BY JAMES ROYAL, BANKRATE.COM
Stocks have long been the most glamorous of the major asset classes. Many a Hollywood film has centered around making fast money in the stock market and becoming a Wall Street big shot.
But despite their great long-term returns — they’ve averaged about 10% annually for decades — stocks are no longer Americans’ favorite long-term investment. What is? According to a nationwide Bankrate survey, it’s real estate.
Years after a housing crash that left the economy hurting, many Americans still see real estate as their top pick. Some 31% of survey respondents named real estate as their favored investment for money that they wouldn’t need for 10 years or more. It’s the best showing for real estate in the seven years that Bankrate has conducted the survey.
In 2018, stocks were the most popular investment. But this year they ran a distant second, with 20% of respondents naming stocks their top pick for holding periods of more than a decade.
Cash investments, such as savings accounts and CDs, ﬁnished third at 19%, while gold and other precious metals earned 11%. Americans picked bonds as their top long-term investment 7% of the time, while bitcoin and other cryptocurrencies were favored by 4%. Meanwhile, 5% of respondents said that none of these options were the best way to invest.
MILLENNIALS ARE MOST DRAWN TO REAL ESTATE INVESTING
While some commentators have bemoaned the fact that millennials seem unwilling to buy housing, it’s not for lack of desire. Millennials in total scored the highest (36%) among all age groups
in their preference for real estate as a long-term investment.
While millennials might be the most drawn to property, real estate still remained the most popular investment among all generations, from millennials to Generation X (31%), as well as baby boomers (30%) and the Silent Generation (23%).
“Millennials are higher on real estate than any other age group, have cooled a bit on cash, and still aren’t keen on the stock market when investing for more than ten years,” says Greg McBride, CFA, Bankrate chief ﬁnancial analyst.
Strikingly, the preference for real estate is virtually identical in all
four income categories surveyed by Bankrate. Between 32 and 34% of the time it was the top investment choice for those who reported earning more than $75,000 per year; between $50,000 and $75,000; between $30,000 and $50,000; as well as less than $30,000.
Home — or least, real estate — is where the heart is for Americans.
STOCKS MORE POPULAR AMONG HIGHER EARNERS
While real estate outdistanced stocks in each age and income demographic, stocks were more popular with higher earners compared to those with lower incomes. In fact, stocks were two and almost three times as popular with the highest income groups in the Bankrate survey.
For the two groups with incomes of at least $50,000, stocks were their top pick 28% and 29% of the time, just behind real estate. For the two groups earning less than $50,000 annually, stocks were their top pick only 15% and 11% of the time.
In fact, the higher a respondent’s earnings, the more likely the choice of their favored investment was stocks.
Meanwhile, lower-income households showed a higher preference for cash investments such as savings accounts and CDs (22%), as well as for gold and other precious metals (12-17%).
CRYPTOCURRENCY MOST POPULAR AMONG YOUNGER INVESTORS
One notable result, though perhaps not surprising, is the extent to which younger generations prefer bitcoin and other cryptocurrencies.
Millennials picked cryptocurrencies as their top long-term investment about 9% of the time — about triple the rate of Generation X. Earlier generations had negligible numbers of respondents selecting virtual currency as their top choice.
While many investors have written off cryptocurrencies, one of the world’s largest companies is setting up a project that may disrupt some more traditional payment networks. Social media giant Facebook is in the process of creating a virtual currency called Libra that may potentially be cheaper than traditional payment services. (Here’s what Libra is and how it works.)
DECLINING INTEREST RATES MAY NOT AFFECT INVESTING DECISIONS
The Federal Reserve has hinted that it may be open to cutting interest rates, and investors have been nearly unanimous in expecting a rate cut in recent weeks. With that as a backdrop, the survey also questioned Americans about how the expected decrease in U.S. interest rates would play into their investment decisions.
The surprising result is that declining rates would appear to have little effect at all. Declining rates are not likely to move them to invest in the stock market, borrow money or put money into savings accounts or CDs, say respondents.
“A Fed interest rate cut is unlikely to inﬂuence how consumers manage their ﬁnances,” says McBride. “Only a minority of Americans say they would save more, invest more, or borrow more as a result.”
For example, just 40% of respondents said they would be more likely to move money into cash investments such as savings accounts and CDs in response to declining rates.
Only 26% said they would be more likely to borrow more money in response to falling rates. Meanwhile, just 33% of respondents said they were likely to invest in the stock market as rates fell.
But the responses varied by income level. For example, households earning less than $50,000 were more likely (37-49%) than high-income households (31-33%) to move money into bank products as rates fell. The lower the income, the more likely the respondent was to move assets into the bank.
WHAT SHOULD INVESTORS DO TO MEET THEIR GOALS?
While a person should choose the investment that works best for their own individual situation, there are smart ways of accomplishing your goals regardless of what you choose — stocks, bank accounts, bonds or something else entirely.
If you’re moving your assets to a bank, then it makes sense to ﬁnd a bank that offers higher yields. An online bank can offer many of the beneﬁts of a brick-and-mortar rival, while still paying much higher interest rates.
