For many Americans, last decade’s housing bubble is largely forgotten: 27 percent in a recent poll said real estate was the best investment for money they would not need for at least a decade, according to a new Bankrate.com survey of 1,000 investors.
That No. 1 ranking marks the first time real estate claimed the No. 1 spot in the three years that Bankrate has been conducting its research. Cash ranked tops with investors in 2013 and last year.
“It begs the questions if more Americans are once again viewing real estate as a golden ticket,” says Bankrate CFO Greg McBride.
On the downside, credit is more elusive than a decade ago even as mortgage rates continue to hover near record lows, and interest-only loans have returned as lenders find themselves in much more regulated environment.
Investors are urged to weigh the long-term return potential of real estate investing compared with other assets. The S&P/Case-Shiller 20-City Composite Home Price Index has generated an annualized 9.2 percent return over the last three years through the end of this year’s second quarter, but produced an annualized 0.4 percent loss over the past 10 years.
By comparison, the S&P 500 index grew an annualized 14.8 percent during the past three years and 5.87 percent over the past decade.
Investors with sterling credit can borrow to buy real estate, which can either enhance returns or magnify losses, depending on the market.
“The singular and best reason to own real estate as an investment is to use leverage,” concluded Stephen Lovell, a certified financial planner in California. “Without it, your return on investment tends to be about 2 percent to 3 percent.”