this home value increases to $2,188,318. Adding the $150,000 equity/down payment back in (and neglecting any amortization over 20 years) shows the real estate has a future value of $2,338,318 compared to $1300,000 for stocks. The real estate wealth exceeds the stock growth by more than $1 million. Real estate also provides shelter over this 20-year time period, eliminating any wasteful dollars spent renting.

Most wealthy investors realize the power of real estate to attain wealth with much lower risk relative to the stock market. Despite today’s troubling real estate market, over the long haul, the sector is likely to beat stocks for all but the luckiest investors.

Steve Thomas, Senior Vice President Aegis Mortgage Corp. Chicago STbpiece@aol.com

COPYRIGHT 2007 Earl G. Graves Publishing Co., Inc.

COPYRIGHT 2007 Gale Group