Posted by — Andy 3 Comments Posted in Market Analysis. Market News

Which is a better investment today? Stocks, or Real Estate? History provides the best road-map of the future the most recent similar period occurring in the 1970s and the implications are awesome

Heres a chart comparing the performance of the DJIA (a good metric for stock performance) over the last few years to that in the late 1960s and early 1970s. It is remarkable to see how closely correlated the two periods are:

Dow Jones Industrial Average, Inflation Adjusted

If we assume that history will repeat itself, weve started an 18 month period of significant market gains, followed by a period of stabilization.

Now, take a look at housing market data over the same period REMEMBER, housing boomed in the late 1960s and then bust big-time in the early 1970s. Ring a bell? Heres that graph:

Housing Prices: 1975 to 2001, Inflation Adjusted

Now, and please forgive my Photoshop skills, heres what the two graphs look like superimposed on top of each other note that both are inflation adjusted, and are scaled to fit the time axis.

Historical DJIA and House Prices, Inflation Adjusted

Compelling? You bet it is! The fact is that, if history repeats itself (which it seldom doesnt), ROI in real estate will vastly outperform ROI in stocks.

UPDATE. A commenter suggested that interest rates are the big difference this time and that higher rates over the next few years will buck the trend Thats an interesting argument, but again, lets look at the history books!

I threw some historical and modern interest rates on the graph. You can see that house prices appreciated despite massive interest rate hikes in the 1970s, the same type of interest hikes that are generally anticipated today.

Historical DJIA and House Prices and Interest Rates, Inflation Adjusted

I encourage everyone to show this posting to potential buyers and to syndicate it to your websites blog.

One final note: All the doom and gloom news likes to focus on the negative side of the industry, but the fact is that most industries are subject to cyclical behavior and occasionally need to correct. After the correction, which we have experienced over the last two years, most industries once again offer great investment opportunities.

It reminds me of a good quote by George Bernard Shaw. a famous Irish playwright: We learn from history that we learn nothing from history.