How did the real estate industry compare to the S&P 500 between 2007 and 2016?
Last time, I discussed the last decade of the stock market with a focus on the S&P 500. After getting some great feedback on the topic, today I’ve decided to focus on another decade—the years between 2007 and 2016, aka the Great Recession, when about 5% of all homeowners had their homes foreclosed upon and many lost a fortune in real estate.
Here’s the data for Los Angeles County for that turbulent decade:
In 2007, the median home price was $525,000. By 2016, the median home price was $569,000. That’s roughly an 8.4% growth during that timeframe. The housing market was able to dig itself out from the crash, from 2011 to 2015, with the real gain happening between 2015 and 2016. This is especially true for those homeowners who purchased right before the crash of 2007. This amounts to an annual growth of 0.84%. In this paragraph: Overall, it looks like the real estate industry got ahead of the S&P 500 during that decade. This makes sense, since real estate is an industry that has a certain amount of control.
Unlike the stock market, the real estate industry has leverage on its side.
However, unlike the stock market, the real estate industry has leverage on its side. The basic down payment in real estate is 20%, so if you take that 0.84% growth and multiply it times five, you get roughly a 4.2% growth for that timeframe.
Now let’s take a look at how the S&P 500 fared between 2007 and 2016.
In 2007, the S&P 500 index was 1,424. By 2016, the index was 1,918. That’s a cumulative growth of 34.8%, or an annual growth of 3.4%, without taking into account the 1% annual fees.
Overall, it looks like the real estate industry got ahead of the S&P 500 during that decade. This makes sense, since real estate is an industry that gives you a certain amount of control.
If you have any questions or feedback about this topic, I’d love to hear from you. Feel free to reach out to me anytime.