Similarly, if you’re looking to move into stocks, you should consider a broker that meets your needs, not necessarily the cheapest or the ﬂashiest. For example, many brokers offer research and education, including research reports, that help when making investment decisions.
Bankrate commissioned SSRS to conduct the survey. All ﬁgures, unless otherwise stated, are from SSRS. Total sample size was 1,015 respondents. Fieldwork was undertaken on June 25-30, and the survey was carried out via telephone. Data are weighted to represent the target population, and margin for error for total respondents is 3.35% at a 95% conﬁdence level.
Other than the housing-led Great Recession, recent national and statewide recessions have not caused widespread home value declines
- U.S. home values plummeted during the Great Recession, but broadly continued to rise faster than inflation during the dot-com crash in 2001.
- Excluding the Great Recession, annual home value appreciation across all states since 1997 has averaged 4.6% during times of economic growth and 4% during recessions.
Aug 6, 2019
SEATTLE, Aug. 6, 2019 /PRNewswire/ -- Other than the housing-led Great Recession of the late 2000s, home values have typically continued to grow through national and statewide recessions over the past quarter-century. This according to a new analysis by Zillow®.
The U.S. reached its longest-ever economic expansion this summer, though growth is slowing. A recent survey sponsored by Zillow and conducted by Pulsenomics LLC found that a panel of housing experts and economists most often expect the next recession to begin in Q3 2020. Demand for homes is expected to cool during the next recession, but few believe a housing slowdown will be a significant factor in causing it.
As some market observers predict a recession on the horizon, an analysis of recessions from the recent past shows that they often have a limited effect on the housing market. In the past 23 years, there have been two national recessions – the dot-com crash from March to November 2001 and the Great Recession from December 2007 to June 2009i – and several statewide or regional recessions ii. Home values broadly fell across the country during the Great Recession, but in most other cases annual home value growth remained positive.
Excluding the Great Recession, there have been 1,039 instances since 1997 of states being in a recession during a given month. Annual home value appreciation was positive 81% of the time in these months – an identical rate to months in which states were in economic expansion. Appreciation averaged 4.6% during economic growth and 4% during recessions. This indicates that while recessions do have an impact on the housing market, the widespread collapse of home values during the Great Recession is an outlier.
"The housing crash during the Great Recession left a lasting impression on our collective memory," said Zillow Economist Jeff Tucker. "But as we look ahead to the next recession, it's important to recognize how unusual the conditions were that caused the last one, and what's different about the housing market today. Rather than abundant homes, we have a shortage of new home supply. Rather than risky borrowers taking on adjustable-rate mortgages, we have buyers with sterling credit scores taking out predictable 30-year fixed-rate mortgages. The housing market is simply much less risky than it was 15 years ago, and our experience in recent localized recessions shows how home prices can weather normal economic headwinds."
As an example, several states with large energy sectors – Alaska, Louisiana, North Dakota, Oklahoma and Wyoming – experienced local recessions starting in 2015 when oil prices fell dramatically. Home value growth was positive year-over-year across all five states and only Alaska turned negative month-over-month during this time period – the largest monthly loss in value for the median home in Alaska was $700. Nationwide, annual home value growth averaged 4.3% during these recession months compared to 5.2% average growth during months of economic expansion in 2015 and 2016.
Zillow® is transforming how people buy, sell, rent and finance homes by creating seamless real estate transactions for today's on-demand consumer. Zillow is the leading real estate and rental marketplace and a trusted source for data, inspiration and knowledge among both consumers and real estate professionals.
Zillow's proprietary data, technology and industry partnerships put Zillow at nearly every major point of the home shopping experience, helping consumers search for and get into their new home faster. Zillow now offers a fully integrated home shopping experience that includes access to for sale and rental listings, Zillow Offers®, which provides a new, hassle-free way to buy and sell eligible homes directly through Zillow; and Zillow Home Loans, Zillow's affiliated lender that provides an easy way to receive mortgage pre-approvals and financing. Zillow Premier Agent instantly connects buyers and sellers with its network of real estate professionals to help guide them through the home shopping process. For renters, Zillow's innovations are streamlining the way people search, tour, apply and pay rent for leased properties.
In addition to Zillow.com, Zillow operates the most popular suite of mobile real estate apps, with more than two dozen apps across all major platforms. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG) and headquartered in Seattle.
Zillow and Zillow Offers are registered trademarks of Zillow, Inc.
i Dates according to the National Bureau of Economic Research.
ii The Bry-Boschan method was used to estimate statewide recessions, based on monthly State Coincident Indexes published by the Federal Reserve Bank of Philadelphia. In this analysis, we allowed for a minimum business cycle of 12 months and a six-month threshold for each phase of the business cycle. We then reviewed Zillow Home Value Index movements at the state-month level during these estimated statewide recessions to assess what has historically happened to home values during recessions.
For further information: Alex Lacter, Zillow, email@example.com