S&P 500 vs. U.S. Housing: 35 Years of Returns, Side by Side

From January 1990 through year-end 2024, the S&P 500 returned about 10.5% per year with dividends reinvested. Over the same 35-year window, the S&P/Case-Shiller U.S. National Home Price Index — the most widely cited measure of single-family home values — rose at roughly 4.5% per year. After inflation (CPI averaged ~2.5%), that is roughly 7.7% real for stocks and 1.9% real for housing.

Compounded, the gap is staggering. $100,000 invested in the S&P 500 in January 1990 grew to roughly $3.2 million by the end of 2024. The same $100,000 buying the median U.S. home appreciated to about $475,000 in price. On price alone, it is not even close.

But almost nobody actually invests in housing the way they invest in an index fund. A homeowner does not put down 100% cash and let the asset sit. They borrow, they collect rent (or save the rent they would have paid), they take depreciation, and they pay taxes, maintenance, and insurance. Each of those reshapes the comparison.

A rental property is not just price appreciation. The national average gross rental yield on single-family rentals has hovered around 6–8% of property value, depending on the metro. After expenses (property tax, insurance, maintenance, vacancy, management), net operating income typically runs 3–5% of the property's value. Add that to ~4.5% price appreciation and the total nominal return on an unlevered rental is roughly 7.5–9.5% per year — still below the S&P, but the gap narrows sharply.

Leverage is what makes real estate competitive. A typical investment property is purchased with 25% down, meaning every 4.5% move in the property's value translates into an 18% move on the equity invested. After mortgage interest and amortization, levered nominal returns on a well-bought rental in a normal market commonly land in the 10–15% range over a holding period — roughly in line with or above the S&P, with the obvious caveat that leverage cuts both ways. The same 4x leverage that supercharges a 5% gain converts a 25% decline into a wipeout.

Importantly, you cannot easily get this kind of leverage on stocks. Margin loans are capped at 2x, are recourse, and get called when prices drop. A 30-year fixed-rate mortgage is non-recourse in many states, has a locked-in rate, and the bank cannot demand more collateral if the property's value falls. That is a structural advantage of housing that no stock investor enjoys.

On annualized volatility, the S&P 500 swings roughly 15–17% per year. Case-Shiller home prices swing around 5–6%. That is partly real — housing genuinely is less volatile than stocks — and partly an artifact of how home prices are measured (smoothed monthly averages of appraisals and recent sales, not real-time bid-ask prices). If your house were marked to market every minute the way your brokerage account is, its volatility would look higher than the index suggests.

Maximum drawdowns tell a similar story with a sharper edge. The S&P 500's worst peak-to-trough decline in this period was roughly 55% during 2007–2009 and 50% in 2000–2002. National home prices declined about 27% peak-to-trough during 2006–2012 — milder, but it took roughly a decade to recover, versus about 5 years for stocks after 2008.

Liquidity is the other big difference. You can sell the S&P 500 in two seconds and have the money in your account the same day. Selling a house takes 30–90 days minimum, costs 6–10% in commissions and closing fees, and requires the market to cooperate. The 'lower volatility' of housing is partly the lower volatility of an asset you cannot actually sell when you most want to.

Tax treatment may be the most underrated factor in this comparison. Stocks held more than one year are taxed at long-term capital gains rates (0%, 15%, or 20% federal). Qualified dividends get the same treatment. Inside a 401(k) or IRA, the entire return compounds tax-deferred.

Housing has its own tax stack. Primary residences enjoy a federal capital-gains exclusion of $250,000 (single) or $500,000 (married filing jointly) on the sale of a home you have lived in for two of the last five years. Mortgage interest on up to $750,000 of debt is deductible if you itemize. Property taxes are partially deductible under the SALT cap. None of this applies to your brokerage account.

Rental real estate gets an even more generous treatment. Depreciation lets owners deduct roughly 1/27.5 of the building's value each year against rental income — often producing 'paper losses' that offset real cash flow. 1031 exchanges allow investors to defer capital gains indefinitely by rolling proceeds into new properties. At death, a step-up in basis can erase decades of accumulated gains. That stack of tax breaks meaningfully closes the gap with stocks for serious real estate investors.

Despite the math, most American household wealth sits in housing, not stocks. The Federal Reserve's 2022 Survey of Consumer Finances found that the median U.S. homeowner had roughly $200,000 of home equity versus about $52,000 in directly held stocks and retirement accounts combined. For the bottom half of households by wealth, the primary residence is essentially the entire balance sheet.

Part of that is forced savings — a mortgage payment quietly builds equity even for people who would never sit down and invest $2,000 a month. Part of it is the use value: a stock pays you nothing to live in it, while a paid-off house produces shelter that would otherwise cost rent. And part is behavioral: people will hold a house through a 30% drawdown without flinching but panic-sell stocks at a 20% loss.

For the top quintile of households, the mix flips. They hold proportionally more in stocks, businesses, and retirement accounts than in their home — which is one mechanical reason why equity-heavy portfolios have outpaced housing-heavy portfolios in the wealth distribution over the last 35 years.

There is no universal winner. The honest framing is that S&P 500 index funds are the better pure-return vehicle for most investors — higher returns, far lower transaction costs, no maintenance, instant liquidity, and trivial diversification. For money you do not need to live in, the index almost always wins.

Housing wins on three specific dimensions: it provides shelter (a return in kind that no stock pays), it allows non-recourse 4–5x leverage at 30-year locked rates, and its tax treatment for primary residences and 1031-exchanged rentals is genuinely advantaged. For a household that would otherwise pay rent in an expensive metro, buying is often the highest-return decision available — not because real estate beats stocks, but because the alternative is sending the same money to a landlord.

The most rigorous answer for almost everyone is: own the home you live in if you plan to stay 7+ years and can afford it without stretching, max out tax-advantaged accounts and put that money in low-cost equity index funds, and consider direct rental real estate only if you have the capital, the time, and the temperament to manage it as a small business.