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Comparing Bay Area home purchases to the stock market

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Is the Bay Area real estate market a better bet than the S&P 500? That question is the subject of Paragon’s recent report, which details a 20-year comparison of return on investment. The analysis look at the comparative investment returns of buying a Bay Area house, gold, Apple stock, an S&P Index fund or putting money into a bank CD.

Now, let’s face it: Stock and house prices can’t be compared apples to apples. What Paragon has done here has made a simplified, good-faith illustration of the investment of $100,000 in January 1994, having chosen February 2014 as the home sell date since that is the last published Case-Shiller Index (as of May 20, 2014).

In hindsight, 1994 was an excellent time to put money into the stock market. If you include dividend reinvestment, the S&P 500 went up approximately 9 percent per year for a total of 473 percent over the 20-year period.

Meanwhile, Bay Area home prices went up much less than the S&P during this period – about 5.5 percent per year for a total of 189 percent. That said, the return on cash down-payment investment would be about 733 percent – a significant outperformance of stocks. This difference only increases when you look at taxes on gain.

Tomorrow we’ll look at the financial advantages particular to American homeownership.

Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call 415-577-0809 or email cblase@paragon-re.com. www.ceceblase.com

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