Stock exchange or real estate investment? For most people, their home is their biggest and most valuable asset. But how do Americans view property as an investment? A recent survey looked at consumer preferences and examined how attitudes have changed over the last year. The results found that when it comes to choosing where to invest, real estate (owning and buy-to-let) lies well ahead of the stock market.
The survey questions
The Federal Reserve Bank of New York survey compared the two asset forms by presenting respondents with two scenarios. In the first, they were asked to advise a young couple with a gift of a down payment whether they should buy a house or invest on the stock exchange.
In the second, the couple already have a home and respondents must advise on investing in a buy-to-let or in shares.
The survey was carried out twice last year – in February and October – and recently in February 2021.
Real estate investment preferred by 90%
The survey found that households have a strong preference for real estate over stocks and shares. Over 90% of respondents opted for buying a home rather than investing on the stock exchange. This percentage was particularly high in February 2021 and February 2020, showing a slight dip in October last year.
The survey also revealed that when given the choice between buy-to-let and shares, over 50% of households opted for buying a rental property. Buy-to-let had the edge in all three surveys, although stocks gained ground in October possibly due to worry over the risk of empty rental units. However, by February this year, buy-to-let was yet again the clear favourite over shares.
Reasons why real estate preferred investment
The survey also asked respondents to state their reasons for choosing property instead of shares. In the latest survey (February 2021), most people chose two financial factors as their main motivators. The fact that housing prices are less volatile than stocks made the majority opt for real estate. Higher housing returns was the second more preferred reason.
The motives for choosing real estate a year ago were slightly different. Most people said “desired living environment and provides stability” was their main motive for investing in a home. Leverage and tax reasons also featured as strong motivating factors together with the fact that income from buy-to-let investment covers costs.
The survey results reveal that the majority of people see real estate as a solid investment asset, whether it’s property as a primary home or buy-to-let purchase. Higher returns would appear to be main motivating factor when choosing between real estate or the stock exchange.
This underlying trend has continued over the last year during the pandemic. Confirming yet again that bricks and mortar are always a wise investment in the medium to long term.
(Source: Federal Reserve Bank of New York)