Over the last 100 years, median home prices have increased by an average of 4.3% annually. During the same period, inflation averaged 3%. This means that the value of a randomly purchased house would only increase by 1.3% annually above inflation.
This video analyzes Warren Buffett's recent shift in perspective on real estate investment. Graham Stephan discusses Buffett's statements regarding the current housing market, comparing it to stock market investments, and ultimately advises viewers on whether or not buying a house is a wise financial decision in the current climate.
During his most recent shareholder meeting, Warren Buffett stated that he no longer sees real estate as an attractive investment. He highlighted that it's significantly harder to make money in real estate than in the stock market due to the complexities of negotiation, time commitment, and the limited opportunities compared to the stock market's greater liquidity and accessibility. He also noted that when real estate markets are down, stock markets tend to decline even further, offering potentially better "buy the dip" opportunities in stocks. Finally, he emphasized the emotional aspect of selling a property for single owners, contrasting it with the anonymous and efficient transactions of the stock market.
Graham Stephan uses the example of investing $50,000. If this amount had been used as a down payment on a $250,000 home in 1995, by 2023 the home's value might have appreciated to around $844,000 (not accounting for expenses). However, if the same $50,000 had been invested in the S&P 500 index in 1995, it would have been worth over $94,000 by 2023, illustrating a significantly higher return for the stock market investment.
