Real Estate vs. the S&P 500: How Prices and Returns Compare Nationally and in Boston
A case study into whether the opportunity cost of homeownership even makes sense.
I am naturally data-driven to a fault, and the analysis stage has a way of hampering the doing stage. This time I am making a concerted effort to move straight into the home-buying journey and act on imperfect information.
Before I do, I want good priors. This post is my attempt to square the opportunity in real estate against my preferred wealth-building vehicle, the stock market.
National Home Prices
National home prices have grown steadily for over fifty years, but the story changes once you adjust for inflation. Since 1970, homes have appreciated about 5.4% a year in nominal terms, per the Case-Shiller index and Freddie Mac. Adjusted for inflation, real appreciation drops to roughly 1.5% to 2% a year: home values track inflation closely, plus a small premium. The post-2008 recovery was strong, with prices rising 60% to 70% between 2012 and 2023 per FHFA data.
The drivers are familiar ones: population growth and household formation, a housing shortage worsened by slow construction, and the long stretch of cheap mortgages that ran from 2008 until 2022. This is common knowledge, but it confirms a useful baseline prior: real estate broadly rises over time.
Boston Outpaces the Nation
Boston has consistently beaten the national numbers. Since the 1980s the market has appreciated 6% to 7% annually per NeighborhoodScout. Over the last decade prices nearly doubled, from a median around $350,000 in 2012 to roughly $700,000 in 2023 per Redfin, with some neighborhoods stronger still. The average price hit $840,000 in 2024, up 5.1% year over year.
The reasons hold up under inspection: education, healthcare, and biotech anchor demand while limited land and restrictive zoning constrain supply. Historical data rarely predicts the future, but recent trends backed by fundamentals like these are a useful data point, and they improve my baseline.
Returns, Side by Side
On raw returns the stock market wins. Since 1950 the S&P 500 has averaged about 10.26% annually in nominal terms, roughly 7% after inflation, with plenty of ugly years mixed in. National housing's 5.4% nominal (1.5% to 2% real) does not compete on that axis, and housing has its own cycles too, 2008 being the obvious collapse. Long term, both assets have always worked out so far.
Leverage Changes the Math
The difference is that almost nobody buys property outright. Put 20% down, or $100,000, on a $500,000 property, and a 5% appreciation year produces a $25,000 gain. That is a 25% return on the cash you invested.
Leverage cuts both ways. A small price decline magnifies losses just as efficiently, and interest, taxes, and maintenance eat into returns the whole time. Stocks can be leveraged as well: one of my favorites, which I do not recommend for the average investor given the leveraged losses, high expense fees, and beta decay, is TQQQ, the 3x Nasdaq packaged into an easy-to-use ETF.
The Takeaway
The S&P 500 wins on long-term growth, liquidity, and passive investing. Real estate offers amplified returns through leverage, relative stability, tax advantages, and the plain utility of a tangible asset. In a city like Boston, where appreciation combines with strong rents, leveraged real estate can hold its own against stocks.
My current plan leans into exactly that: an FHA-style purchase at 3.5% to 5% down. Call it 5.5% to 7% once closing costs are added, which works out to 14x to 18x leverage. On a conservative 4% Boston growth assumption, that pencils to a simplified first-year return of 50% to 70% on invested cash. Not bad, for a starting prior.
Sources: Case-Shiller Home Price Index, Redfin's Boston housing market data, NeighborhoodScout, Investopedia's S&P 500 return history, FHFA home price trends, in2013dollars.
